HSBC ASSET MANAGEMENT (INDIA) PRIVATE LIMITED, MUMBAI V. INCOME TAX OFFICER 1(1)(2), MUMBAI

ITA 7292/MUM/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3294 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2008-2009
• Appeal Filed On: 21-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Capital asset; Depreciation; Opportunity of being heard; Audit objection; Tangible material; Difference of opinion; Competent authority; Assessment record; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 147; 148; 143(3); 142(1); 80HHC; 37(1); 143(1); 144C; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H”, MUMBAI BEFORE SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 7292/Mum/2017 (A.Y. 2008-09) HSBC Asset Management (India) Pvt. Ltd. 3 rd Floor, Mercantile Bank Chamber, 16 Veer Nariman, Mumbai-400001 PAN: AABCH0007N ...... Appellant Vs. ITO-1(1)(2) Mumbai. ..... Respondent Appellant by : Sh. Niraj Sheth, AR Respondent by : Sh. Tejinder Pal Singh Anand, Sr. DR Date of hearing : 28/02/2022 Date of pronouncement : 29/04/2022 ORDER PER GAGAN GOYAL, A.M: This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-6, Mumbai [hereinafter referred to as ‘the CIT (A)’] vide order dated 13.10.2017 for the Assessment Year (AY) 2008-09. The assessee has raised the following grounds of appeal: The following grounds of appeal are distinct and separate and without prejudice to each other. 1. On the facts and in law, the Commissioner of Income-tax (Appeals) - 6, Mumbai [‘CIT(A)’] erred in upholding the reassessment proceedings under section 148 of the Income-tax Act, 1961 (‘the Act’) initiated after four years from the end of relevant assessment year, without appreciating the fact that assessment under section 143(3) was made and the Appellant had disclosed fully and truly all material facts necessary 2 ITA No. 7292/Mum/2017 (A.Y. 2008-09) for his assessment and there was no failure on the part of the Appellant in this regard. 2. Without prejudice to Ground no. 1, the CIT(A) erred in upholding the disallowance of Rs. 3,03,42,451 in respect of expenditure incurred on long term incentive plan under section 40A(9) as well as under section 37(1) of the Act as against the Appellant’s contention that the said amount is deductible under section 37(1) of the Act. 2. Brief facts of the case are that the assessee-company is engaged in asset management for pooled funds (MF) and for segregated funds (Portfolio management Service) filed its return of income on 29.09.2008 declaring total income of Rs. 10,52,80,172/-. The scrutiny assessment u/s.143(3) r.w.s 144C(13) of the Income tax Act, 1961 was completed on 30.01.2012 determining income of Rs. 13,71,73,770/-. 3. Assessee acts as investment Manager for HSBC Mutual fund of India. The assessee manages the investment portfolio and provides various administrative services to the fund. The assessee is also engaged in providing portfolio management services to high net worth individuals. 4. On perusal of the return filed and on verification of assessment record, It is seen that the assessee had debited an amount of Rs.3, 03, 42,451/- on account of expenditure on ‘Long Term Incentive Plan’ (LTIP) Incurred in foreign currency (sch. 15 employee cost) for the cost of Rs.1, 93,602/- In restricted shares of HSBC Holdings Plc awarded to the employees (note 17.13). In schedule 17 (17.11) it is mentioned that LTIP represents restricted stock award granted to select high potential employees awarded through restricted shares of HSBC Holding Plc and the shares vest after 3 years from the date of grant of the award to employees. 3 ITA No. 7292/Mum/2017 (A.Y. 2008-09) It is further seen from the earlier assessment records that the assessee company has disallowed Rs.13, 80,665/- in A.Y. 2006-07 and Rs.1, 75, 53,079/- in A.Y. 2007- 08 on the same issue. However, no such disallowance has been made in the present year even though Rs.3,03,42,451/- has been debited to the P & L A/c., wherein the nature of expense is same as it was in A.Y. 2006-07 and A.Y 2007-08 is disallowable u/s.40A(9) as per the assessee’s auditor’s report in those two years. Moreover, in earlier assessment years 2006-07 and 2007-08, the auditor in its tax audit report in column no. 17(i) had qualified the expense of the same nature as disallowable u/s.40A(9) and the assessee had even disallowed this expense in its computation for assessment years 2006-07 and 2007-08. In the current year 2008-09 the auditor has not specified any disallowance of the same amount in the computation on this account. 5. In view of the above facts, the A.O. had a belief that income chargeable to tax has escaped assessment to the tune of Rs. 3, 03, 42,451/- and accordingly case was reopened for scrutiny assessment and notice u/s.148 of the income Tax Act, 1961 was issued vide notice dated 23/12/2014 after recording reasons for the same and after obtaining approval from the competent authority, which was served on the assessee. Subsequently, notice u/s. 143(2) was issued on 24/09/2015 and served on the assessee on 29/09/2015. Notices u/s. 142(1) of the Act was also issued on 15/10/2015 & 30/11/2015 calling for certain details / documents which were duly served on the assessee. 6. As per the request of assessee, the reasons recorded for reopening of the assessment were duly provided to the assessee vide letter dt. 29/01/2015. 4 ITA No. 7292/Mum/2017 (A.Y. 2008-09) 7. After the receipt of reasons recorded, the assessee raised objections on the reopening of the scrutiny assessment vide its letter dated 23/02/2015. This case has been received on transfer from DCIT 1(1)(2), Mumbai on 7/12/2015 consequent to order u/s. 127(2) of the Act passed by the Pr. CIT -4, Mumbai vide order dt. 02/12/2015. Accordingly, notice u/s. 142(1) r.w.s 129 was issued on 07/12/2015 due to change in incumbent. 8. The objections raised by the assessee on the reopening of the assessment are elaborately discussed and disposed off vide a speaking order passed u/s. 147 of the I.T. Act, vide dt. 04/01/2016, this is served on assessee on 05/01/2016. 9. The objections raised by the assessee are as under through its letter to the ld. AO dated 16.02.2015 filed on 23.02.2015: “We received Your Good self’s captioned notice on December 29, 2014 without the reasons recorded for such re-opening. After that, we filed our letter dated January 20. 201 requesting to Your Good-self furnish to us the reasons recorded for re-opening the assessment u/s 147 for the captioned Assessment Year and also requested your to treat our Original Return of Income as that filed in pursuance of the captioned notice. Your Good self has provided us with the reasons recorded vide letter dated January 29, 2015. We have noted the said reasons and hereby submit our objections to them in the following paragraphs: I. Reasons reflect mere change of opinion: (a) We would like to state that, the reopening is based on same set of facts/ material available on record for the year under consideration. This can be evident from the reasons recorded by Your Good self. The relevant extract of the reasons recorded is reproduced as under: “From the perusal of the records it is seen that the assessee had debited to P&L a/c an amount of Rs. 3,03,42,451 on account of expenditure on ‘Long Term Incentive Plant’ 5 ITA No. 7292/Mum/2017 (A.Y. 2008-09) (LTIP) incurred in foreign Currency (Sch. 15 employee cost) for the cost of Rs 1,93,602 Restricted Shares of HSBC Holding Plc awarded to employees (Note 17.13)....... In footnote no. 4 mentioned in the computation of income of the AY 2006-07 (where the aforementioned amount disallowed) it has been mentioned, “During the year, Rs. 5,40,22,158/- (Rs. 4.97,03,995 2 + Rs. 43,18.206) has been remitted to ‘Abacus Corporate Trustee Limited’...................... The above reasons clearly bring out facts that we had furnished all the relevant details before Your Good self. (b) Further, in the course of the assessment submissions were made to the file dated July 2, 2010, July 12, 2010 and November 26, 2009. Further, in the schedule 15 of the profit and loss account discloses the amount pertaining to long term incentive plan. (c) In view of the above, since all the materials/facts were available on record with regard to the expenses claimed in the return of income filed for the captioned assessment year. Therefore, reopening under section 148 of the Act on same material available on record and in absence of change in law is bad-in-law and void. (d) In this regard, we invite Your Good self attention to the decision in the case of CIT vs. Kelvinator of India Ltd. (Delhi) (FB) (256 ITR 1) wherein it has been observed as under: “An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the sub-section (3) of section 143 a presumption can be raised that such an order has been passed on “application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. Hence, it is clear that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon mere change of opinion.” 6 ITA No. 7292/Mum/2017 (A.Y. 2008-09) (e) The aforesaid decision in the case of CIT vs. Kelvinator has now been affirmed by the Supreme Court (320 ITR 561) with the following observations: “We must keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But re-assessment has to be based on fulfilment of certain pre- condition and if the concept of “change of opinion” is removed, as contended on behalf of the, Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is “tangible material" to come to the conclusion that there is escapement of income from assessment, Reasons must have a live link with the formation of the belief." (f) The Supreme Court has also held in CIT v. Burlop Dealers Ltd. (79 ITR 609) that: “Mere disclosure of belief without setting out material on the basis of which belief was arrived at by ITO is not sufficient and therefore, the notice of reassessment is void. A proceeding under Section 147 will not lie merely on the ground that the ITO has raised an inference which he may later regard as erroneous”. In addition to the aforesaid decision, it has been held in the following judicial pronouncements that reopening based on mere change of opinion is bad-in-law and ab-initio void: a) CIT v. Rao Tahkur Narayan Singh (56 ITR 234) (SC) b) CIT v. BhanjiLavji (79 ITR 582) c) Garden Silk Mills Pvt. Ltd. v. DCIT (222 ITR 68) d) CIT v. Maharashtra Sugar Mills Ltd. (263 ITR 180) e) ACIT v. Champdany Industries Ltd. (95 ITD 169) (Kol) 7 ITA No. 7292/Mum/2017 (A.Y. 2008-09) (g) Reliance is also placed on the decision Delhi High Court in case of CIT Vs. Shri Atul Kumar Swami (ITA 112/2014) (TS-166-HC-2014-Del), wherein it has been held as under: “As to what constitutes valid “reasons to believe” is no longer a matter of debate. So long as the law declared in Kelvinator (supra) stands, a valid reopening of assessment has to be based only on tangible material to justify the conclusion that there is escapement of income. In the present case the note forming part of the return clearly mentioned and described the nature of the receipt under a non-compete agreement. The reasons for the notice under section 147 nowhere mentioned that the revenue came up with any other fresh material warranting reopening of assessment. In these circumstances, the Court is of the opinion that mere conclusion of the proceedings under section 143(1) ipso facto does not bring invocation of powers for reopening the assessment. We are satisfied that the Tribunal’s reasons are justified and do not call for any interference.” Reliance is also placed on the decision of Delhi High Court in case of S Pradyot K Misra Vs. ACIT (2014-TIOL-615-HC-DEL-IT) (W.P (C) No. 272/2013). (h) In the recent decision of Jurisdictional High Court in case of National Bank of Agriculture and Rural Development vs. Dy. Cit (Writ Petition No. 1497 of 2013, order dated April 16, 2014) wherein it is held that it is now well settled that the reasons which are recorded by the AO for reopening an assessment, are the only reasons which can be considered. No substitution or deletion is permissible. On reading the reasons, we find a complete absence of even an allegation that there was any failure on the part of the Petitioner to disclose any material fact whatsoever. It is not enough merely to state that there was a failure on the part of the Petitioner to disclose fully and truly all material facts. It is equally important that Respondent clearly sets out what fact or other material was not disclosed by the Petitioner that had led to the income escaping assessment as contemplated u/s 147. No failure on the part of the Petitioner to disclose fully and truly all material facts as contemplated under the 1st proviso to section 147. Having raised a specific query with-reference to the said 8 ITA No. 7292/Mum/2017 (A.Y. 2008-09) deduction, Respondent No.1 applied his mind to the issue and thereafter passed the assessment order. In such a scenario, it would be unfair to the AO, who made the assessment order, to speculate that he was either incapable of applying, or did not apply his mind to the very aspects in respect of which he sought details. The reassessment proceedings were initiated only on the basis of a “change of opinion” and hence the AO had no jurisdiction to reopen the assessment proceedings. (i) Your Good self’s attention is invited to the recent decision of Hon’ble Jurisdiction High Court in case of Lupin Ltd. vs. ACIT (Writ Petition No.1095 of 2013, order dated 7th May, 2014) wherein it is held that “on a perusal of the reasons for initiating reassessment proceedings, we find that it is not even the case of Respondent No.1.that any new tangible material was brought to his notice which led him to believe that income had escaped assessment. As stated earlier, all material facts were disclosed by the Petitioner in proceedings that were undertaken under sections 142(1) r/w 143(2), which finally culminated in the assessment order dated 30th December 2008 under section 143(3). It is therefore evident that Respondent No.1 after passing the original assessment order dated 30th December 2008 has changed his opinion and issued the impugned notice under section 148. The reasons for the impugned notice as well as the impugned order proceed on the basis that a patent is a capital asset and hence expenditure incurred towards filing of patent applications should have been treated as Capital expenditure. Since it was treated as revenue expenditure, there was Computation of excessive loss which resulted in income escaping assessment. Therefore now, despite the fact that in the original assessment order this very expenditure was allowed as revenue expenditure, Respondent No.1 now seeks to treat the same as a capital (j) Further, reliance is placed on the decision of the Hon’ble ITAT Mumbai in the case of GlaxoSmithKline Pharmaceuticals Ltd. v. ITO (27 DTR 14) (Mum), wherein it has been held that the ingredients of section 147 of the Act are a reason to believe by the AO that any income chargeable to tax has escaped assessment or the loss or depreciation allowance or any other allowance has been excessively claimed by the Assessee, Where assessment is completed u/s. 143(3) of the Act and the assessee 9 ITA No. 7292/Mum/2017 (A.Y. 2008-09) claims to have disclosed all the material facts during proceedings, no action can be taken beyond four years. Assessee had submitted all the information for claiming deduction u/s. 80HHC of the Act and also the claim of the depreciation was also deliberated upon by the AO. By the reasons recorded for reopening it is apparent that no fresh material has come into the procession of the AO for framing the belief that any part of the income had escaped the assessment allowance had been granted to the Assessee, Thus, there was merely a change of opinion and there being no failure on the part of the Assessee to disclose the material facts and hence reopening was not justified. II. Notice can be issued beyond four years from the end of assessment year [when the original assessment was completed under section 143(3) of the Act] only where there was a failure on part of the assessee to disclose fully and truly all material facts necessary for assessment: a) Our original assessment for the captioned year was completed Ws 143(3) read with section 144C of the Act by order dated January 30, 2012. Therefore, you could not have re-opened our assessment by issuing the notice after the end of for years from the end of the assessment years unless you record that there is a failure on our part to disclose fully and truly all material facts necessary for our assessment for that assessment year. We submit that the particulars of the expenditure on the LTIP were provided in the course of assessment. In the submissions filed in the course of assessment dated November 26, 2009 submitting the profit and loss account for the year ended March, 2008. At schedule 15 of the schedules forming part of the financials reflected the expense pertaining to the long term incentive plan. Thus, we had given complete details relevant to the LTIP expenditure debited to the Profit & Loss Account which, the then AO considered and passed the original assessment order u/s 143(3). b) We invite Your Good self’s attention to the decision of the Hon’ble Supreme Court in the case of CIT Vs. Foramer France (264 ITR 566) (SC), wherein it has been held that: 10 ITA No. 7292/Mum/2017 (A.Y. 2008-09) > notice for reassessment would be illegal if issued more than four years after the end of the assessment year, if the original assessment were made under section 143(3) of the Act; > Assessment could not be reopened on a mere change of opinion. Further, the Hon’ble Supreme Court has held that the Proviso to section 147 of the Act clearly states that no action can be taken for reopening an assessment after four years unless the Assessing Officer has a bonafide “reason to believe” that income has escaped assessment by reason of the failure on the part of the assessee has disclose fully and truly all material facts necessary for assessment and if the assessee has disclosed fully and truly all material fact, necessary for the assessment, notice of reassessment issued after four years is not valid and is liable to be quashed. c) We submit that in the reasons recorded for re-opening, Your Good self has, at no place, alleged that the notice under section 148 of the Act had been issued beyond four years because there was a failure to disclose true and full facts. This clearly shows that there was no lapse on our part to perform the duty to disclose truly and fully all the material facts. d) In this regard, attention is invited to the decision of the Hon’ble Bombay High Court, being jurisdictional High Court in our case, in the case of Bhavesh Developers & Others (188 Taxman 123) (Bom), wherein the facts of the case were similar in so far as that the assessee had made a full and true disclosure of its income in its ROI,-and there was no new information/material found by the AO for reopening the proceedings under section 147 of the Act. In light of the same, it was held that recourse to the power under section 147 cannot be sustained on a mere change of opinion, if there is no failure of the assessee to disclose fully and truly, all material facts necessary for assessment. e) Similar view has been consistently taken in the following decisions: > IPCA Laboratories Ltd. vs. DCIT (2001) (251 ITR 416) (Bom); > Parikh Petrol Chemical Agencies P. Ltd. vs. ACIT (266 ITR 196) (Bom); 11 ITA No. 7292/Mum/2017 (A.Y. 2008-09) > Caprihans India Ltd. vs. DCIT (266 ITR 566) (Bom); > Bhor Industries Ltd. vs. ACIT (267 ITR 161) (Bom). f) Further, attention is invited to the decision of the Hon’ble Bombay High Court, being jurisdictional High Court in our case, in the case of ICICI Bank Ltd. Vs. K. J. Rao and Another (268 ITR 203) (Bom), wherein the assessee had erroneously claimed depreciation at the rate of 40% instead of 20% and the AO had even allowed the same at the time of the finalization of the original assessment. However, the AO re-opened the assessment based on the same ground. Accordingly, upon writ to the High Court, the Hon’ble Bombay High Court held that the concluded assessments can be reopened under section 147 of the Act beyond a period of four years from the end of the relevant assessment years only if there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. Having furnished all material facts even if an assessee erroneously claims higher depreciation, it will not be a case of failure to disclose fully and truly all material facts. At what rate the depreciation is to be claimed is a matter of legal inference to be drawn from the material facts. If the legal inference drawn from the material facts is erroneous it cannot be said that there is a failure on the part of the assessee to disclose Material facts, and therefore, the notice was held to be not valid and quashed. g) Attention is also invited to the decision of the Hon'ble Bombay High Court, being jurisdictional High Court in our case, in the case of Hindustan Lever Ltd. Vs. R. B. Wadkar (268 ITR 332) (Bom) wherein reasons recorded by the AO, nowhere stated that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of that assessment year and notice was clearly beyond the period of four years and hence reassessment was barred by limitation. h) Attention is also invited to the decision of the Hon’ble Bombay High Court, being jurisdictional High Court in our case, in the case of Multiscreen Media P. Ltd. Vs. Union Of India (324 ITR 48) (Bom.) wherein it was held that, the notice issued by the AO under section 148 of the Act did not state that there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for the relevant 12 ITA No. 7292/Mum/2017 (A.Y. 2008-09) assessment year. The assessment was sought to be reopened after the expiry of period of four years from the end of the relevant assessment year. In such a case the jurisdictional condition precedent stipulated by the proviso to section 147 is a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment for that assessment year consequent upon which income chargeable to tax had escaped assessment. That had not been fulfilled. In the instant case, in the absence of the existence of the jurisdictional condition precedent, the assessment could not be reopened beyond a period of four years after the expiry of the relevant assessment year. i) Attention is also invited to the decision of the Hon’ble Bombay High Court, being jurisdictional High Court in our case in the case of Bombay Presidency Golf Club Ltd. Vs. ITO (332 ITR 226) (Bom.) wherein it was held that, although the AO had recorded reasons to the effect that the assessee had failed to disclose fully and truly all material facts, nothing was brought to notice which would suggest that there was any failure on the part of the assessee to disclose fully and truly all material facts. As per section 147 of the Act, the assessment beyond four years from the end of the relevant assessment year can be reopened only if there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. j) We, therefore, humbly submit that in the present case reopening is time barred and based on a mere change of opinion which is as void-ab-initio and bad in law. III. Reopening under section 147 of the Act on the same material available on record and absence of change in law is bad-in-law and void: a) In the present case, the reopening is based on same Set of the facts/material available on Your Good self’s record for the year under consideration, The same can be seen from the extract from the reasons recorded of the AO mentioned aforesaid to justify that re-opening is based on the same ‘set of facts available at the time of the assessment. 13 ITA No. 7292/Mum/2017 (A.Y. 2008-09) b) Thus, the reopening is based on the same set of facts/materials available with the AO at the time of original assessment proceedings under section 143(3) of the Act. It is further evident from the foregoing reasons that Your Good self has not found any new material after the completion of the original assessment u/s 143(3) which could point to escapement of income for the captioned year. c) In this regard, we rely on the decision of the Hon’ble Bombay High Court, being the jurisdictional High Court in our case, in the case of Asteroids Trading & Investments Pvt. Ltd. Vs. DCIT (308 ITR 190), wherein has been held that the Assessee had fully disclosed material facts necessary for claiming deduction under section 80M of the Act and there was application of mind by the AO in allowing the deduction claimed by the Assessee in the assessment order. Though the notice u/s. 148 of the Act was issued on the ground that there was reason to believe that income had escaped assessment, there was neither any change of law nor had any new material been brought on record between the date of the assessment order and the date of formation of opinion by the AO. It was merely a fresh application of mind by the AO to the same set of facts and the reassessment proceedings initiated based on the change of opinion of the AO is bad in law. This was the case where the AO had reopened the assessment within four years from the end of the Assessment Year under appeal. d) The Hon’ble Bombay High Court, being the jurisdictional High Court in our case, in the case of Purity Tec textile (P.) Ltd. Vs. ACIT (325 ITR 459/189 Taxman 21) has been held that when the AO did not have any additional material at all to form belief that income had escaped assessment then the reopening of assessment is bad and quash. The extract of the decision are as under: “Insofar as the assessment year 2004-05 was concerned, though the reopening of the assessment had taken place within a period of four years from the expiry o that assessment ear yet it was apparent that the Assessing Officer did not have before him an additional material at all to form a belief that income had escaped assessment. The assessee had, admittedly, placed on record before the Assessing Officer for the assessment year 2003-04 the circumstances under which the plans gad been approved 14 ITA No. 7292/Mum/2017 (A.Y. 2008-09) for the building on 12-9-1988. There was no material before the Assessing Officer that would lead to a formation of belief that the income had escaped assessment. " (Underlined for Emphasis) . e) In the case of ICICI Home Finance Co. Ltd. Vs, ACIT (WP No. 430 of 2012), the Hon’ble Bombay High Court, being the jurisdictional High Court in our case, has held that re-opening of an assessment based on an audit objection, in the absence of any new/fresh material received by the AO is illegal and must be struck down. This was the case where the re-opening was within 4 years from the end of the assessment year concerned. f) In the case of CIT Vs. Amitabh Bachhan (ITA No 4646 of 2010), the Hon’ble Bombay High Court, being the jurisdictional High Court in our case, held that reopening without any fresh tangible material coming to the AO, is illegal. This, too, was the case where the AO had re-opened the assessment within 4 years from the end of the assessment year. g) Hon’ble Bombay High Court in the case of Asian Paints Ltd. Vs. DCIT (308 ITR 195), being the jurisdictional High Court, has held that the initiation of reassessment proceedings would amount to change of opinion of the AO as it was merely a fresh application of mind by the AO to the same set of facts and that since the AO had failed to apply his mind to the relevant material while framing the assessment order u/s. 143(3), he could not take advantage of his own wrong and reopen the assessment under section 147 of the Act. h) Hon’ble Delhi High Court in the case of Jal Hotels Co. Limited Vs. ADIT (184 Taxman 1) has held that in absence of new material on record which could form basis for recording reasons for reassessment, it would be a change of opinion which is not permissible under section 147 of the Act. i) The Hon’ble Delhi High Court in the case of Legato Systems (India) Pvt. Ltd. Vs. DCIT (187 Taxman 294) has held that proceedings under section 147/148 of the Act vis a vis completed assessments cannot be reopened, on a mere change of opinion i.e. on the 15 ITA No. 7292/Mum/2017 (A.Y. 2008-09) basis of the same set of facts and material which were in the knowledge of the AO, and that the proceedings for reopening of assessment on the ground of income escaping assessment is an exception to the finality of the proceedings arrived at under Section 143(3) of the Act during the regular assessment proceedings of the assessment years. Further, it has been held that if such harassment to a citizen is allowed, then, the conclusiveness of the regular assessment proceedings .will have no meaning because the very issue which was considered and mind applied would lose its finality. j) The Hon’ble Madras High Court in the case of Bapalal & Co. Exports v. JCIT (289 ITR 37) has been held that a change of opinion is not permissible whether the opinion was expressed under 143(2) or 143(1) of the Act and reassessment can be done only on the basis of fresh material to show that some income escaped assessment. Further, there was no new information/material found by the AO for reopening the proceedings w/s. 147 of the Act and, therefore, the reasons recorded for reopening reflect a mere change in opinion by the AO. k) The Hon’ble Mumbai Tribunal in the case of Aipita Marketing Pvt. Ltd. Vs. ITO (21 SOT 302) has held that | in the absence of any new material, the AO is not empowered to reopen an assessment irrespective of whether it made under section 143(1) or 143(3)of the Act. l) We, therefore, submit that reopening under section 147 of the Act on same material available on record and in absence of change in law is void-ab-initio and bad in law. IV. Reassessment based on audit objections is bad in law: a) In our case, there was an audit objection from the Audit Wing of the Income Tax department on the purported underpayment of tax on the LTIP expenditure debited to the Profit & Loss Account. The relevant Audit Query was handed’ over to us on November 21, 2013 and we had provided our submissions to the then AO. 16 ITA No. 7292/Mum/2017 (A.Y. 2008-09) b) The language of the foregoing Audit Query, our submissions and the reasons for reopening is similar. Thus, the re-opening is based on the Audit Objections, which as per the settled legal position, is illegal. Reliance is placed on following decisions: > Indian and Eastern Newspaper Society vs. CIT (119 ITR 996) (SC) wherein the Hon’ble Supreme Court has held that the opinion of the audit party on a point of law could not be regarded as “information” enabling the ITO to initiate reassessment proceedings under s. 147(b). The ITO had, when he made the original assessment, considered the provisions of ss. 9 and 10 pf the Indian I.T. Act, 1922. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. > Adani Exports vs. DCIT (240 ITR 224) (Guj) - Audit objections were raised but that would not amount to information within the meaning of section 147(b). > Air India vs. V.K. Srivastava, CIT and Others (213 ITR 739)(Bom) wherein it has been held that reopening of the assessment based on the audit objection was without jurisdiction. The Commissioner of Income-tax has failed to exercise jurisdiction by placing blind reliance upon the opinion expressed by the Ministry of Law. > Smt. Dhan Kaur vs. Controller of Estate Duty (246 ITR 210)(P&H) The Opinion of the internal audit party on a point of law cannot be regarded as “information” for the purpose of reopening an assessment. That part of the note of an audit party which mentions the law which escaped the notice of the officer concerned constitutes “information”. The part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account. ) > Transworld International Inc V. JCIT (273 ITR 242)(Delhi) wherein it has been held that the primary function of audit in relation to assessments and refunds is the consideration whether the internal procedures are adequate and sufficient. It is not intended that the purpose of audit should go any further. Whether it is the Comptroller and Auditor-General, they perform essentially administrative or executive 17 ITA No. 7292/Mum/2017 (A.Y. 2008-09) functions and cannot be attributed the powers of judicial supervision over the quasi- judicial acts of the income-tax authorities, The Income-tax Act does not contemplate such powers in any internal audit organization of the Income-tax Department but only in those authorities which are specifically authorized to exercise adjudicatory functions.” > In IL&FS Investment Managers V. ITO (2008) (298 ITR 32) (Bom.), the Hon’ble Bombay High Court has held that claims allowed disagreeing with the audit objections and therefore issuance of notice under section 148 subsequently was not valid. > In the case of ICICI Home Finance Co. Ltd. vs. ACIT (2012) (210 Taxman 67) (Bom.)), the Hon’ble Bombay High Court, being the jurisdictional High Court in our case, has held that the re-opening of an assessment based on an audit objection, in the absence of any new/fresh material received by the AO is illegal and must be struck down. This was the case where the re-opening was within 4 years from the end of the assessment year concerned. c) Hence, when we have disclosed fully and truly all material facts necessary for assessment and on the basis of which assessment is made, then the exercise of powers under section 148 of the Act contemplates that the reasons recorded must show the application of mind of the Assessing Officer. Reasons should not be based merely on the objection of another person as has been held in the above mentioned judicial pronouncements. d) On the basis of the foregoing, we submit that the notice for reopening based on reasons recorded by Your Good self is bad in law. In view of the foregoing, and considering that: > We had made full and true disclosure of all material facts in the computation of income and Financial Statements in the course of its assessment under, section 143(3) of the Act; 18 ITA No. 7292/Mum/2017 (A.Y. 2008-09) > The assessment was originally completed under section 143(3) of the Act after considering all material available on record and our submissions on the issue under reassessment; > There was no failure on our part to disclose true and full material facts; > Your Good self has not come across any new material, apart from the submissions made by us which can lead to formation of belief that ‘income has escaped assessment’; Thus, we humbly submit that the reopening of assessment be held as ab-initio void and bad-in law, and accordingly, the notice passed under section 148 of the Act be quashed or annulled. Needless to say, this is without prejudice to all our rights and contentions in the matter including that Your Good self’s aforesaid notice under section 148 of the Act is ab initio or otherwise void, illegal and inoperative. Without Prejudice, we would like to place reliance on the decision of Hon’ble Supreme Court in case of GKN Driveshaft (India) Ltd. vs. ITO (125 Taxman 963) and request Your Good self’s to kindly pass a speaking order to dispose of the objections raised by us. Further, we would like to rely on the decision of the Hon’ble Jurisdictional High Court in the case of Asian Paints Ltd. vs. DCIT (296 ITR 90) and humbly request that if Your Good self does not accept the objections filed to notice under section 148, then in that event kindly refrain from proceeding further in the matter for a period of four weeks from the date service of the said order on objections to us. Further, it is humbly stated that non-following of the guidelines laid down by the Jurisdictional High Court in the case of Asian Paints Ltd (supra) would amount to Contempt of Court. Further, we request Your Good self to give us an opportunity of being heard to grant us a personal opportunity of hearing, in case Your Good self decides otherwise.” 19 ITA No. 7292/Mum/2017 (A.Y. 2008-09) 10. We have gone through the records before us including notices issued under section 148 of the Act, objections raised by the assessee against this notice, response of ld. AO against the objections raised by the assessee and consequent order passed. It clearly emanates from all the records mentioned (supra), there is no allegation on assessee of failure on its part to disclose true and material facts. 11. Since all the materials/facts were available on record with regard to the expenses claimed in the return of income filed for the captioned AY, a presumption can be raised that such an order based on return filed with true and full disclosure of the facts has been passed on application of mind by the concerned AO. The AO has no power to review his own order; he has the power to re-assess only. But re-assessment has to be based on fulfilment of certain pre- conditions. Change of opinion or borrowed belief is not permissible as in this case, re-opening has been done based on audit query. The reasons for the notice under section 148 of the Act nowhere mentioned that the Revenue came up with any other fresh material, not disclosed by the assessee warranting re-opening of assessment. The primary function of audit in relation to assessments and refunds is the consideration whether the internal procedures are adequate and sufficient, it is not intended that the purpose of audit should go any further. Audit party performs essentially administrative or executives functions and cannot be attributed the powers of judicial supervision over the quasi judicial acts of the Income tax Authorities i.e. AO. The Income Tax Act does not contemplate such powers in any internal audit party of the Income Tax Department but only in those authorities who are specifically authorize to exercise adjudicatory functions. 12. We are of the clear view that there was no failure to disclose material facts and failure to place a version favourable to the Revenue cannot be a reason to re- 20 ITA No. 7292/Mum/2017 (A.Y. 2008-09) open the assessment in the light of the undisputed factual material referred by us extensively it is apparent that the re-opening was fully impermissible in law. The facts which are taken from the Auditor’s report, computation of income and return filed itself would indicate that the assessee had disclosed what was relevant and necessary for the purpose of making assessment. The assessee did not hold back any document nor failed to supply any information. In the circumstances, this is a clear case of change of opinion and based on which the re- assessment is proposed which is impermissible in law. 13. In the result, ground no.1 raised by assessee is allowed and assessment order framed found to be without jurisdiction. In the light of above, we are not dealing with ground no.2 on merits, as assessment order itself was without jurisdiction. Order pronounced in the open court on 29 th day of April, 2022. Sd/- Sd/- (RAHUL CHAUDHARY) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 29 /04/2022 SK, Sr.PS Copy of the Order forwarded to: 1. The Appellant , 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy. /Asstt. Registrar) ITAT, Mumbai