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ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.1225 OF 2022
1. Bajaj Energy Limited, having its office at 2nd floor, Bajaj Bhawan, Jamnalal Bajaj Marg, 226 Nariman Point, Mumbai-400 021. …Petitioner
2. Additional/Joint/Deputy/Assistant, Commissioner of Income Tax/ Income-tax
Officer, National Faceless Assessment
Centre,Delhi.
3. Union of India, Through the Secretary, Department of Finance, Ministry of
Finance, Government of India, North Block, New Delhi-110 001. …Respondents
Mr. Jeet Kamdar, i/by Mr. Sameer G. Dalal, for Petitioner.
Mr. Akhileshwar Sharma, for Respondents-Revenue.
DATED : 23rd January 2024.
JUDGMENT
1. Rule. Heard the parties finally by consent. Rule is made returnable forthwith.
2. Petitioner assails order dated 21st January 2022 rejecting the objections raised by Petitioner to the notice of Respondents conveying reasons to believe that income has escaped assessment. Petitioner also assails notice dated 31st March 2021 issued by Respondents under Section 148 of the Income Tax Act, 1961 (“Act”) seeking to reopen the assessment for Assessment Year (“AY”) 2016-17 and other consequential relief.
3. Petitioner is a company registered under the Companies Act, 1956, engaged in the business of power generation. Respondent No.1 is the Assistant Commissioner of Income Tax having jurisdiction over Petitioner. Respondent No.2 is the National Faceless Assessment Centre set up by the Central Board of Direct Taxes ("CBDT") and Respondent No.3 is the Union of India.
4. Petitioner filed its return of income for AY 2016-17 on 27th September 2016 declaring a total income of Rs.1,24,47,75,691/- and Rs.1,68,00,96,627/- under the provisions of Section 115JB of the Act. Respondent No.1- Assessing Officer (“AO”) issued a notice dated 17th July 2016 under Section 143(2) of the Act, selecting the case of Petitioner for scrutiny assessment. Petitioner by its letter dated 4th August 2017 provided all the required details and documents to the AO including audited accounts, tax audit report, return of income and computation of income. The AO by another notice dated 10th May 2018 raised specific queries and sought further details/documents from Petitioner. Petitioner by its letter dated 20th June 2018 responded with details and documents as sought by the AO followed by letters dated 2nd July 2018 and 16th July 2018 specifically providing party wise details of expenses and details of other investments as required by the AO. Relying upon the information provided by Petitioner, an assessment order dated 20th July 2018 was passed under Section 143(3) of the Act determining the total income of Petitioner to be Rs.123,38,96,585/-. Petitioner sought rectification of an error apparent on record in the assessment order and the AO passed the said order under Section 154 r/w Section 143(3) of the Act and granted credit of tax deducted at source.
5. The AO issued a notice dated 31st March 2021 under Section 148 of the Act stating that the AO had reasons to believe that Petitioner’s income for AY 2016-17 has escaped assessment. While filing the return of income on 24th April 2021, Petitioner also requested the AO to furnish a copy of the reasons recorded for reopening the assessment. The reasons were provided by notice dated 22nd November 2021 to which Petitioner took objections, but the objections came to be rejected by order dated 21st January 2022. It is this order, which is assailed by Petitioner along with notice of 31st March 2021 seeking to reopen the assessment for AY under consideration. Further notices dated 3rd February 2022 and 8th February 2022 were issued under Section 142(1) of the Act calling upon Petitioner to submit its response. Petitioner has thus, filed the present Writ Petition.
6. Mr. Jeet Kamdar, learned counsel appearing for Petitioner, objects to the reopening of assessment essentially on the ground that Petitioner had provided information regarding all the queries raised by the AO and it is only after satisfying himself regarding all the information that the original assessment order was passed. He contends that there are no reasons to believe that income has escaped the assessment and the reopening is based on a mere change of opinion of the AO, which is impermissible in law.
7. Mr. Kamdar raises the following objections: (1) The impugned notice and the order are invalid, improper and without jurisdiction on the ground that the reasons to believe escapement based on a mere suspicion do not constitute a reason to believe. The queries raised by the AO and answered by Petitioner by letters dated 20th June 2019, 2nd July 2019 and 16th July 2018 clearly show that not only was the entire material before the AO but he had applied his mind to the details and accepted the claim of Petitioner. (2) The details of expenses and investments relating to earning of exempt income were accepted by the AO and after conducting relevant inquiries the assessment order was passed. Thus, re-evaluation of the same facts by the AO tantamounts to a change of opinion which is not permitted by law. (3) In the absence of any tangible material indicating escapement of income, the AO cannot exercise the power of reassessment. (4) The details pertaining to disallowance of expenses as per Section 14A r/w Rule 8D was already submitted in the course of the original assessment proceedings and hence, the AO cannot exercise the power of reassessment in the garb of review. (5) Reassessment proceedings initiated within four years from the end of the relevant assessment year is untenable considering that there is no new fact or tangible material coming to the possession of the AO and thus, reopening the assessment on the basis of very same material is a mere change of opinion. (6) The onus on Petitioner is only to disclose primary facts and not inferential facts. (7) The notice under Section 148 of the Act is not concerned is not a proper sanction. Petitioner thus, urges us to quash and set aside the order and the notice impugned herein.
8. Mr. Akhileshwar Sharma appears for the Revenue and contests the petition on merits. He contends that Petitioner has made investments from a common pool of funds and incurred common administrative and other expenditure, debiting it to the P & L Account thereby attracting the provisions of Section 14A of the Act. He states that expenses attributable to exempt income worked out in accordance with Rule 8D are to be disallowed in view of CBDT circular dated 11th February 2014. To buttress his point, he places reliance upon the decision of the Income Tax Appellate Tribunal (“ITAT”), Special Bench, Mumbai in the case of Daga Capital and also on the decision of this Court in the case of Godrej & Boyce Manufacturing Co. Limited v. Deputy Commissioner of Income Tax, Range 10(2), Mumbai and Anr.2. He further cites a decision of the Supreme Court in the matter of Raymond Woolen Mills Limited v. Income Tax Officer & Ors.[3] and in the case of Kalyanji Mavji and Company v. CIT, West Bengal-II[4] to buttress his argument that information may be obtained even from the record of the original assessment and such an action is not based on mere change of opinion. 1 117 ITD 169(Mumbai) 2 ITXA No.626 of 2010 in WP No.785 of 2010 (Unreported). 3 (1999) 236 ITR 34 (S.C.) 4 102 ITR 287 (SC)
9. Mr. Sharma, drawing our attention to the affidavit-in-reply filed on behalf of the Respondents, contends that an audit objection raised by the Revenue Audit Party prompted the AO to form an opinion on the basis of which the reassessment was initiated, but he was quick to concede that this was neither a part of the reasons recorded for reopening or order rejecting objections of Petitioner or was this information communicated to Petitioner in any communication between the parties. Mr. Sharma also stands by the sanction obtained from the Principal Commissioner of Income Tax-3, Mumbai, approving issuance of notice dated 31st March 2021 by the AO under Section 148 of the Act. He thus justifies reopening of assessment of income of Petitioner as legally tenable and urges the Court to dismiss the petition.
10. It is settled law that reopening of assessment proceedings on the basis of escapement of income is not permissible on the ground of change of opinion of the AO. Once a query is raised during assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query itself. This Court in its decision in the matter of Aroni Commercials Limited v. The Deputy Commissioner of Income Tax and Another[5] has expounded the law in this regard. Paragraph 14 of the said decision reads as thus, “14)……….We are of the view that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. If an Assessing Officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceeding even where he is satisfied then it would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under Section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Officer and it is not open to an assessee to insist that the assessment order must record all the questions raised and the satisfaction in respect thereof of the Assessing Officer. The only requirement is that the Assessing Officer ought to have considered the objection now raised in the grounds for issuing notice under Section 148 of the Act, during the original assessment proceedings. There can be no doubt in the present facts as evidenced by a letter dated 8 September 2012 the very issue of taxability of sale of shares under the head capital gain or the head profits and gains from business was a subject matter of consideration by the Assessing Officer during the original ASN 19/23 WP-137-14.sxw assessment proceedings leading to an order dated 12 October 2010. It would therefore, follow that the reopening of the assessment by impugned notice dated 28 March 2013 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding leading to the order dated 12 October 2010. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.”
11. A Three Judges Bench of the Supreme Court in Commissioner of Income Tax, Delhi v. Kelvinator of India Limited[6], after considering the previous decisions in Phool Chand Bajrang Lal and Others v. 5 [2014] 362 ITR 403 (Bom). 6 2010(1) SCR 768. Income Tax Officer and Others[7], restated the correct position pertaining to change of opinion as follows: “5....where the Assessing Officer has reason to believe that income has escaped assessment, the section confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "'mere change of opinion', which cannot be per se reason to re-open.
6. One must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess, but the re-assessment has to be based on fulfillment of certain pre-conditions and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place.
7. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to re-open, provided there is "tangible material" to come to conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief.”
12. From the settled legal position ascertained from the various decisions of this Court and the Apex Court, it is clear that the basis for valid reopening of assessment should be availability of tangible material, leaving the AO to scrutinize the returns for the assessment year in question to determine whether a notice under Section 147 of the Act is called for. In the present case, the queries raised by the AO in the course of the original assessing proceedings followed by replies given by the Petitioner clearly show that the entire material was 7 1993 Suppl. (1) SCR 28. before the AO and applying his mind to the said material, the AO has passed the Assessment Order dated 20th July 2018. The statement of accounts regarding details of expenses and investment relating to earning of exempt income was accepted by the AO. The letter dated 4th August 2017 issued by Petitioner alongwith the financial statements, on record indicates that all queries raised by the AO by its letter dated 19th July 2017 were answered. Similarly, paragraphs 7, 9 & 12 of letter dated 20th June 2018 of Petitioner in response to a letter dated 10th May 2018 issued by the AO under Section 142(1) of the Act read as thus, “7.In Notice your good self have asked for details of expenses incurred in relation to earn exempt income. In this regard, the company had not earned any exempt income during the year and hence disallowance of expenses as per section 14A r.w.r 8D is not applicable. Further the company had Reserves of Rs. 1111.78 crores and Share Capital of Rs. 41.18 crores which is more than adequate to cover the investments of Rs. 634.33 crores made by the company. Hence disallowance u/s. 14A is not warranted.
9. Party wise details of unsecured loan along with of Balance Confirmation as on 31.03.2016 are enclosed herewith as Annexure “F”.
12. In the Assessment Orders u/s 143(3) of the Income Tax Act, 1961 for AY 2012-13, AY 2013-14 & AY 2014-15 the returned income was accepted as assessed income and there were no disallowances. Refer Annexure “E”.”
13. Petitioner issued another letter dated 16th July 2018 also bringing to the notice of the AO the substantive answer to the contention of AO regarding disallowance of expenditure. Paragraph 2 of the said letter reads as thus, “2.The assessee co. has also made investment in Lalitpur Power Generation Co. Ltd. (“LPGCL ”) (1980 MW Super Critical Thermal Projects), which is engaged in the business of generation of power. Out of the total investments of Rs. 711.37 crores as reflecting the Balance Sheet as on 31 March 2016, the investments in group companies (LPGCL) is Rs. 634.33 crores. It may be noted from the investment schedule that the assessee co. has made investments with a view to hold controlling interest in power generating company and not for the purpose of earning dividend income. Such investments are held with a long-term objective of holding strategic interest in the above group companies. Further, it is submitted that the aforesaid investments do not require day-to-day monitoring and accordingly no expenditure is attributable to the earning of exempt income therefrom. Accordingly, it is humbly submitted no disallowance ought to be made in respect of investment in group companies.”
14. The aforesaid detailed information was in the know of the AO while passing the original assessment order dated 20th July 2018 as well as the computation sheet of the same date. The AO is now not within his rights to claim that he has a reason to believe that taxable income by virtue of an incorrect claim of expenses has escaped assessment within the meaning of Section 147 of the Act. The objections taken by Mr. Sharma justifying the reliance of the AO on a CBDT circular dated 11th February 2014 mandating such disallowance whether there is an exempt income or not from the investments is untenable since no such objection was taken at the time of issuance of original assessment order on the same information which was within the knowledge of the AO even on that date.
15. Mr. Sharma’s contention regarding reopening of assessment on the basis of an audit objection is only to be rejected for the very reason that the said ground has been admittedly taken for the very first time in the affidavit-in-reply and was not taken in the reasons to believe and never communicated to Petitioner in any of the correspondence between the parties.
16. The ‘reasons to believe’ forming part of Section 147 of the Act in this case, clearly points to the fact that the reopening of assessment was based on the information accessible by the AO. There is no tangible material available with the AO to justify reopening of assessment of income. Considering all the facts in the present matter and the settled legal position, we have no hesitation in holding that the reopening of assessment of Petitioner’s income by the AO is only on the basis of a change in his opinion, which is impermissible in law. Petition thus deserves to be allowed.
17. Rule is made absolute in terms of prayer clause (a), which reads as thus, “a. this Hon’ble Court may be pleased to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records of the Petitioner’s case and after examining the legality and validity thereof quash and set aside the notice dated March 31, 2021 (Exhibit- ‘L ’) (together with consequential notices and orders) issued by Respondent No. 1 under Section 148 of the Act seeking to reopen the assessment for AY 2016-17 and the order dated January 21, 2022 issued by Respondent No. 2 (Exhibit- ‘R’).”
18. There will be no order as to costs. (DR.
NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)