Reopening for Change of opinion which is not permissible: Bombay HC
In Dilip Powar Vs. ITO before the Bombay HC, the issue of specified bank notes having been deposited by the assessee during the demonitization period was already examined by the AO in his Order dt. 31st Dec., 2019. AO was alive to the fact that only specified businesses such as hospitals, gas agencies etc. were allowed to transact with the demonetized cash.
AO has accepted the income returned by the assessee after examining the records produced. Record thus shows that in the scrutiny assessment under s. 143(3), the issue of deposit of SBNs by the assessee during the demonetization period has been examined in detail by the AO and the same objection is now raised by the audit party which, would amount to an attempt to review the same issue and consequently come within the fold of change of opinion which is not permissible in accordance with the settled position of law. Petitioner allowed and notice issued under s. 148A is quashed and set aside—Mangalam Publications vs. CIT (2024) 336 CTR (SC) 657 : (2024) 234 DTR 33 (SC) relied on
Further, in this case, the notice for reassessment was alleged to have been issued after a period of three years after the completion of assessment and hence it was also pleaded that it is beyond the period of three years as mandated under s. 148.
It was further stated that the internal audit observation and change of opinion cannot be the sole ground to issue show cause notice under s. 148-A as there have been no new facts noticed in the audit.
DILIP LAXIMAN POWAR vs. INCOME TAX OFFICER
HIGH COURT OF BOMBAY
Judge(s) : M. S. Karnik & Valmiki Menezes, JJ.
Writ Petn. No. 429 of 2024
Date of Decision 30th July, 2024
Source (2025) 9 NYPCTR 344 (Bom)
Statutes referred to :
Income-Tax Act, 1961, s. 148A
Case decided in favour of :
In favour of : Assessee
Counsel appeared :
Sahish Mahambrey, for the Petitioner : Ms Amira Razaq, for the Respondent
JUDGMENT
1. S. Karnik, J. :
Heard Mr Sahish Mahambrey for the petitioner and Ms Amira Razak, learned Standing counsel for the respondent.
2. This petition, under arts. 226 and 227 of the Constitution of India, challenges a notice dt. 19th March, 2024 under s. 148-A of the IT Act, 1961 (said Act for short). The facts of the case in brief are as follows.
3. The petitioner is paralyzed and therefore represented by his wife. The petitioner is running the business of Hardware and Paint (Retail) which is a proprietorship firm in the name and style of Dilip Traders at Naikwado, Calangute, Goa. The petitioner has been filing his income tax returns and paying the necessary tax for more than ten years. The petitioner along with his wife filed returns for the asst. yr. 2017-18. A notice under s. 142(1) and s. 129 of the said Act was issued to the petitioner and upon necessary explanation given by the petitioner and after due verification the assessment was completed by accepting the income return filed by the petitioner vide Assessment Order dt. 31st Dec., 2019 passed under s. 143(3) of the said Act.
4. The petitioner received notice dt. 19th March, 2024 under s. 148-A(b) of said Act stating that the income chargeable to tax has escaped assessment for the asst. yr. 2017-18 and the petitioner was asked to show cause as to why notice under s. 148 of the said Act should not be issued.
5. The petitioner filed response to the show cause notice vide his reply dt. 21st March, 2024 stating that the notice has been received after a period of three years after the completion of assessment and hence, it was beyond the period of three years as mandated under s. 148 of the said Act. It was further stated that the internal audit observation and change of opinion cannot be the sole ground to issue show cause notice under s. 148-A of the said Act as there have been no new facts noticed in the audit.
6. Despite the reply, it is the case of the petitioner that the respondent is conducting the investigation and seeking queries pursuant to the notice dt. 19th March, 2024. Present petition is therefore filed challenging the validity of the notice dt. 19th March, 2024 issued under s. 148-A(b) of the said Act.
7. Ms Amira Razak, learned Standing counsel for the respondent invited our attention to the affidavit-in-reply filed on behalf of the respondent. It is submitted that the assessee filed returns of income on 31st March, 2018 declaring total income of Rs. 11,04,870. She submitted that the case of the petitioner was selected for scrutiny through Computer Assisted Scrutiny System (CASS). It is submitted that the scrutiny assessment was completed on 31st Dec., 2019 under s. 143(3) of the said Act by accepting the return of income of the assessee. Further, the said assessment was audited by the Internal Audit Party on 13th March, 2021 and the said Internal Audit Party raised the objection that the assessee has cash balance of Rs. 6,30,856 as on 8th Nov., 2016 whereas, the assessee had deposited cash of Rs. 71,81,000 in Specified Bank Notes (for short SBNs) during the demonetization period. It is submitted that the business of the assessee was not amongst those which were permitted to receive SBNs currency even after 8th Nov., 2016.
8. Ms Razak further submitted that the assessee is governed by the amended provisions of ss. 147 to 149 w.e.f. 1st April, 2021. She submitted that in terms of s. 148 as amended w.e.f. 1st April, 2021, objection by the Internal Audit Party comes with expression “information with the AO”. Relying on s. 148, Ms Razak submitted that in view of the specific and clear information highlighted by the Internal Audit Party, case of the assessee was examined and taken up under s. 147 and notice under s. 148-A was issued to the petitioner.
9. Ms Razak further submitted that on the basis of the objection by the Internal Audit Party and pursuant to examining the records and due application of mind, notice under s. 148-A(b) of the said Act was issued to the assessee on 19th March, 2024 to show cause as to why a notice under s. 148 of the said Act should not be issued and assessment reopened for the relevant assessment year.
10. It is submitted that the notice under s. 148-A(b) has been validly issued after examining the records pursuant to the audit objection as per cl. (ii) of the Expln. 1 of s. 148 of the said Act, and since the income chargeable to tax i.e. Rs. 66,49,144 exceeds Rs. 50 lakhs, the notice under s. 148-A(b) has been validly issued after the period of three years as per s. 149(1)(b) of the said Act.
11. It is then submitted by Ms Razak that after examining the records and considering the reply of the party to the notice under s. 148-A(b), an Order under s. 148-A(d) of the said Act was passed on 27th March, 2024. It is submitted that the issue raised in the notice of reopening is required to be examined in detail and the present case is not one in which the notice could be quashed at the initial stage in exercise of extraordinary powers of this Court under art. 226 of the Constitution of India. According to Ms Razak, as per the material on record, the case of the petitioner involves escapement of income from the tax net and consequently the income for the relevant assessment year requires to be reassessed. An objection is further raised that the petitioner has an adequate, alternate and efficacious remedy of challenging any order passed under s. 148 by the Faceless Assessment Officer (FAO), who would examine the matter under s. 148.
12. Ms Razak urged that no prejudice would be caused to the petitioner as the petitioner will be able to show all his records and have a full and fair opportunity of hearing before the FAO during the process of reassessment. It is lastly submitted by Ms Razak that grave prejudice will occasion to the interest of public revenue if the income chargeable to tax is allowed to escape assessment by quashing the notices at this preliminary stage without any opportunity of examination by the process of reassessment. Ms Razak was at pains to point out that Expln. 1(ii) of s. 148 which has been introduced by the Finance Act, 2021 w.e.f. 1st April, 2021 supports the contentions of the respondent.
13. The rival contentions now fall for our determination.
14. The relevant portion of s. 148 which deals with the issue of notice when the income has escaped assessment reads thus:
“148 Issue of notice where income has escaped assessment.
Before making the assessment, reassessment or re-computation under s. 147, and subject to the provisions of s. 148A, the AO shall serve on the assessee a notice, along with a copy of the order passed, if required, under cl. (d) of s. 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under s. 139: Provided that no notice under this section shall be issued unless there is information with the AO which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the AO has obtained prior approval of the specified authority to issue such notice: Provided further that no such approval shall be required where the AO, with the prior approval of the specified authority, has passed an order under cl. (d) of s. 148A to the effect that it is a it case to issue a notice under this section.
Expln. 1.- For the purposes of this section and s. 148A, the information with the AO which suggests that the income chargeable to tax has escaped assessment means, – (i)any information (…) in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time; (ii) any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or ….. “
15. Having perused s. 148 of the said Act extracted above, we now seek guidance from the decision of the Hon’ble Supreme Court in Mangalam Publications vs. CIT (2024) 336 CTR (SC) 657 : (2024) 234 DTR (SC) 33 : (2024) 158 com564 (SC), in support of our conclusions. We seek guidance from the observations made therein. Para 35 reads thus :
“35. Kelvinator of India Ltd. (supra) is a case where this Court examined the question as to whether the concept of “change of opinion” stands obliterated w.e.f. 1st April, 1989 i.e. after substitution of s. 147 of the Act by the Direct Tax Laws (Amendment) Act, 1987. This Court considered the changes made in s. 147 and found that prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions i.e., (a) the ITO had reason to believe that by reason of omission or failure on the part of the assessee to make a return under s. 139 for any assessment year or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b) notwithstanding that there was no such omission or failure on the part of the assessee, the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. Fulifilment of the above two conditions alone conferred jurisdiction on the AO to make a re-assessment. But w.e.f. 1st April, 1989, the above two conditions have been given a go-by in s. 147 and only one condition has remained, viz, that where the AO has reason to believe that income has escaped assessment, that would be enough to confer jurisdiction on the AO to reopen the assessment. Therefore, post 1st April, 1989, power to reopen assessment is much wider. However, this Court cautioned that one needs to give a schematic interpretation to the words “reason to believe”, otherwise s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of “mere change of opinion”, which cannot be per se reason to reopen.”
16. In the present case, the issue of specified bank notes having been deposited by the assessee during the demonetization period was already examined by the Assessment Officer in his Order dt. 31st Dec., 2019. The Assessment Officer was alive to the fact that only specified businesses such as hospitals, gas agencies etc. were allowed to transact with the demonetized cash. The AO has accepted the income returned by the assessee after examining the records produced.
17. The objection raised by the Internal Audit Party at Annex. F, p. 53 records: “the AO During the course of assessment proceedings has queries about the sources of SBN currency deposited during the demonetization period. For which, the assesses submitted the sources out of business receipts. The assessee also submitted the cash book which is placed on record. The AO In the concluding paragraph has mentioned that the cash balance as on 8th Nov., 2016 and hence the sources of SBN are duly explained.”
18. The record thus shows that in the scrutiny assessment under s. 143(3), the issue of deposit of SBNs by the assessee during the demonetization period has been examined in detail by the Assessment Officer and the same objection is now raised by the audit party which, in our considered view, would amount to an attempt to review the same issue and consequently come within the fold of change of opinion which is not permissible in accordance with the settled position of law. As indicated earlier, we have relied upon Mangalam Publications vs. CIT (supra) in support of the view that we take.
19. In our opinion, it is not necessary to go into the scope and import of Expln. 1(ii) to s. 148 in the present facts and the same is left open to be examined in an appropriate case.
20. Consequently, the petition is allowed. The impugned notice dt. 19th March, 2024 at Ext. D of the petition under cl. (b) of s. 148-A of the IT Act, 1961 is quashed and set aside.
21. There shall be no order for costs.
