Tulsi Developers v. Dy. CIT - Taxpublishers.in

Case Laws Analysis
Relied CIT v. Kelvinator of India Ltd. 2010 TaxPub(DT) 1335 (SC)
Relied CIT v. Paramount Premises (P) Ltd. 1991 TaxPub(DT) 0582 (Bom-HC)

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The Tax PublishersSpecial Civil Appln. No. 14455 of 2010 2012 TaxPub(DT) 0107 (Guj-HC) : (2013) 353 ITR 0530 : (2012) 246 CTR 0106 : (2011) 059 DTR 0351 INCOME TAX ACT, 1961 --Reassessment--Reason to believeChange of opinion--The petitioner, a partnership-firm, submitted a return of income for assessment year 2005-06 on 29-10-2005. The return was accompanied by the computation of income and audit report wherein the petitioner had specifically claimed a deduction of Rs. 5,50,000 by way of remuneration to partners and interest to partners of Rs. 2,74,905. During the course of scrutiny assessment under section 143, assessing officer sent a questionnaire along with notice under section 142(1) dated 4-9-2006. The petitioner complied with the requisition by a letter dated 18-9-2006. Assessing officer, thereafter, framed assessment under section 143(3) computing the business income at Rs. 22,59,221 and specifically gave deduction of interest of Rs. 2,74,905 and salary to partners of Rs. 5,50,000 and thus computed the total income at Rs. 14,34,316 which came to be rounded off at Rs. 14,34,320. Thereafter, the petitioner received the impugned notice dated 5-2-2010 for assessment year 2005-06 stating that income had escaped assessment and asked the petitioner to file the return of income. Reasons for reopening also came to be furnished to the petitioner whereupon, the petitioner filed objections to the proposed reassessment by a letter dated 6-4-2010. The respondent rejected the said objections by an order dated 12-10-2010. After passing the objections disposal order, even before the petitioner received the same, the respondent issued notices dated 14-10-2010 under section 133(6) to various parties who had deposits with the petitioner and also reminded them of the provisions of section 272A(2)(c) in case of non-compliance of section 133(6) notices. Being aggrieved, the petitioner had filed the present petition challenging the notice issued under section 148 as well as the order rejecting the objections, dated 12-10-2010. *Held:* One needs to give a schematic interpretation to the words 'reason to believe' failing which, section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen; the reopening of assessment is bad in law. A perusal of the reasons recorded shows that the main ground for reopening the assessment is that FDR bank interest of Rs. 2,43,927 received by the firm and credited to the P&L a/c was required to be excluded while computing book profit under section 40(b). If the said amount were excluded, the allowance towards partners' salary would come to Rs. 4,54,430 as against Rs. 5,50,000 allowed by the assessing officer, resulting in short levy of tax plus interest of Rs. 46,773. The other ground is that the income of Rs. 2,43,927 received from interest is to be excluded while working out the book profit under section 40(b) and that if the income of the petitioner is computed after excluding the interest income from the book profit under section 40(b) the total income chargeable to tax which has escaped assessment would come to Rs. 97,570. [Para 7] A perusal of the assessment order as originally framed under section 143 indicates that while computing the profit as per the P&L a/c, the assessing officer has added interest to partners and remuneration to partners and thereafter, allowed deduction thereof, which clearly exhibits due application of mind on the part of the assessing officer. The Assessing officer has also disallowed Rs. 7,01,119 under section 40(a)(ia) which resulted in considerable increase in the total income. The Assessing officer while recording the reasons has lost sight of this fact, namely that the total income has increased from Rs. 7,26,980 as declared in the return to Rs. 14,34,320 in view of the aforesaid disallowance and therefore, the remuneration to partners of Rs. 5,50,000 as claimed by the petitioner would still be allowable even if the FDR bank interest is not taken into consideration while computing book profit. Hence, income chargeable to tax to the tune of Rs. 46,773 cannot be said to have escaped assessment. The ground of reopening is therefore, misconceived. [Para 8] Insofar as the exclusion of interest income while computing book profit is concerned, it is apparent that during the course of assessment proceedings, the entire facts regarding FDR bank interest were furnished to the then assessing officer who appears to have been of the opinion that the entire investment and income pertains to business only and accordingly net income was worked out and salary paid to partners under section 40(b) came to be computed. Considering the material placed before the assessing officer, it would appear that the assessing officer must have applied his mind in taking into consideration the interest income while computing book profit under section 40(b). Once the view taken by the assessing officer is a plausible view, reopening of assessment on the ground that another view which is more beneficial to the revenue is possible, is nothing but a mere change of opinion. One needs to give a schematic interpretation to the words 'reason to believe' failing which, section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen; the reopening of assessment is bad in law. [Para 9] SUBSCRIBE FOR FULL CONTENT

The Tax PublishersSpecial Civil Appln. No. 14455 of 2010
2012 TaxPub(DT) 0107 (Guj-HC) : (2013) 353 ITR 0530 : (2012) 246 CTR 0106 : (2011) 059 DTR 0351

INCOME TAX ACT, 1961

--Reassessment--Reason to believeChange of opinion--The petitioner, a partnership-firm, submitted a return of income for assessment year 2005-06 on 29-10-2005. The return was accompanied by the computation of income and audit report wherein the petitioner had specifically claimed a deduction of Rs. 5,50,000 by way of remuneration to partners and interest to partners of Rs. 2,74,905. During the course of scrutiny assessment under section 143, assessing officer sent a questionnaire along with notice under section 142(1) dated 4-9-2006. The petitioner complied with the requisition by a letter dated 18-9-2006. Assessing officer, thereafter, framed assessment under section 143(3) computing the business income at Rs. 22,59,221 and specifically gave deduction of interest of Rs. 2,74,905 and salary to partners of Rs. 5,50,000 and thus computed the total income at Rs. 14,34,316 which came to be rounded off at Rs. 14,34,320. Thereafter, the petitioner received the impugned notice dated 5-2-2010 for assessment year 2005-06 stating that income had escaped assessment and asked the petitioner to file the return of income. Reasons for reopening also came to be furnished to the petitioner whereupon, the petitioner filed objections to the proposed reassessment by a letter dated 6-4-2010. The respondent rejected the said objections by an order dated 12-10-2010. After passing the objections disposal order, even before the petitioner received the same, the respondent issued notices dated 14-10-2010 under section 133(6) to various parties who had deposits with the petitioner and also reminded them of the provisions of section 272A(2)(c) in case of non-compliance of section 133(6) notices. Being aggrieved, the petitioner had filed the present petition challenging the notice issued under section 148 as well as the order rejecting the objections, dated 12-10-2010. Held: One needs to give a schematic interpretation to the words 'reason to believe' failing which, section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen; the reopening of assessment is bad in law.

A perusal of the reasons recorded shows that the main ground for reopening the assessment is that FDR bank interest of Rs. 2,43,927 received by the firm and credited to the P&L a/c was required to be excluded while computing book profit under section 40(b). If the said amount were excluded, the allowance towards partners' salary would come to Rs. 4,54,430 as against Rs. 5,50,000 allowed by the assessing officer, resulting in short levy of tax plus interest of Rs. 46,773. The other ground is that the income of Rs. 2,43,927 received from interest is to be excluded while working out the book profit under section 40(b) and that if the income of the petitioner is computed after excluding the interest income from the book profit under section 40(b) the total income chargeable to tax which has escaped assessment would come to Rs. 97,570. [Para 7] A perusal of the assessment order as originally framed under section 143 indicates that while computing the profit as per the P&L a/c, the assessing officer has added interest to partners and remuneration to partners and thereafter, allowed deduction thereof, which clearly exhibits due application of mind on the part of the assessing officer. The Assessing officer has also disallowed Rs. 7,01,119 under section 40(a)(ia) which resulted in considerable increase in the total income. The Assessing officer while recording the reasons has lost sight of this fact, namely that the total income has increased from Rs. 7,26,980 as declared in the return to Rs. 14,34,320 in view of the aforesaid disallowance and therefore, the remuneration to partners of Rs. 5,50,000 as claimed by the petitioner would still be allowable even if the FDR bank interest is not taken into consideration while computing book profit. Hence, income chargeable to tax to the tune of Rs. 46,773 cannot be said to have escaped assessment. The ground of reopening is therefore, misconceived. [Para 8] Insofar as the exclusion of interest income while computing book profit is concerned, it is apparent that during the course of assessment proceedings, the entire facts regarding FDR bank interest were furnished to the then assessing officer who appears to have been of the opinion that the entire investment and income pertains to business only and accordingly net income was worked out and salary paid to partners under section 40(b) came to be computed. Considering the material placed before the assessing officer, it would appear that the assessing officer must have applied his mind in taking into consideration the interest income while computing book profit under section 40(b). Once the view taken by the assessing officer is a plausible view, reopening of assessment on the ground that another view which is more beneficial to the revenue is possible, is nothing but a mere change of opinion. One needs to give a schematic interpretation to the words 'reason to believe' failing which, section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen; the reopening of assessment is bad in law. [Para 9]