(Per : HONOURABLE MR.JUSTICE V. M. SAHAI) 1. We have heard Mr. Deepak Shah, learned counsel appearing for the petitioner and Mr. Sudhir Mehta, learned counsel appearing for the respondent. The draft amendment is allowed. The petitioner to carry out the amendment in the writ petition forthwith.
2. Rule. Mr. Sudhir Mehta, learned counsel appearing for the respondent waives service of rule on behalf of respondent. With the consent of learned counsel for the parties, we have taken up this matter for final disposal today itself.
3. The petitioner is a company engaged in the business of entertainment complex in the name of “R World” wherein the company is running a cinema theater together with entertainment activities like restaurant, bowling alley, video games, go-carting etc. The petitioner has filed his return of income on 30.12.2006 for the Assessment Year (for short the 'A.Y.') 2006-07 under Section 139(1) of the Income Tax Act, 1961 (for short 'the Act') declaring Rs.51,22,856/- as his gross total income. After set off of brought forward losses of over Rs.516 Lacs, the total income as per the regular provisions of the Act was declared at NIL. Since the tax payable on such income was less than 7.5% of the book profit as per the provisions of section 115JB of the Act, book profit of Rs.39,34,586/- was declared as total income and tax thereon at the rate of 7.5% plus applicable surcharge, amounting to Rs.3,31,095/- was declared payable by the petitioner. The return filed by the petitioner was accompanied by statement of total income, annual audited accounts and audit report obtained under section 44AB of the Act.
4. The petitioner on 18.10.2007 filed revised return of income under section 139(5) of the Act declaring gross total income at Rs.60,51,569/- and after set off of brought forward losses of over Rs.516 Lacs, the total income as per the regular provisions of the Act was NIL. Since the tax payable on such income was less than 7.5% of the book profit. Therefore, as per the provisions of section 115JB of the Act, the petitioner was required to pay tax on book profit. The petitioner had declared book profit of Rs.39,34,586/- and his total income and tax thereon at the rate of 7.5% plus applicable surcharge amounting to Rs.3,31,095/- was declared as tax payable.
5. The return was selected for scrutiny and the Assessing Officer issued notice under section 143(2) of the Act to the petitioner on 23.10.2007. A notice under section 142(1) of the Act was also issued on 4.11.2008 calling for various details including, details of depreciation claimed which were furnished by the petitioner. The Assessing Officer thereafter accepted that book profit of petitioner was Rs.39,34,586/- under section 115JB of the Act and passed an assessment order on 18.12.2008 under section 143(3) of the Act. Within a period of four years, the Assessing Officer has issued notice on 7.3.2011 under section 148 of the Act for reopening the original assessment of the petitioner for the A.Y. 2006-07. After receipt of the notice, the petitioner by his letter dated 14.6.2011 requested the Assessing Officer to furnish the reasons recorded by him under section 147 for issuing notice under section 148 of the Act. The reason recorded on 22.2.2011 was supplied to the petitioner on 12.9.2011. The petitioner filed his objections to the notice under section 148 of the Act on 14.11.2011. The Assessing Officer by his order dated 16.11.2011 rejected the objection dated 14.11.2011.
6. By means of the instant writ petition, the petitioner has challenged the notice dated 7.3.2011 issued by the Assessing Officer under section 148 of the Act. By way of amendment, the petitioner has challenged the order dated 16.11.2011 passed by the Assessing Officer rejecting the objections of the petitioner and has also challenged the reassessment order dated 5.12.2011 passed by the Assessing Officer, which had been passed during the pendency of this writ petition.
7. Before we consider the rival contentions of learned counsel for the parties, we deem it necessary to extract the reasons recorded on 22.2.2011 by the Assessing Officer under section 147 of the Act:
“On perusal of the assessment records, it is seen that during the previous year relevant to A.Y. 2006-07, total depreciation claimed and allowed was Rs.1,14,85,052/- which included depreciation on “Cinema machinery' at the rate of 15% on w.d.v. Of Rs.1,84,14,697/-. On verification of records, it was also seen that Rs.1,84,14,697/- was the w.d.v. of 'Furniture & Fittings' and not of 'Cinema machinery'. As such the depreciation allowed was amounting to Rs.27,86,142/- @ 15% instead of depreciation allowable to the tune of Rs.18,57,427/- @ 10%. Thus excess depreciation allowed is to the tune of Rs.9,28,715/-.
2. Therefore, I have reasons to believe that income of the assessee to the extent of Rs.9,28,715/- has escaped assessment by reason of excess allowance of depreciation, within the meaning of Section 147 of the Income Tax Act, 1961. On this issue no opinion was formed in the regular assessment.
3. Issue notice u/s. 148 of the I.T. Act, 1961.”
8. It is not disputed by learned counsel for the respondent Mr. Sudhir Mehta that in the revised return, the petitioner has corrected the rate of depreciation claimed on furniture’s and fittings and has claimed depreciation only at the rate of 10%. He also does not dispute that the claim of excess depreciation will have no effect on the income of the petitioner computed under section 115JB of the Act as the income of the petitioner has to be taken which is shown as per book profit.
9. The question that arises for consideration is whether the Assessing Officer had jurisdiction to reopen the assessment proceedings under section 148 of the Act or his opinion about escapement of income from tax amounts to change of opinion and akin to power of review? The Apex Court in Commissioner of Income Tax v. Kelvinator of India Limited [2010] 320 ITR 561 (SC) has explained the law that the Assessing Officer while exercising powers of reassessment cannot reopen an assessment on mere change of opinion. The power of reassessment could be exercised by the Assessing Officer provided there was some “tangible material” to come to the conclusion that there was escapement of income from reassessment. Reason must have a link with the formation of the brief. The relevant part of the judgment is extracted below:
“Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, 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. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain preconditions and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of reopening 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, the Assessing Officer has power to reopen, provided that 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.”
10. The case in hand, is having almost similar facts, as were before a Division Bench of this Court in Special Civil Application No.14139 of 2010, decided on 24.1.2011, PKM Advisory Services Pvt. Ltd. v. Income Tax Officer, wherein it was held as under:
“In the circumstances, when the tax payable as per the reasons recorded is less than the tax paid by the petitioner under the assessment framed under section 143(3) of the Act, the question of any income having escaped assessment does not arise. The order recording reasons, itself indicates that in fact, no income has escaped assessment and as such, there is no basis for the formation of belief that income has escaped assessment. In the circumstances, the basic pre- condition of reopening assessment under section 147 of the Act, namely, that the Assessing Officer should have reason to believe that income has escaped assessment is not satisfied. In the circumstances, the assumption of jurisdiction by the Assessing Officer by issuing notice under section 148 of the Act as well as all the proceedings pursuant thereto cannot be sustained.”
11. The Division Bench of Delhi High Court in Legato Systems (India) (P) Ltd. v. Deputy Commissioner of Income Tax (2010) 187 Taxman 294 in paragraph 5 has held as under:
“A reference to the reasons for reopening of the assessments, the underlined portions in para 2 above, shows that there is no new material for reopening the assessments and the officer issuing the notices in facts, relies upon the record and the correspondence on the very subject in the regular assessment proceedings. Clearly therefore, the notices are an abuse of the process of law because in the facts, such as those found in the present cases, if 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.”
12. The Bombay High Court in Aventis Pharma Ltd. v. Assistant Commissioner of Income Tax and others, (2010) 323 ITR 570 has held in paragraph 10 as under:
“There is merit in the submission which has been urged on behalf of the assessee that there was no tangible material before the AO on the basis of which the assessment could have been reopened and what is sought to be done is to propose a reassessment on the basis of a mere change of opinion. This, in view of the settled provisions of law is impermissible. No tangible material is shown on the basis of which the assessment is sought to be reopened. In the absence of tangible material, what the AO has done while reopening the assessment is only to change the opinion which was formed earlier on the allowability of the deduction. The power to reopen the assessment is conditional on the formation of reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power. There is no tangible material in the present case.”
13. From the aforesaid decisions, it is clear that Assessing Officer has wide powers to reopen the assessment proceedings if any income chargeable to tax has escaped assessment. In the instant case return was scrutinized, therefore, the Assessing Officer did not had any reason to believe and form an opinion, that in regular assessment no opinion was formed by him on the returns filed by the petitioner. There was no tangible material available on record for forming an opinion on the basis of which reassessment proceedings could be initiated. In absence of any tangible material, the reason recorded under section 147 of the Act was nothing but a mere change of opinion by the Assessing Officer. If we examine the reasons recorded by the Assessing Officer, he was of the opinion that the income chargeable to tax had escaped assessment, as excess depreciation of Rs.9,28,715/- was claimed by the assessee. Even if the excess amount of depreciation claimed by the assessee is added to the amount computed under the ordinary provisions of the Act, the aggregate amount of tax would be less than the amount of tax paid by the petitioner on being assessed under section 115JB of the Act. In other words, according to the Assessing Officer, depreciation at the rate of 10% was allowable instead of 15% to the assessee, but the assessee has claimed depreciation at the rate of 15%. Though the assessee has filed revised return and has claimed depreciation at the rate of 10% only, it will have no effect, so far as the income of the petitioner is concerned or tax payable by him. If depreciation is taken to be 10% or 15% so far as the income of the assessee is concerned, it has to be assessed as per the book profit under section 115JB because the income of the petitioner is less than 7.5% of the book profit. Therefore, we are of the considered opinion that no income chargeable to tax has escaped assessment and the assumption of jurisdiction by the Assessing Officer by issuing notice under section 148 is illegal and the proceedings under section 148 cannot be maintained and the notice under section 148 of the Act deserves to be quashed.
14. The learned counsel for the revenue has vehemently urged that since the assessee has filed an Appeal therefore, the present writ petition is not maintainable. A Division Bench of this Court in Vishwanath Engineers v. Assistant Commissioner of Income Tax [2012] 207 Taxman 121 (Guj) has held that when a writ petition has been filed challenging the notice under section 148 of the Act and an assessment order is passed by the Assessing Officer, then the notice as well as the assessment order both can be quashed under Article 226 of the Constitution of India. The Division Bench has further held that if during pendency of the writ petition challenging the reassessment order under Section 148 the petitioner files a regular appeal, even then the writ petition would be maintainable. It held in paragraph 11 as under :
“It is now settled law that if a litigant has concurrent remedies against the selfsame order, it can avail of the both without prejudice to his rights and contentions made therein unless there is a specific bar created by statute in the matter of availing both the remedies.”
15. In view of the aforesaid discussions, we are of the considered opinion that the notice issued by the Assessing Officer to the petitioner was without jurisdiction as it was issued on non- existent grounds, because no income chargeable to tax had escaped assessment. The income of the petitioner will be NIL because his income has to be assessed as per the book profit under section 115JB of the Act. Thus, notice under section 148 of the Act deserves to be quashed and the reassessment order, consequently, SCA/17673/2011 10/10 JUDGMENT will also fall.
16. For the aforesaid reasons, the petition succeeds and is allowed. The notice dated 7.3.2011 issued by the Assessing Officer under section 148 of the Income Tax Act, 1961, the order dated 16.11.2011 passed by him rejecting the objections of the petitioner as well as the reassessment order dated 5.12.2011 are quashed. Rule is made absolute. There shall be no order as to costs.
Sd/-
[V. M. SAHAI, J.] Sd/-
[N. V. ANJARIA, J.] Savariya