By TIOL News Service

MUMBAI, APRIL 16, 2018: THE ISSUE IS - Whether if the AO has issued notice u/s 148 even when the assessee has made full and true disclosure of the material facts during the regular assessment proceedings, it is a fit case of change of opinion on the AO's part. YES IS THE ANSWER.

Facts of the case:

The Assessee has preferred the Writ Petition challenging a reopening notice issued by the AO u/s 148 for the AY 1995-96. The Assessee had filed its return for the relevant AY declaring a loss and also claimed an aggregate deduction of Rs. 1.98 Crores under Chapter VIA. In its computation of income, the Assessee had appended a note to the effect that it was eligible for deduction u/s 80M but not claimed in view of its loss return. In the course of the assessment proceeding, the Assessee explained its claim of deduction u/s 80M. Thereafter, on 27th March, 1998, the AO after applying his mind to all facts, passed an order u/s 143(3), determining the Assesse's income at Rs.50.27 Crores after allowing the Assessee's claim. This petition was admitted on 11th December, 2000 and thereby, interim relief was granted restraining the Revenue from acting further upon the disputed reopening notice.

On appeal, the CIT(A) reduced the Assessee's total income from Rs.50.26 Crores to Rs.4.06 Crores. Thereafter, the disputed notice was issued.

the High Court held that,

++ the disputed notice dated 21st July, 2000 u/s 148, seeks to reopen the assessment, completed on 27th March, 1998 u/s 143(3) in respect of AY 1995-96 i.e. clearly beyond a period of four years from the end of the relevant AY. Further, while completing the assessment u/s 143(3), the AO applied his mind to the claim for deduction to the extent of Rs.1.98 crores u/s 80M and granted the deduction. Thus, a view was taken/ opinion formed with regard to claim of deduction in the order dated 27th March, 1998. The disputed notice has been issued on facts which has been subject matter of consideration while passing the assessment order u/s 143(3);

++ the reasons in support of the disputed notice suggests that the Assessee had claimed excess deduction u/s 80M to the extent of Rs.11.1 lakhs. This is factually incorrect as borne out by the statement annexed to the Assessee's return of income – wherein the claim of Rs.1.98 crores under Chapter VIA consisted of Rs.11.1 lakhs u/s 80G and Rs.1.80 crores u/s 80M. The other basis is that the Assessee had failed to reduce the cost (expenditure) incurred in earning the dividend income to the extent of 5% of the gross dividend income. This is a factual matter which was a subject matter of consideration while passing the order u/s 143(3) on 27th March, 1998. Thus, there was a full and true disclosure of the material facts by the Assessee during the regular assessment proceedings of the deduction under Chapter VIA, being claimed by them. In fact, this was examined by the AO as well as by the CIT(A) while granting deduction to arrive at the total income;

++ the Assessee's claim for deduction u/s 80M was made in the return of income. The computation of income had a note appended on it, stating that though it is eligible for deduction u/s 80M, same was not being claimed as gross total income was nil. The AO passed an assessment order u/s 143(3), determining a positive income of Rs.50.26 crores, after having granted the benefit of deduction of Rs.1.98 crores as claimed u/s 80M. This was after having made enquiry during the assessment proceedings and the Assessee justifying its claim for deduction of Rs.1.98 crores to the AO as is evident from its letter dated 24th July, 1998. Thus, this is a clear case of change of opinion and the AO could not have any reason to believe that income chargeable to tax has escaped assessment.

(See 2018-TIOL-713-HC-MUM-IT)