By TIOL News Service

MUMBAI, DEC 21, 2017: THE issue is - Whether initiating reassessment despite a binding decision given by the High Court in assessee's own case calls for expressing displeasure over the conduct of the taxman. YES is the verdict.

Facts of the case

The assessee-company, engaged in manufacture, trading & marketing of pesticides, filed returns for the AY concerned. The assessee declared its income & also filed a report of a Chartered Accountant u/s 115JB of the Act. On assessment, the AO determined the total income of the assessee, making certain additions under the Act. On appeal, the CIT(A) partly allowed the assessee's appeal.

Subsequently, the assessee was served notice u/s 148 proposing re-opening of assessment for a particular AY, on grounds that neither assessee nor AO considered provisions for doubtful debts and diminution in value of investments, which allegedly resulted in income escaping taxation. Therefore, the book profits of the assessee were increased, due to additions made additions on account of provision for diminution in the value of an asset and provision for doubtful debts. On appeal, the CIT(A) allowed the assessee's appeal, holding that the AO has to accept the authenticity of accounts maintained under the Companies Act and as certified by auditors. The Tribunal dismissed the Revenue's appeal, leading the Revenue to file appeal before the High Court.

Meanwhile the assessee received another notice u/s 148 proposing re-opening of assessment, on grounds that the set-off of unabsorbed depreciation against book profit for the AY concerned was not in order, since it had been set off against the book profit for the preceding AY. Hence, there was no amount of unabsorbed depreciation available for set off in the AY concerned. The assessee filed objections and later the Revenue was directed to decide upon them, keeping in consideration the decision of the Apex Court in GKN Driveshafts (India) Ltd. v/s. ITO. The Revenue rejected such objections without granting personal hearing to the assessee. Hence the present writ.

On hearing the writ, the High Court held that,

++ after this writ petition was filed, vide ad-interim order dated 24th January, 2011 the operation of the notice dated 24th March, 2010 and the order rejecting the objections dated 24th December, 2010 came to be stayed. The Revenue was restrained from taking any steps in the matter. Interim relief has continued to operate till disposal of the petition;

++ the decision of this Court in the case of the assessee for the AY 2004-05 holds that a mere change of opinion would not justify the AO in seeking a recourse to the powers u/s 147 and 148 unless there is tangible material before the AO to prove that income chargeable to tax has escaped assessment. This Court further held, while allowing the petition, during the course of the assessment proceedings, that the AO brought his mind to bear upon the questions involved and there was absence of tangible material on the basis of which assessment could have been reopened.

++ in the present case the very same assessment year was under consideration whereas this Court has already taken a view in the assessee's case. There was no warrant for issue of further notice. It is evident that this has occasioned only as a change of opinion and an afterthought and in any event, the re-opening sought to be effected is beyond the period of 4 years. In CIT v/s. Kelvinator of India Ltd., it has been held by the Supreme Court that even within the period of 4 years there has to be tangible material on the basis of which assessment can be re-opened;

++ perusal of the judgment in the case of the assessee itself reveals that it pertains to AY 2004-05 and in view of the decision of this Court in the case of the assessee for the AY 2004-05, Income Tax Appeal (L) no.2160 of 2010 came to be dismissed. What is material to note is that the affidavit in reply admits of the fact that the reasons for reopening were based on the material available on record (emphasis supplied). Even otherwise, perusal of the order reveals that the objections raised by the assessee were on two grounds viz. that the AO could not have had reason to believe that income chargeable to tax had escaped assessment and secondly that the assessment had to be re-opened only on account of change of opinion. While dealing with the said two, the Revenue concluded in paragraph 12 and 13 of the order that it is upon verification of the case records (emphasis supplied) that the claim for unabsorbed depreciation of Rs.17,91,09,548/- was found to have been (allegedly) wrongly claimed and that the reasons recorded are not based on any suspicion but on a solid foundation of law and the facts and placed reliance on the decision of the Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. in support of the rejection of objections.

++ in our view, considering the facts and circumstances of the case and the decision of our High Court in the case of very assessee for the same AY, there is no justification for re-opening the assessment. Lastly we express our displeasure at the conduct of the officer of revenue in issuing a fresh notice despite a binding decision in the case of the assessee and the law laid down by the Supreme Court. The Revenue must reign in their officers in matters which have attained finality failing which costs thrown away may have to be imposed. The order rejecting the assessee's objections, therefore, cannot be sustained.

(See 2017-TIOL-2628-HC-MUM-IT)