By TIOL News Service

CHENNAI, OCT 16, 2015: THE issue is - Whether when re-assessment was initiated after obtaining proper sanction, mere non-mentioning of sanction in Sec 148 notice would be fatal to the proceeding. NO is the answer.

Facts of the case

The assessee is engaged in the business of development and export of software. It had filed the return for A.Y 2007-08 declaring a total income of Rs.29,242/- after claiming an amount of Rs.4,02,37,947 as deduction u/s 10B. The said return was selected for scrutiny and a notice u/s 143(2) was issued. During scrutiny proceedings, the Asst CIT called for various details from time to time. In response to the above notice, the assessee submitted the balance sheet and auditors report, the computation for deduction u/s 10B and Certificate from the CA in Form 56G in support of such deduction. The Asst CIT after discussion and verification of the details furnished by the assessee, completed the assessment u/s 143(3) r/w/s 92CA(4) by accepting the income returned by the assessee. While so, the Dy CIT without obtaining approval from the Chief CIT as required u/s 151, initiated reassessment proceedings u/s 147 by issuing a notice u/s 148. In response to the reasons furnished by the Dy CIT for reopening u/s 147, the assessee filed its objections as regards the jurisdiction to the reopen the assessment and to the reasons for reopening the assessment. However, the ITO rejected such objections.

Having heard the parties, the High Court held that,

++ it is no doubt true that an assessment order once made is ordinarily final. Section 154 confers a power of rectification of mistakes apparent from the record. Section 147 empowers the AO to assess or reassess the income in the circumstances mentioned therein. The power to reopen an assessment u/s 147 is in the nature of an exception to the general principle that an assessment order once made would be final. The power to reopen an assessment is not unbridled or unrestricted and it is subject to the proviso embodied in the section itself. The proviso prescribes restrictions on the power of reopening the assessment by limiting the time period to four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee (i) to submit a return under Section 139, or (ii) to respond to the notices issued under Section 142(1), or (iii) to respond to the notices issued under Section 148, or (iv) to disclose fully and truly all material facts necessary for the assessment of the income for that assessment year. Therefore, it is clear that the aforementioned conditions imposed must co-exist to confer jurisdiction on the AO to reopen the assessment u/s 147. Section 148(2) makes it imperative for the AO to record his reasons before initiating proceedings. Where a notice u/s 147 is to be issued after the expiry of four years from the end of the relevant A.Y, the Commissioner or the Joint Commissioner, as the case may be, should be satisfied on the reasons recorded by the AO that it is a fit case for issue of such notice. Reverting to the case on hand, it is not in dispute that the scrutiny assessment u/s 143(3) was completed on 16.12.2010 and the time limit of four years to invoke Section 147 is till 31.03.2014. It is not in dispute that the impugned notice u/s 148 has been issued on 26.3.2014 proposing to reassess the income for the A.Y 2007-08 since he had reason to believe that the income chargeable to tax for the said A.Y has escaped assessment within the meaning of Section 147. Therefore, when it is clear that the reassessment resorted to by the Dy CIT is within the period of four years, this Court is required to examine whether there any tangible material is exist on record for the AO to form the requisite belief that that the income chargeable to tax, has escaped assessment;

++ it is the case of the Revenue that the assessee is not a domestic company, but it worked out the tax on its distributed profit as per provisions of Section 115-O, which, in fact, applicable only to a domestic company and that it has made expenses in foreign country to the extent of Rs.5,77,41,000/-, which is liable to be excluded from the export turnover for the purpose of calculating exemption u/s 10B and further, the assessee has not furnished the approval from the competent authorities for continuance of 100%. These factors, according to the department, were not considered at the time of original assessment proceedings since the assessee has not disclosed full and true material facts, which prompted the Department to reopen the assessment. Therefore, having regard to the facts and circumstances, this court is of the considered view that the Dy CIT has rightly initiated the reassessment proceedings after getting necessary sanction as required u/s 151 from the designated authority. Further, mere non-mentioning of sanction accorded by the authority in the impugned notice, would not in any way fatal to the process of reopening. In fact, a perusal of the above said factors, would prima facie establish that the income chargeable to tax for the A.Y 2007-08 has escaped assessment within the meaning of Section 147, which had formed a reason for the AO to believe that the income has escaped assessment. However, the counsel for assessee would vehemently contend that in order to exercise the jurisdiction u/s 147, the AO must have a reason to believe that the income has escaped assessment and there must be a rational connection between that belief and tangible material on the basis of which the belief is formed and in the present case, absolutely there was no tangible or fresh material available with the AO and in fact, the Dy CIT during the regular assessment proceedings u/s 143(3) had examined all the details disclosed by the assessee and concluded the proceedings and now it is not open to him to reopen the concluded assessment on the same material and if he resorted to the same, it would be nothing but amount to change of opinion and it is settled law that no assessment can be reopened merely because the AO has changed his mind;

++ it is true that no fresh material was available with the Dy CIT to proceed with the reassessment proceedings. However, it is to be noted that he had categorically mentioned the reasons as stated supra, by which, he had a reason to believe that the income chargeable to tax has escaped assessment inasmuch as the specific case of the Revenue is that the assessee has not disclosed fully, truly all necessary material to enable the department to assess the income correctly regarding the particulars, viz., the assessee is not a domestic company, tax rate applicability on dividend distributor, expenses incurred out of EEFC Fund and Board of approval to claim deduction u/s 10B. Therefore, there is a failure on the part of the assessee to disclose the above material facts and in such circumstances, the AO has rightly initiated the reassessment proceedings on the basis of available material on record, which was specific, relevant and considerable. In the opinion of this court, the AO has therefore, correctly invoked the provisions of Sections 147 and 148. In the present case, what exactly the assessee wants to demonstrate that already all the details regarding the income were disclosed and after considering the same, the AO has concluded in favour of the assessee and again on the same material, it is not appropriate for the AO to proceed with the reassessment proceedings which would amount to 'change of opinion'. In such circumstances, having wilfully made false or untrue statements at the time of original assessment and when that falsity comes to notice, it is not fair on the part of the assessee to turn around and say " you accepted my lie, now your hands are tied and you can do nothing". Therefore, this Court is of the view that the said reasons are relevant and material and have a bearing on the matters in regard to which, the AO has formed a reason to believe that the income chargeable to tax has escaped assessment and there is, absolutely rational and intelligible nexus between the reasons and the belief entertained by the AO.

(See 2015-TIOL-2410-HC-MAD-IT)