HIGH COURT OF
Siemens
Informations Systems Ltd.
v.
Assistant Commissioner of Income-tax
F.I. REBELLO
AND R.V. MORE, JJ.
WRIT PETITION
NO. 2386 OF 2006
October 11,
2007
Section 148, read with sections 10A and 10B, of the
Income-tax Act, 1961 - Income escaping assessment - Issue of notice for -
Assessment year 2001-02 - Whether mere change of opinion on an interpretation
of a provision by itself without anything more, cannot form basis of reopening
a completed assessment - Held, yes - For relevant year, Assessing Officer
allowed deduction under section 10A and 10B in respect of profits derived by
assessee from various eligible undertakings and loss suffered by assessee in
respect of operations of other units was allowed to be carried forward - For
subsequent assessment year, a different Assessing Officer held that losses
incurred in units which were not eligible for deduction under sections 10A and
10B had to be first set off against profits of units which were eligible for
deduction and only balance profits were eligible for deduction - Based on this
finding and further on basis of Tribunal’s decision in Navin Bharat
Industries Ltd. v. Dy. CIT [2004] 90 ITD 1 (Bom.) TM, Assessing Officer formed belief that
assessee’s income for assessment year 2001-02 had escaped assessment and,
accordingly, he issued notice under section 148 - Whether when accounting
system was same and return were filed in manner prescribed by form, merely
because second Assessing Officer differed with opinion of earlier Assessing
Officer on interpretation of provision without any other additional material,
he was not entitled to assume jurisdiction to issue a notice under section 148 -
Held, yes - Whether further, since judgment relied upon by Assessing Officer
was not an authority for proposition as to whether losses covered by section
10A could be set off against profits of other business income of assessee or
vice-versa, that judgment could not also give rise for “reason to believe” -
Held, yes - Whether, thus, both reasons cited by Assessing Officer to issue
notice were non-existing and/or merely a change of opinion and, consequently,
impugned notice was liable to be quashed - Held, yes
FACTS
During the
assessment year 2001-02, the assessee had set up several undertakings, the
profits whereof were eligible for deduction under section 10A. The assessee had also a 100 per cent
export-oriented unit, whose profits were eligible for a deduction under section
10B. Besides, the assessee also had some
units whose profits were not eligible for any deduction. In its return of
income for assessment year 2001-02, the assessee claimed deductions under
section 10A as also under section 10B in respect of the profits derived from
the various undertakings and the loss that was suffered by the assessee in
respect of the operations of its other units was sought to be carried forward
to subsequent years. The Assessing
Officer accepted the methodology adopted by the assessee in computing the
deductions and completed the assessment.
Subsequently,
for the assessment year 2003-04, where the assessee had made similar claims, a
different Assessing Officer took the view that the losses incurred in the units
which were not eligible for deduction under sections 10A and 10B had to be
first set off against the profits of the units which were eligible for
deduction and only the balance profits would be eligible for deduction under
section10A. Based on this view and also
on the basis of a decision of the Bombay Bench of the Tribunal in Navin
Bharat Industries Ltd. v. Dy. CIT [2004] 90 ITD 1, the Assessing
Officer formed the belief that the assessee’s income chargeable to tax had
escaped assessment for the assessment year 2001-02 and, accordingly, he issued
notice under section 148. The assessee
objected to the validity of the reassessment proceedings, and submitted that
the Assessing Officer hearing the original assessment proceedings, having
allowed the assessee’s claim it was not open to a succeeding officer to come to
a different conclusion based merely on a change of opinion. The assessee also pointed out that the said
decision of the Tribunal relied upon by the Assessing Officer was completely
distinguishable. The Assessing Officer,
however, held that the deduction under section 10A was to be allowed only to
the extent of profits available as held in the assessment year 2003-04.
On writ:
HELD
When a
challenge is made to a notice under section 148, what the Court is required to
examine is whether material exists on record for the Assessing Officer to form the
requisite belief. Mere change of opinion
cannot form the basis of reopening a completed assessment. [
It is open to
the Assessing Officer to issue a notice for reassessment provided there are
reasons to believe’. In the instant
case, the reasons to believe were firstly based on the purported finding that
losses incurred in the units which were not eligible for deduction under
sections 10A and 10B had to be first set off against the profits of the units
which were eligible for deduction and only the balance profits would be
eligible for deduction under section 10A.
Insofar as this reason was concerned, it clearly established that the
second Assessing Officer had disagreed with the approach of the Assessing
Officer who had made the assessment for the assessment year 2001-02 and had
accepted the assessee’s method of accounting.
It was not the case of the revenue that any material had been suppressed
and/or not disclosed and/or new material had come to the attention and/or audit
party in the course of audit found that the method followed by the assessee was
illegal or that this Court or the Supreme Court had taken a view on the
issue. The second Assessing Officer on
the construction of the provisions was of the opinion that the interpretation
of the provisions as held by him was the correct view. It was to be seen whether that could be said
to be a valid reason to believe. [
The accounting
system was the same. The returns had
been filed in the manner prescribed by the form. Therefore, merely because the
second Assessing Officer differed with the opinion of the earlier Assessing
Officer on the interpretation of the provision without any other additional
material, he was not entitled to assume jurisdiction to issue a notice under
section 148. Such a belief would amount
to a mere change of opinion. The remedy
in such a case would be to invoke or resort to the other applicable provisions
of the Act. If the Assessing Officer
does not possess the power of review, he cannot achieve that object by
initiating a proceeding for reassessment or by way of rectification of mistake.
A mere change of opinion on an interpretation of a provision by itself without
anything more, cannot give rise to ‘reason to believe’. The power of reopening an assessment has been
conferred by the Legislature not with the object of enabling the Assessing
Officer to reopen the full declaration made against the revenue in respect of
questions raised that arose directly for consideration in the earlier
proceedings. If that were not the legal
position, it would result in placing unrestricted powers of review in the hands
of the assessing authorities depending on their changing moods. [
The other
reason given for ‘reason to believe’ was the judgment in Navin Bharat Industries’
Ltd.’s case (supra). The said
judgment is not an authority for the proposition as to whether losses suffered
being undisputedly covered by section 10A as it then stood could be set off
against profits of other business income of the assessee or vice versa. Therefore, that decision by itself or in
conjunction with a change of opinion as to the true construction of a provision
could not also give rise for ‘reason to believe’. [Paras 25 and 26]
Therefore,
both the reasons cited by the Assessing Officer to issue notice, either based
on the opinion of the Tribunal in Navin Bharat Industries’ Ltd.’s case (supra)
or on his interpretation of the provisions, were non-exiting and/or merely a
change of opinion and same could not constitute ‘reasons to believe.’ [
Accordingly,
the writ petition was to be allowed.