In R/SPECIAL C.A. No. 16916 of 2018-GUJ HC- AO has to form opinion of belief of escapement of income to tax by assessee for reopening assessment; Change of opinion or borrowed opinion cannot form basis for reopening: Gujarat HC
Justices Aravind Kumar &  Ashutosh J. Shastri [02-01-2023]

Read Order: NILA INFRASTRUCTURES LIMITED v. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 

Tulip Kanth

Ahmedabad, January 31, 2023: In a case where the assessee had made adequate disclosures during assessment proceedings, the Gujarat High Court has quashed a Notice for re-opening the assessment and opined that the Authority should have reason to believe that income of the assessee has escaped assessment and such escapement is by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

The Division Bench of Justice Aravind Kumar and Justice Ashutosh J. Shastri asserted, “As such, we have dealt with the said issues and before embarking upon such inquiry, it would be necessary to note that for reopening the assessment, the assessing officer (for short “AO”) has to prima facie form an opinion of belief of escapement of income to tax by the assessee.”

The petitioner had filed its original return of income for the A.Y. 2011-12 on September 27, 2011 declaring total income at Rs 11,99,50,930 and the revised return of income was filed on September 27,2012 declaring total income at Rs 12,02,45,130. The Authority passed an assessment order u/s 143(3) of the Income Tax Act, 1961 assessing the income at Rs 13,64,40,534. Thereafter, the authority issued notice to petitioner u/s 148 and an order came to be passed u/s 143(3) r/w Section 148.The petitioner-Company had invoked extraordinary jurisdiction of the High Court.

It was the petitioner’s case that later on, the respondent issued impugned notice u/s 148 for re-opening the assessment for the A.Y 2011-12. The petitioner - assessee raised multiple objections and requested to drop the reassessment proceedings but an order came to be passed rejecting such objections.

It was the petitioner’s case that the impugned notice issued u/s 148 as well as order disposing of objections, were bad in law, illegal.

The first reason assigned for reopening the assessment concluded u/s 143(3) was that the assessee has debited Rs 4,48,56,594 as interest and financial charges and assessee has paid interest of Rs 60,27,397 to Adani Enterprise, Rs 1,05,22,915 to India Bulls and Rs 92,75,843  to Gruh Finance but had not deducted and paid the TDS on the above amount and hence, there was escapement of income of Rs 2,09,60,183. 

As per the Bench, the records on hand indicated that the assessee had duly deducted and paid the TDS on the above payment and copy of the account of the said parties had been tendered at the time of assessment and along with the objections for reopening. Also, there was material available with the Assessing Officer and the assessee had not suppressed or withheld any information at the time of assessment proceedings and on this score itself the present impugned notice couldnot be sustained, the Bench added.

Also, noticing that the assessee was paying VAT under the composition scheme and said scheme envisaged payment of VAT/service tax on a certain percentage of turnover, the Bench opined that the assessee had followed the system of accounting rightly and claimed service tax/VAT. 

On the issue that the assessee had claimed MAT credit for earlier years and reduced the tax liability to that extent, the Bench opined that though it was specifically contended that there was no prohibition or restriction under Section 115JAA with regard to carry forward and setting off of MAT credit belonging to amalgamating company by the amalgamated company, yet this fact had been completely ignored. 

“In other words, there is no independent finding recorded for reopening and it is trite law that based on borrowed opinion, reopening of the assessment is impermissible”, the High Court mentioned while noticing that the Assessing Officer might have reopened the assessment to fish out evidence which is impermissible.

During the course of the assessment proceedings, assessee had submitted three communications based on which the assessment was sought to be reopened and the Assessing Officer took note of these facts and formed an opinion.

The Bench stated that this opinion was now sought to be substituted and made as a ground for reopening of the assessment which was impermissible as change of opinion cannot be the basis for reopening the assessment. For such reasons, the Civil Application was allowed and the Notice as well as the order were quashed.