When assessee’s claims were not rejected during original assessment even after scrutiny, any attempt to reopen same would amount to mere ‘change of opinion’: HC

claims were not rejected during original assessment

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AHMEDABAD: THE ISSUE IS – Whether when the assessee’s claims were not rejected during the original assessment even after detailed scrutiny, any attempt to reopen the same would amount to mere ‘change of opinion’. YES IS THE VERDICT.

Facts of the case:

The assessee is an electricity company wholly owned by the Government of Gujarat. For the AY 2010-2011, the assessee had filed its e-return showing nil income after set off of brought forward losses under normal computation and income of Rs. 32.11 Crore for the MAT provisions u/s 115JB. Consequent to the same, the assessee’s case was selected for scrutiny, wherein it was seen that the assessee had shown capital gain/subsidy of Rs. 52,837.79 lacs at the year end. Out of this, the assessee had offered only 10% of the grant received from the Central/State Government as revenue receipt and deferred the remaining grant to 10 years. The AO took the view that in accordance with the Accounting Standard 12 and provision of Section 43(1), the assessee had to transfer 15% grant received from Central/State Government instead of 10%. Accordingly, he added Rs. 26,41,88,950/- to the total income under normal provision. In view of the same, since Rs. 26,41,88,950/- was not added to the Book Profit u/s 115JB, the AO had reasons to believe that income (book profit) to the tune of Rs. 26,41,88,950/- chargeable to tax had escaped assessment. Accordingly, AO issued reopening notice. Though the assessee raised objections to the notice, they were however rejected by the AO.

High Court held that,

++ it is seen that the reasons nowhere indicate that the income chargeable to tax had escaped assessment due to failure on the part of assessee to disclose truly and fully all material facts. In the plain terms, the AO has proceeded on the basis of material already on record to form a belief that income chargeable to tax has escaped assessment. In fact, during the original assessment, the AO was acutely conscious of the assessee’s treatment of such Government grants and subsidies for the purpose of its tax liability. This was therefore clearly not a case where there was any failure on the part of the assessee to disclose truly and fully, all material facts necessary for assessment.

Thus, all notices which have been issued beyond the period of four years need to be set-aside only on this ground. Adverting to rest of the cases where notices have been issued within a period of four years and also as an additional ground pressed into service in the cases where notices have been issued beyond the period of four years, the assessee’s contention of AO recking up a scrutinized issue, may be examined.

During the original assessment proceedings, the AO asked the assessee to supply three things viz., [a] complete details of deferred Government grants, subsidies and contributions, if the same has been credited in Profit & Loss Account; [b] complete details of Government grants or the Capital deferred amount 10% of which is returned back and Consumer contribution, and [c] Assessee’s working out of Book Profit for the purpose of Section 115JB of the Act. After considering the response of assessee, the AO found no justification furnished by assessee regarding transferring only 10% of the year end balance of the subsidies and grants.

Such subsidies/Grants, received by the assessee, are against Capital Assets in which, it has claimed the depreciation @ 15% and therefore the assessee should have transferred 15% of year end balance of subsidies/grant to the Profit & Loss as its income;

++ finally, the AO worked out the assessee’s book profit u/s 115JB at Rs. 32.11 Crores. It can thus be seen that the AO was of the opinion that instead of 10% of the government subsidy, 15% thereof should be reflected in the assessee’s books of account. He accordingly made such additions in the normal computation of assessee’s income. While the AO was so examining the assessee’s treatment to the Government grants and subsidies, he simultaneously also examined the assessee’s computation of Book-profit u/s 115JB. Both issues were thus clearly interconnected and were not possible for consideration separately.

The fact that the AO did not make any similar upward revision of assessee’s book profit u/s 115JB, that too without citing the reasons, would not mean that he had not examined the issue. The Revenue’s contention could as well be that not making such an addition was an error on the part of AO. The decision of the AO being erroneous, is quite different from the failure of the AO to notice a certain element of taxability.

The former would have to be rectified through the process of revision or suo motu by the CIT(A); if one filed by the assessee. The latter may give rise to reopening of the assessment, subject to fulfillment of other conditions. In the present case, particularly when the assessee itself had carried the issue of upward revision in the normal computation of income, the Commissioner as well could have in such appeal itself suo motu or if so urged by the Revenue, made amends, if there was any error in the order of assessment.

This is however not the case where the AO has not scrutinized the issue. This Court, in case of Gujarat Power Corporation Limited v. ACIT – 2012-TIOL-689-HC-AHM-IT in the context of such circumstances, has observed that where the AO during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition. In view of such discussion, the reopening notices are quashed.

(See 2018-TIOL-927-HC-AHM-IT)

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