Sri D. Satya Siva Darshan, Advocate V. Income Tax Department

WP/15201/2019

AI Insights

The case revolves around the legality of reopening an income tax assessment for the year 2012-2013, four years after it was initially accepted, based on the grounds that certain items escaped assessment under Section 147 of the Income Tax Act. The petitioner had originally disclosed all material facts related to the transactions in question, which were accepted by the tax authorities. However, following an audit, the tax authorities issued a notice for reassessment, leading to the filing of a Writ Petition challenging this action. The court examined whether the reassessment was justified based on the audit objections and the legal standards for reopening assessments under the Income Tax Act.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 797918 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 30-01-2020
• Assessment Year: misc
• Other Referred Cases: GKN Driveshafts (India) Limited v. Income Tax Officer, Commissioner of Income Tax v. Foramer France, Wel Intertrade (P.) Ltd. V. Income-tax Officer, Ward 18(3), Kohinoor Hatcheries (P.) Ltd. v. Deputy Commissioner of Income-tax, Commissioner of Income-tax-IV, Hyderabad v. Quality Care India Ltd, Bharti Infratel Limited v. Deputy Commissioner of Income-tax, Commissioner of Income-tax v. Lucas T.V.S., Limited, Indian & Eastern Newspaper Society v. Commissioner of Income-tax, Calcutta Discount Co. Limited v. Income-tax Officer, Sri Krishna Private Limited., ETC v. Income Tax Officer and Others
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: D SATYA SIVA DARSHAN
• Keywords: Audit objection; Escaped assessment; Income Tax; Material facts; Reassessment
• Section: 147; 148; 143(3); 142(1); 143(1); 56(2)(viia)

Judgement Text

"HON’BLE SRI JUSTICE C. PRAVEEN KUMAR AND THE HON’BLE SRI JUSTICE CHEEKATI MANAVENDRANATH ROY W.P. No.15201 of 2019 ORDER: (Per Hon’ble Sri Justice C.Praveen Kumar) 1) The question that emerges for adjudication in this lis is, whether the authorities were justified in re-opening the assessment for the assessment year 2012-2013, four years after it was finalized and accepted under Section 147 of the Income Tax Act, on the ground that for the assessment year 2012-2013 certain items escaped the assessment within the meaning of Section 147 of the Act. 2) The facts, in issue, are as under: i) For the Assessment Year 2012-13, the Petitioner herein filed its income tax returns on 27.09.2012, which was processed under Section 143(1) of the Income Tax Act, 1961 [the ‘Act’] accepting the income returns. Later on, details were called for by the 1st Respondent, by issuing a Notice under Section 142(1) of the Act. In response to the Notice dated 15.09.2014, the Petitioner herein submitted all the documents before the Respondent from time-to- time, more particularly, the details of shares bought back by the Petitioner and the shares acquired by SPI Power Private Limited [‘SPIPPL’] from Covanta Energy India (Balaji) Limited [‘CEIBL’]. It is to be noted that, the basis on which the assessment was re- opened already formed part of the assessment records and was 2 fully disclosed in Note 1(a) to Note 1 (c) of the financial statements for the year ending on 31.03.2012, filed as part of submission dated 31.10.2014. Further, the consideration paid as part of the buyback transactions was disclosed as a foot note to cash flow statements. ii) Based on the examination and review of the information submitted, the 1st Respondent herein passed an order under Section 143(3) of the Act on 31.03.2015, showing the tax to be paid as “Nil”. In the letter, dated 31.03.2015, there was no additions in relation to Section 56(2)(viia) of the Act by the 1st Respondent, thereby establishing that the 1st Respondent after verification of the information submitted, was in agreement with the position adopted by the Petitioner in its return of income. iii) While things stood thus, on 24.03.2019 the Petitioner received the Impugned Notice, dated 24.03.2019, issued under Section 148 of the Act, proposing re-assessment of the income of the Petitioner for the Assessment Year 2012-13, without giving any reasons for reopening the assessment. iv) On 29.03.2019, the Petitioner addressed a letter to the 1st Respondent requesting him to furnish the reasons recorded for issuance of notice under Section 148 of the Act. The Petitioner enclosed the revised return filed by the Petitioner in its response to the notice issued under Section 148 of the Act filed on 27.09.2012. 3 v) On 03.04.2019, the 1st Respondent furnished reasons for reopening the assessment. It is urged that the reasons did not refer to any new tangible material and neither is it alleged non- disclosure of any information on the part of the Petitioner. The reason given was that the income amounting to Rs.80,41,23,351/- which is taxable under Section 56(2)(viia) of the Act has escaped assessment. It is said that, even before the Petitioner objected to the reasons given, the 1st Respondent issued a Notice under Section 142(1) of the Act, dated 18.04.2019, demanding the Petitioner to submit documents, accounts and any other evidence to support the return of the income. vi) In order to obtain clarity on the issue, the Petitioner addressed a request letter, dated 29.04.2019, to inspect and make copies of the Respondent file as the same would enable the Petitioner to respond to the impugned reasons, in accordance with law. An opportunity was provided to the Petitioner to inspect the records on 13.06.2019. On inspection of such records carried upon by the authorised representatives of the Petitioner, it was found that there was an audit objection by the Office of the Director General of Audit on 15.09.2016, wherein, the issue of taxability under Section 56(2)(viia) was raised. A reply came to be given by the Respondent to the audit party on 11.10.2016, stating that, there was no escapement of income under Section 56(2)(viia) and therefore no further action against the Petitioner is required. However, the objections raised by the Petitioner for reopening of the assessment, four [04] years later was rejected by the 4 Impugned Order, dated 17.09.2019, on the ground that there is failure on the part of the Petitioner to disclose fully and truly all the material facts during the course of their assessment without again referring to the actual nature of the failure on the part of the Petitioner. Challenging the same, the present Writ Petition came to be filed on various grounds. 3) (i) Learned Senior Counsel Sri R.V. Eswar, representing Sri.D. Satya Siva Darshan, Advocate, would contend that, since all the material facts were furnished along with the original assessment itself, reviewing of the same without any new material and coming to different conclusion is erroneous. According to him, Section 147 of the Act can be invoked only when new facts come to light affording a valid reason to believe that income has escaped assessment. (ii) He also pleads that, when the Petitioner himself has alerted the assessing authority by disclosing the amount obtained by the Petitioner Company under Section 56(2)(viia) of the Act and when the Assessing authority himself found that no tax is liable to be levied on the said amount by accepting the return, reopening of the same on the basis of the same material is illegal, since, the same does not fall within the contingency provided under the proviso to Section 143 of the Act. (iii) It is urged that pursuant to a Notice received by the Petitioner on 15.09.2019, the Petitioner herein appeared before the Respondents and filed his explanations from time-to-time. On 5 31.10.2014, the Petitioner filed his financial statement and the information in relation to the buyback of the shares enclosing all the details which formed part of the assessment. The consideration paid was also disclosed. It is urged that when all the details were available with the Respondent way back on 31.10.2014 itself, and when an Order came to be passed showing the taxable income as “Nil”, the question of reopening assessment without assigning valid reasons is illegal, improper and incorrect. (iv) It is also pleaded that the very same material which formed the basis for reassessment was also made the basis for declaring the tax payable as “Nil”. Pursuant to a notice given by the audit party, a reply was given by the 1st Respondent stating that there was no leakage or concealment of the income by the Petitioner Company and that no further action is needed and accordingly advised dropping half margin audit. The said letter addressed to Senior Audit Officer is dated 11.10.2016. However, the Impugned Order came to be passed which is illegal. The learned Counsel for the Petitioner relied upon various Judgment of the Hon’ble Apex Court which will be discussed later. 4) (i) On the other hand, Smt. M. Kiranmayee, learned Counsel for the Income Tax Department would contend that, in order to assess the escaped income, the assessment has been reopened by duly invoking Section 147 of the Act. According to her, as the income chargeable to tax has been under assessed, the assessment has been reopened after obtaining prior approval of the 6 Principal Commissioner of Income Tax vide proforma, dated 06.03.2019 and after recording reasons for the same. (ii) It is urged that, a Notice under Section 148 of the Act was issued to the assessee, which was received through e-mail on the same day. The reasons recorded for reopening the assessment were duly supported by the satisfaction of the authorities as per the provisions of Section 151 of the Act and the objections raised were duly considered and rejected by way of a speaking Order, dated 17.09.2019. (iii) Though the details of shares bought back by the Petitioner and the shares acquired by SPIPPL from CEIBL were disclosed in Note 1(a) to Note 1 (c) and Note 27 of the financial statements for the year ending 31.03.2012 forming part of the assessment records, the mere foot note in the cash flow statement would not amount to disclosing fully and truly all material facts necessary for assessment. (iv) It is further submitted that the evidence in support of transfer of shares on buy back should have been substantiated in detail so as to come to a conclusion whether there was escapment of income or not. It is pleaded that, even if no additions are made in relation to Section 56(2)(viia) of the Act while passing the original assessment order under Section 143(3) of the Act, the same would not bar the assessing officer to reassess the income which escaped the assessment. In other words, the plea of the Respondents is that, reassessment is permissible if the information 7 is obtained on proper investigation of the materials on record or from any enquiry or research in facts or law. Production of voluminous documents before the assessing officer without disclosing the income, in the returns of income which does not even form part of the Profit and Loss account would not amount to disclosure of full and true material facts necessary for assessment. When the income has not been reflected either in the Profit and Loss account or in the return of the income, the concept of “change of opinion” would not arise as the assessing officer never had any chance to express any opinion on the issue. 5) The learned Counsel would further contend that the scrutiny assessment is subject to scheduled audit by the Office of the Principle Director General of Audit (Central), Hyderabad. In the instant case, a performance audit on payment of tax by certain companies was conducted by the Office of the Director General of Audit (Central), Hyderabad on 15.09.2016 and an objection of excess set off of MAT Credit under Section 115JAA of Rs.15,74,84,200/- was raised on account of income under Section 56(2)(viia) of the Act. If any audit objection is brought to the notice of the assessing officer, the option is to reply the auditing party either accepting or rejecting the objections raised by the audit team [or] if the objection raised requires further verification by the assessing officer, the same will be looked into by duly informing the same to the audit party. It is contended that the reply submitted by the Department, if it is not accepted by the audit team, the same would be communicated for further verification 8 through local audit report. Once the objection is communicated through a local audit report, a remedial action will be initiated as per the instructions issued from time-to-time. But, the reply submitted by the Assessing Officer to the Senior Audit Officer was to drop the action and close the office objection. The reply submitted is nothing but a “Half Margin Reply”. It is urged that later on objections were published in the Report of the Comptroller and Auditor General of India. In the interests of revenue, the Assessing Officer is left with no other option except to initiate a suitable remedial action on the findings of the audit team. In support of the same, the learned Counsel relied upon the judgment in CIT v. PVS Beedies P Limited1; CIT v. First Leasing Company of India Limited2. 6) The short question that arises for determination is, whether the 1st Respondent was right in reopening the assessment based on audit objections, four [04] years after acceptance of assessment for the financial year 2012-13? 7) It may not be necessary to refer to all the facts in issue once again. 8) Before proceeding further, it would be appropriate to extract the reason recorded for reopening of the assessment, which is as under: “On verification of assessment record for the A.Y. 2012-13, it is noticed that there is an income of Rs.80,41,23,351/- u/s 56(2)(viia) which has not been routed through P&L Account and the above 1 (SC) 237 ITR 13 2 (Mad) 241 ITR 248 9 income u/s 56(2)(viia) has not been considered either in the returned income or in the assessed income for the purpose of computing book profit or for arriving at income under normal provisions of the Act. Hence, I have reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment resulting the escapement of income.” 9) It is also to be noted here that pursuant to an office objections raised by the audit party, a reply came to be issued by the Respondents to the Senior Audit Officer, DTAP-3 (Review), Office of the Director General of Audit (Central), Hyderabad, stating that, there is no leakage/concealment in the income of the assessee company and the profit is worked out on the basis of Companies Act and deemed profit under Section 115JB of I.T. Act. Keeping in view the decision of Apex Court, it is stated that no further action is needed in this case and hence the half margin audit observation may be dropped. In-fact, the said letter, dated 11.10.2016, refers to additional income of Rs.80,41,23,351/- admitted by the assessee company under Section 56(2)(viia), which was not routed through profit and loss account and this additional income has not been considered either in the returned income or in assessed income for the purpose of computing either Book Profit or arriving at income under normal provisions of Act. The letter also refers to excess set off of MAT credit of Rs.15,74,84,200/- claimed by the assessee company. After examining all the issues including the Half Margin Observation of the Performance Audit (RAP), a reply came to be issued which is as under:-- “In view of the above, I submit that, there is no leakage/concealment in the income of the assessee company, and the profit is worked out on the 10 basis of Companies Act and deemed profit under Section 115JB of I.T. Act and keeping in view of the Apex Court decisions it is clear that no further action is needed in this case and hence the half margin audit observation may be dropped”. 10) As observed by us earlier, in the counter filed by the 1st Respondent, it is stated that, as a matter of procedure, if any audit objection is being brought to the notice of the Office of the Assessment Officer, the following options are available for the Assessing Officer, namely, reply to audit party either accepting or not accepting the objection raised by the audit team; [or] if the objection raised requires further verification by the assessing officer, the same will be looked into by duly intimating the same to the audit party”. 11) Section 147 of the Income Tax Act, 1967 states that if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to provisions contained in Section 148 to 153 assess or re- assess such income or any other income chargeable to tax which has escaped assessment and which has come to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be. Proviso to sub-section postulate that where an assessment under sub-section (3) of Section 143 of this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such 11 assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for the assessment for that assessment year. From a reading of this provision, it is very clear that in order to invoke Section 147 of the Income Tax Act, the authority should have reason to believe that any income chargeable to tax has escaped assessment for any assessment year and action if any to be initiated should be within four years from the end of the relevant assessment year. 12) Section 147 of the Act further states that, the Assessing Officer should have reason to believe that certain income has escaped the assessment on the basis of new facts/information which has come to his knowledge subsequently. Section does not confer any right to review when there is no new material or facts drawing a different conclusion is noticed. 13) The admitted facts show that, 1] the petitioner has disclosed all the facts before the Assessing Officer in one form or the other; 2] the assessment is reopened four [04] years after its acceptance; sans fresh material emanating subsequently, 3] it is not the case of the Respondents that the Petitioner has suppressed any income or any material facts; 4] the assessment was not reopened on the basis of any new material fact which came to light after passing of the assessment year; 5] a reply came to be given to the audit objection by the Assessing Officer for dropping the objections raised. 12 14) Keeping these factual aspects in the background, we will now proceed to decide as to whether the authorities were justified in issuing the Impugned Order, dated 15.09.2019. 15) Issue No.1 –Procedure to be followed in case of Reassessment. i) In GKN Driveshafts (India) Limited v. Income Tax Officer3 the Hon’ble Supreme Court held that, “when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order”. ii) In the instant case, the comment raised is that, the assessing officer failed to give reasons while disposing of the objections raised by the Petitioner for reopening the assessment. As seen from the Impugned Order, the ground on which the assessment was reopened being that income of Rs.80,41,23,351/- u/s 56(2)(viia) was not routed through P&L Account and the said income was not considered either in the returned income or in the assessed income for the purpose of computing book-profits or for arriving at income under normal provisions of the Act. As stated earlier, objection was raised by the audit party for which a reply 3 [2002] 125 Taxman 963 (SC) 13 was given by the assessing authority to the audit authorities to drop the proceedings with regard to Half Margin Audit. Therefore, the contingency for reopening/ reassessing in case of an audit objection came to be rejected by the Assessing Officer himself by giving an appropriate reply in the month of October itself. In-fact, in paragraph 16 of the counter it is stated that, “in the interests of revenue, the Assessing Officer is left with no option except to initiate a suitable remedial action on the findings of the Audit Team” which in our view cannot be a ground for reopening the assessment. 16) Issue No. 2– Reassessment proceedings after expiry of four years. i) In Commissioner of Income Tax v. Foramer France4 the Hon’ble Apex Court was dealing with a case where “an assessing officer while making assessment under Section 143(3) took the view that proceeds from manning and management contracts were taxable as business income in terms of Section 44BB, in the light of Tribunal decision in the case of Scan Drilling. The assessment order was accepted by the Petitioner in order to buy peace and avoid protracted litigation and has become final. Long thereafter, i.e., in the month of November 2018, a notice under Section 148 was issued proposing to treat the income of the Petitioner Company as fees for technical services and not business income in view of another decision of the Tribunal. The same was challenged before the High Court”. The High Court held that, since there was no failure on the part of the Petitioner to make return or to disclose fully 4 [2003] 129 Taxman 72 (SC) 14 or truly all material facts necessary for assessment, proviso to new Section, which bars issuance of Notice under Section 148 after expiry of four years from the end of the relevant assessment year, applies to the facts of the case and as such held that notice is barred by limitation”. ii) In the instant case, the assessment was finalized in terms of Order under Section 143(3) on 31.03.2015, and thereafter, the assessment was reopened and notice of reopening the assessment came to be issued after the expiry of four years. It is no doubt true that, if the Petitioner has suppressed any material fact or if new facts have come to light, definitely, the authority may issue a notice after expiry of four years, but, definitely not when all the material facts were disclosed before the assessment is finalized. iii) In Wel Intertrade (P.) Ltd. V. Income-tax Officer, Ward 18(3)5 the Division Bench of the Delhi High Court was dealing with a case where, “in the course of assessment proceedings for the assessment year 2000-01, the Assessing Officer issued a notice under Section 143(2) to the assessee company requiring it to furnish details with respect to exchange fluctuation loss claimed by it, in its income tax returns. The assessee referred to additional liability arising on account of exchange fluctuation. Subsequently, a notice under Section 148 came to be issued on 28.03.2007 to the assessee on the ground that the loss on account of foreign exchange fluctuation was not established and, therefore, the income had escaped to that extent. The same was 5 [2009] 178 Taxman 27 (Delhi) 15 found to be beyond the period of limitation, as it is in violation of proviso to Section 147. The relevant portion in the Judgment is as under:- “[9] We have considered these submissions and we are inclined to agree with the submissions made by the learned counsel for the petitioner. The proviso to Section 147 reads as under:- \"Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.\" A plain reading of the said proviso makes it more than clear that where the provisions of Section 147 are being invoked after the period of four years from the end of the relevant assessment year, in addition to the Assessing Officer having reason to believe that any income chargeable to tax has escaped assessment, it must also be established as a fact that such escapement of assessment has been occasioned by either the assessee failing to make a return under Section 139 etc. or by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year”. iv) Even in the instant case, a notice under Section 148 was issued in the month of March 2019 pertaining to the assessment year 2012-13, therefore, it is clearly beyond the period of four years and against the proviso to Section 147 of the Act. 17) Issue No. 3– Full and True Disclosure. 16 i) In Kohinoor Hatcheries (P.) Ltd. v. Deputy Commissioner of Income-tax6 the Division Bench of A.P. High Court dealt with a case relating to assessee filing returns of income, in which he claimed profit on sale of agricultural land. The assessment was completed and order came to be passed on an opinion that lands sold were agricultural lands. A reopening notice was issued on the ground that profit and sale of land relate to land sold to real estate company for the purpose of forming a special economic zone and as such, sale was not exempted as sale of agricultural land. Challenging the same, Writ Petition was fled by the Assessee. ii) Dealing with the said aspect, the Bench held that, “the case clearly falls under the category of true and full disclosure, upon which the first assessment order was passed on the basis that the lands sold were agricultural lands. Therefore, to say, after 4 years that the lands were sold to a real estate company for the purpose of forming a Special Economic Zone, would undoubtedly tantamount to change in opinion, which is not permitted by law. Accordingly allowed the Writ Petition. iii) Similarly, in Commissioner of Income-tax-IV, Hyderabad v. Quality Care India Ltd7 the Division Bench of A.P. High Court was dealing with the situation where the assesse, which is a super speciality hospital, filed returns of income under Section 143(1) of the Act. Subsequently, there was a search and seizure operation under Section 132. Proceedings were initiated under Section 6 [2016] 76 taxmann.com 150 (Andhra Pradesh) 7 [2016] 74 taxmann.com 45 (Andhra Pradesh) 17 153A. Meanwhile, the assessment was complete under Section 143(3) read with Section 153A. After completion of the assessment, the Assessing Officer reopened the assessment under Section 147 by issuing notice under Section 148. On appeal, the Commissioner (Appeals) allowed the appeal of assessee. On further appeal, the Tribunal rejected the revenue’s appeal. The same was challenged before the High Court. It was held that, processing of return was done twice. No reassessment could be initiated taking refugee under Section 147 and accordingly upheld the finding of the Tribunal stating that the case would not fall within the purview of the proviso to Section 147. iv) Similar such view was expressed by a Division Bench of the Delhi High Court in Bharti Infratel Limited v. Deputy Commissioner of Income-tax8 as under: “32. In view of the aforesaid discussion, the writ petition has to be allowed as the jurisdictional pre-conditions in the form of proviso to Section 147 is not satisfied in the facts of the present case. Explanation 1 would not apply as all primary facts were disclosed, stated and were known and in knowledge of the Assessing Officer. Further, this would be a case of ‗change of opinion' as the assessee had disclosed and had brought on record all facts relating to transfer of passive infrastructure, its book value, fair market value as was mentioned in the SOA as also that the transferred passive assets to become property of M/s. Indus Infrastructure Ltd. including the dates of transfer and the factum that one-step subsidiary Bharti Infratel Ventures Ltd. was created for the said purpose. These facts were within the knowledge of the Assessing Officer when he had passed the original assessment order for the Assessment Year 2008-09 on 20th December, 2010. 33. The writ petition is accordingly allowed and Writ of Certiorari is issued quashing the notice for re-assessment dated 31st March, 2015 8 [2019] 101 taxmann.com 285 (Delhi) 18 issued under Section 148 read with Section 147 of the Act for the Assessment Year 2008-09. Writ of Certiorari is also issued quashing the order dated 23 rd February, 2016, passed by the Assessing Officer, rejecting objections filed by the petitioner”. v) It is to be noted that, in the instant case the Notice refers to a failure on the part of the Petitioner to disclose fully and truly all material facts, but, the same does not indicate the exact nature of non-disclosure on the part of the Petitioner. Such a notice is erroneous in law. The contents of the notice if tested with the contents of the counter would show that all the particulars were in-fact disclosed at the time of assessment proceedings and the same was also accepted, which is evident not only from the order of assessment, but, also from the reply given to the audit party. Therefore, it cannot be said that, there was any failure on the part of the Petitioner in disclosing fully and truly all material facts. 18) Issue No. 4 – Reassessment based on mere change of opinion being invalid:- i) A Division Bench of this Court in S.Sreeramachandra Murthy and ors. v. Deputy Commissioner of Income Tax, Visakhapatnam and Ors,9 observed that the duty of assessee does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the Income Tax Officer to draw the correct inference from the primary facts and it is no responsibility of the assessee to advise the Income Tax Officer with regard to the inference which he should draw from the primary facts. If the Income Tax Officer draws an 9 2000(4) ALD 374 19 inference, which was subsequently found to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening the assessment. In fact in the said judgment, the Department has submitted that the petitioner had shown differential cost proportionately in the declarations relating to assessment years filed under KVS scheme and that itself would furnish legitimate basis for re-assessment. But, the Court rejected the contention holding that it cannot go beyond the reasons recorded, nor can it take into account any supplementary reasons which did not enter the mind of the assessing authority at the time of issuing the re-assessment notice. Therefore, mere change in opinion cannot lead to reassessment. 19) Issue No. 5– Reassessment based on audit objections invalid. i) In Indian & Eastern Newspaper Society v. Commissioner of Income-tax10 the three Judge Bench of the Hon’ble Supreme Court dealt with a case, where the assessee was established with the principal object of promoting the welfare and interest of all newspapers. The assessee owns a building in which a conference hall and rooms were let out on rent to its members as well as to outsiders, apart from providing certain services. The income from that source was assessed to tax all along as income from business including the assessment years 1960-61, 1961-62, 1962-63 and 1963-64. In the course of auditing the income-tax records pertaining to the assessment years, the internal audit party of the Income-tax Department expressed the view that the money 10 [1979] 2 Taxman 197 (SC) 20 realised by the assessee on account of the occupation of its conference hall and rooms should not have been assessed under the head “profits and gains of business or profession” but should have been assessed under the head “Income from property\". The Income Tax Officer treated this report as \"information\" in his possession for the purpose of Section 147(b) of the Act and reassessed the income on that basis. The Appellate Assistant Commissioner allowed the appeals and held that, in law it cannot be said that the Income Tax Officer had any \"information\" in his possession enabling him to take action under Section 147(b). ii) On Appeal by the Revenue, the Tribunal sustained the Income Tax Officer’s order. On reference by the assessee and having regard to the difference of opinion between various High Courts, the matter was referred to Hon’ble Supreme Court. The question was whether the Income Tax Officer was legally justified in reopening the assessment under Section 147(b) for the said assessment years on the basis of the view expressed by the internal audit party and received by him, subsequent to the original assessment. After referring to various authorities on the subject, the Hon’ble Apex Court held as under: “20. Therefore, whether considered on the basis that the nature and scope of the functions of the internal audit organisation of the Income Tax Department are co-extensive with that of Receipt Audit or on the basis of the provisions specifically detailing its functions in the Internal Audit Manual Vol. 2, we hold that the opinion of an internal audit party of the Income Tax Department on a point of law cannot be regarded as \"information\" within the meaning of Section 147(b) of the Income Tax Act, 1961. 21 21. The question referred by the Income Tax Appellate Tribunal is answered in the negative, in favour of the assessee and against the Revenue. The assessee is entitled to one set of costs in these appeals”. iii) The learned counsel for the petitioner submits that since re- assessment came to be opened on the basis of the audit objection, the same, according to him, is patently illegal. As seen from the record, the audit party has raised an objection with regard to the claim made by the petitioner in his assessment for the year 2012- 13. The objections raised by the audit party came to be explained by the assessing authority in his letter dated 11.10.2016 and affirmed the view taken earlier by the assessing officer, meaning thereby, no tax can be levied on the income which is reflected under Section 56(2)(viia). The fact that re-assessment came to be re-opened is also evident from the contents of the counter filed by the Department. Subsequent thereto notice came to be issued and the impugned order came to be passed. iv) The issue is whether the authorities were justified in ordering re-assessment basing on audit objections. v) The Judgment in Calcutta Discount Co. Limited v. Income-tax Officer11 was relied upon not only by the Petitioner but also by the Respondents. In the said case, the Constitution Bench dealt with a case where, the Appellant Company was assessed to income tax and orders were respectively passed on January 26, 1944, February 12, 1944, and February 15, 1945, for the assessment years 1942-43, 1943-44 and 1944. On March 28, 11 [1961] 41 ITR 191 (SC) 22 1951, three notices under S. 34 of the Act were issued calling upon the Appellant to submit fresh returns in respect of previous years related to each of the said assessment years. This action was taken after more than four years. The matter fell to be governed by Section 34(1)(a) of the Indian Income-tax Act. The clause provided an extended period for sending a notice calling for a return for the purpose of assessing or reassessing income, profits and gains which had escaped assessment or had been under-assessed for any year within eight years, if the Income-tax Officer\" has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year\", the income, profits or gains chargeable to income-tax have escaped assessment etc. vi) In Sri Krishna Private Limited., ETC v. Income Tax Officer and Others12 the Court held that, assessee's obligation to disclose all material facts fully and truly in the context of the two requirements - conditions precedent which must be satisfied before the Income Tax Officer gets; ii) jurisdiction to re-open the assessment under Section 147 or 148. The court held that, this obligation can neither be ignored nor watered down. Finality of proceedings is certainly a consideration but that avails one who has fully and truly disclosed all material facts necessary for his assessment for that year and not to others. The court further held 12 (1996) 221 ITR 538 23 that, all requirements stipulated by Section 147 will be given equal weight. At the stage of the validity of the notice under Section 148 or 147, the enquiry is only to see whether there are reasonable grounds for the Income Tax Officer to believe and not whether the omission/failure and the escapement of income is established. vii) But as held by us earlier, the notice not only contains the true facts for which it was issued, but, the assessee has placed all the facts truly and clearly before the authorities, which was accepted and even a reply to the said acceptance was given to the audit party. Therefore, the two Judgments relied upon by the Counsel for the Respondents in our view are helpful to the Petitioner as well. 20) In Commissioner of Income-tax v. Lucas T.V.S., Limited13 a three Judge Bench of the Hon’ble Apex Court held as under: “The assessee claimed deduction under Section 35 during the assessment year 1972-73 for the building for which construction was started during assessment year 1970-71 and completed during assessment year 1972-73. In original assessment the Assessing Officer allowed the entire expenditure. However, on basis of report by audit party who had pointed out that under Section 35(1)(iv), read with Section 35(2), only the expenditure incurred for the construction of the building in that assessment year alone can be allowed as deduction and the expenditure incurred in the previous year cannot be allowed in the present assessment year, the Assessing Officer initiated reassessment proceedings. The Tribunal cancelled the order of reassessment. On reference, the High Court held that apart from the information 13 [2001] 117 Taxman 366 (SC) 24 furnished by the audit party, the Assessing Officer had no other information for reopening the assessment under Section 147(b). The opinion expressed by the audit party would go to show that they had pointed out to the Assessing Officer that he failed to apply the provisions contained in Section 35. This would amount to pointing out the law and the interpretation of the provisions contained in Section 35, which is clearly barred by the decision of the Supreme Court in Indian & Eastern Newspaper Society v. CIT14. We have heard the learned counsel for the revenue. Despite his very persuasive argument, we are, on the facts available to us, unable to take a view other than that taken by the Tribunal and the high Court. Accordingly the Appeals were dismissed”. 21) The Counsel for the Respondents relied upon the Judgment in Commissioner of Income Tax v. P.V.S. Beedies Private Limited15 wherein the Supreme Court held that, both the Tribunal and the High Court were in error in holding that the information given by internal audit party could not be treated as information within the meaning of Section 147(b) of the Income Tax Act. The Court held that, the audit party has merely pointed out a fact which has been overlooked by the Income Tax Officer in the assessment, namely, that the recognition granted to the charitable trust which expired on 22-9-1992 was not noticed by the Income Tax Officer. This was not a case of information on a question of law. The court held that, reopening of the case on the basis of a factual error pointed out by the audit party is permissible under law. While making the said observation, the 14 [1979] 119 ITR 996/2 Taxman 197. 15 (1999) 155 CTR 0538 25 court observed that the question of law is now being considered by a larger bench of Apex Court. 22) At this stage, it would be useful to refer to the judgment of the Hon’ble Apex Court in Commissioner of Income-tax v. Corporation Bank Limited16 . It was a case where the assessee was a banking company. The assessment was reopened to bring to tax a sum, in respect of interest suspense account. Statements were filed along with original returns disclosing full details of the aforesaid account. There was no failure on the part of the assessee in furnishing the particulars pertaining to certain sum not recoverable for the relevant accounting year and the statements filed along with the original return disclosed full details of the aforesaid account. The assessee disclosed the sum of Rs. 54,485/- in the balance-sheet as unrealised amount of interest along with the return filed by it and the Income-tax Officer had accepted the return and excluded that amount in the assessment order which was completed on October 4, 1969. The Notice under Section 147(a) of the Act depicts that the assessment was reopened and a sum of Rs. 54,485/- was subjected to tax on the ground that the interest accrued and due on the loans advanced by the bank was the income of the bank for the relevant assessment year and the assessee has failed to disclose this income in the return filed earlier. Two questions were raised and answered before the High Court as under:- 16 [2002] 174 CTR (SC)577 26 \"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the provisions of Section 147(a) are not attracted ? 2. Whether, on the facts and in the circumstance of the case, the Income-tax Appellate Tribunal is right in law in holding that the interest of Rs. 54,485 taken directly to interest suspense account is not assessable to income-tax?\" 6. So far as the second question is concerned, the High Court recorded that the matter need not be gone into by reason of the circular dated October 6, 1952, issued by the Central Board of Direct Taxes. Neither do we feel it necessary to go into the issue any further. 7. Turning attention to the first question as regards the provisions under Section 147(a) be it noted and as the facts depict, there is no failure on the part of the assessee in furnishing the particulars pertaining to the above noted sum as not recoverable for the relevant accounting year and the statements filed along with the original return disclosed the full details of the aforesaid account. There is, therefore, no failure on the part of the assessee to disclose fully and truly the material facts necessary for the assessment years for the respective years and as such Section 147(a) has no manner of application and is not attracted in the facts of the matter under consideration. The High Court on consideration of the facts came to the conclusion that the Tribunal was justified in coming to the said finding and we also record our concurrence therewith”. 23) From the Judgment of the Hon’ble Apex Court referred to above, it is clear that assesse has disclosed this sum in the balance sheet as unrealised amount of interest which was held to be not a case of suppression of income. When there is no failure on the part of the assesse in disclosing fully and truly the material 27 facts necessary for the assessment years for the respective years, Section 147(a) has no manner of application. 24) It is also very clear that, even when the required facts were disclosed in the balance sheet, the same does not amount to incorrect disclosure before the Assessing Officer. As referred by us earlier, in the instant case, these facts were disclosed in cash flow statement, balance-sheet, notes to the financial statements for the year ending 31.03.2012 and the profit and loss accounts/balance sheet. Therefore, it cannot be said that, there was no disclosure of income and that the provisions of Section 147(b) get attracted. 25) Finally, another issue came to be raised by the learned Counsel for the Respondents stating that, since there is alternative remedy, the Petitioner ought not have invoked the jurisdiction of this Court. In Jeans Knit (P.) Ltd v. Deputy Commissioner of Income-tax, Bangalore17 the Hon’ble Supreme Court dealt with the said issue where the High Court dismissed the Writ Petitions preferred by assessee challenging issuance of notice under Section 148 as the same is contrary to law laid down in Calcutta Discount Co. Ltd. v. Income-tax Officer [supra]. While setting aside Orders of the High Court, the matters were remitted to the respective High Courts to decide the Writ Petitions on merits. 26) Having regard to the above, since the proceeding initiated by the authorities is found to be illegal and incorrect on various 17 [2017] 77 taxmann.com 176 (SC) 28 aspects as discussed supra, there is no justification to direct the Writ Petitioner to avail the alternative remedy of appeal. 27) For the aforesaid reasons, the Writ Petition is allowed setting aside the Impugned Order, dated 17.09.2019. No order as to costs. 28) Consequently, miscellaneous petitions, if any, pending shall stand closed. ________________________________ JUSTICE C. PRAVEEN KUMAR ________________________________________________ JUSTICE CHEEKATI MANAVENDRANATH ROY Date: 30.01.2020 Note: LR copy to be marked. SM. 29 HON’BLE SRI JUSTICE C. PRAVEEN KUMAR AND THE HON’BLE SRI JUSTICE CHEEKATI MANAVENDRANATH ROY W.P. No. 15201 of 2019 Date: 30.01.2020 SM. "