Kamal Khata, J
1. The Petitioner challenges the notice under section 148 of the Income-tax Act, 1961 (‘Act’) dated 27th March 2021 for the Assessment Year (‘AY’) 2015-16 issued by Respondent No. 1 for seeking to reopen the said year’s assessment on the ground that income chargeable to tax had escaped assessment as provided in section 147 of the Act. The Petitioner also challenges the order dated 2nd December 2021, rejecting the objections to the proposed action of reopening.
2. Petitioner is a Government Corporation engaged in the business of generation of electricity from atomic energy. In its return of income filed on 30th September 2015, it declared total loss of Rs. 240,87,30,919 under normal provisions and Book Profit at Rs. 2911,17,90,229/- under section (‘u/s’) 115JB of the Act. Its case was selected for scrutiny and assessment u/s 143(3).
3. By a notice u/s 142(1) dated 28th August 2017 the following details were sought from the Petitioner:
i. A copy of the Annual report, tax audit report, e-return, computation of income, working of Book Profits with requisite report, report in form 3 CEB if any. All the above should be accompanied by all the schedules and annexure duly signed.
ii. P & L Account and Balance Sheet for AY and three preceding years in a comparative column format.
iii. Detailed note on nature and modus operandi of the business activities undertaken during the year under consideration. Also mention if there is any change in activities or modus operandi as compared to previous years.
iv. Details of information as per Annexure-A and Annexure- B enclosed to this notice.
4. The Petitioner vide letter dated 20th September 2017 issued response, 6th October 2017 submitted explanation on exclusion/ deduction of certain items of income while computing Book Profits u/s 115JB, 24th October 2017 explained deductibility of expenditure made and 24th November 2017 whereby the Petitioner submitted documents and details sought and during assessment proceedings provided copies of return of income, computation of income and financial statements that were attached to letter dated 19th April 2017. After considering all material the Assessing Officer (‘AO’) passed an order of assessment u/s 143(3) dated 22nd December 2017. An appeal u/s 246A filed by the Petitioner on 25th January 2018 is pending adjudication before Commissioner of Income Tax (‘CIT’) (Appeals)
5. Respondent No.1 issued a notice u/s 148 of the Act dated 27th March 2021 for re-assessment of income/loss for AY 2015-16 and called upon the Petitioner to file return in the prescribed form for the said AY. Petitioner filed return of income in response to the said notice on 23rd April 2021 and sought the recorded ‘reasons to believe’ for issuance of the notice u/s 148 of the Act.
6. On 17th November 2021 the recorded reasons for reopening were supplied which read as under:
i. 2. Subsequently on perusal of the records it was observed vide para no. 5 of the assessment order that the income of undertakings eligible for 80IA deduction had been computed at Rs. 1225,95,39,899/- after considering interest income on Renovation & Modernization (R & M) and on Research and Development (R& D) to the extent of Rs. 19,51,67,851/- as business income eligible for deduction u/s 80IA. The assessee was obliged to adhere to Government Notification issued by Department of Atomic Energy (DAE) effective from December 1988 and amended thereafter from March 2000, whereby the amount collected as Decommissioning levy, Research & Development levy and Renovation and Modernisation levy was to be kept separately distinct from the funds of NPCIL to be used for specific purposes and was not to be construed as part of the general sales income derived from the business. The levy so collected was earmarked and transferred to respective reserve funds for meeting the capital or revenue expenditure which was the sole responsibility of the DAE and any surplus of the funds so utilised was to be invested in specified securities and the uninvested amount would carry interest @ 12 % return which would again form part of the reserve funds. Additions had been made to the aforesaid income i.e. the respective levies and the interest income earned from the investment in securities made from the respective reserve funds considering the same as taxable receipts.
ii. Further it was noticed that aforesaid interest income earned from the investments of the funds kept separately for meeting R & M and R & D cannot be construed to have been derived from the eligible business activity of the undertaking. There is no first degree nexus between income and the business of the assessee. Hence, the interest incomes are not eligible for deduction u/s 80IA of the Act and therefore should have been disallowed. However, this was not done and resulted in excess allowance of deduction of Rs. 19,51,67,651/- u/s80IA leading to under assessment of income to the same extent.
iii. 2.2 Further, it was also observed that the assessee had debited an amount of Rs. 4.89 crore in the statement of Profit and Loss account towards R & D expenditure and credited the said amount as transferred or withdrawn from the R&D Reserve Fund. While computing book profit assessee claimed reduction of the aforesaid amount of Rs. 4.89 crore being with-drawn from the R&D Reserve Fund and the same was ac-cepted while assessment. This was not in consonance with the provisions prescribed under section 115 JB as the afore-said amount was never routed through P&L account and not considered for book profit. Allowance of the adjustment amount towards withdrawn from the R&D fund against the book profits resulted in under assessment of income to the extent of Rs. 4,89,49,733/-.
iv. 2.3. Therefore I am of the view that income to the ex-tent of amount of Rs. 4,89,49,733 as explained above, has es-caped assessment.
7. Petitioner submitted objections on 22/24th November 2021 to the proposed action whereby all material facts and explanations, were reiterated in addition to the material were fully and truly disclosed in the original assessment. The objections were based inter alia on the grounds that reopening beyond four years was not based on any tangible material, there was no failure to disclose fully and truly material facts for the assessment, the action was based on change of opinion not supported by any tangible material, sanction was not in accordance with section 151 of the Act, etc. The said objections were rejected by an order dated 2nd December 2021.
8. Petitioner has, therefore filed the present Petition, challenging impugned notice and impugned order issued by the Respondent No. 1 on the ground that the jurisdictional requirement for reopening had not been satisfied in the present case. It was urged that the AO had failed to state in the reasons recorded, what material facts, necessary for the assessment, were not disclosed fully and truly that could be construed as the failure on the part of the assessee.
9. Secondly, it was urged that there was no new tangible material with the AO, that would support his ‘reason to believe’. It was stated that the reassessment proceedings were nothing but ‘a change of opinion’ as the entire issue with regard to the interest income on the funds collected as R & D and R & M funds to be treated as income under the normal provision and 115JB of the Act was decided against the Petitioner and is pending decision before the CIT (A) in an appeal filed.
10. Respondent No. 1 in its reply stated that action u/s 147 was permissible even if the AO gathered his reasons to believe from the very same record as had been the subject matter of completed assessment and placed reliance on the decision of the Delhi High Court in the case of M/s Consolidated Photo & Finvest Ltd. v ACIT 2006) 151 taxman 41 (Del) . With regard to the ground that the proceedings were initiated beyond 4 years in absence of any allegation of failure to disclose truly and fully all the material facts it was urged that the same is purely a question of fact and at most a mixed question of fact and law consequently this Court in its writ jurisdiction should not interfere and the matter ought to be relegated to the CIT (A) for a decision thereon placing reliance on decisions in the case of Export Credit Guarantee Corporation (I) Ltd v ACIT & Ors Writ Petition No. 502 of 2012 (Bom) paragraph 8. and CIT VI vs M/s Usha International Ltd ITA No. 2026/2010 dated 21-9-12 (Del). It was further urged that the issue of allowability of deduction would be decided during the finalization of reopened assessment. It was also contended that since there was no finding either positive or negative during the original assessment proceedings there was no question of change of opinion placing reliance on the following judgments:
i. Kalyanji Mavji & Co vs CIT102 ITR 287 (SC)
ii. Ess Ess Kay Engineering P. Ltd vs CIT247 ITR 818 (SC)
iii. ITO v Purushottam Das Bangur224 ITR 362 (SC)
11. Section 147 of the Act permits Respondent No.1 to reopen an assessment, provided he has reasons to believe that income has escaped assessment. However, the exercise of such power is circumscribed by the first proviso. It is now well settled that unless any income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, the AO has no jurisdiction for reassessment.
12. The criteria for reopening of assessment after a period of four years are no longer respondent integra in view of the judgment of this Court in the case of Ananta Landmark P. Ltd v Dy. CIT[2021] 131 taxmann.com 52 (Bom) = [2021] 439 ITR 168 (Bom) wherein this Court held that where assessment was not sought to be reopened on the reasonable belief that income had escaped assessment on account of failure of assessee to disclose truly and fully all material facts that were necessary for computation of income but was a case where assessment was sought to be reopened on account of change of opinion of AO the said reopening was not justified. It is also held that where primary facts necessary for assessment are fully and truly disclosed the AO is not entitled to reopen the assessment on a change of opinion. It is held that while considering the material on record, one view is conclusively taken by AO, it would not be open for the AO to reopen the assessment based on the very same material and take another view.
13. We are unable to agree with the contentions of the Respondents on all counts. In our view, the reliance placed on the decision in the case of M/s Consolidated Photo & Finvest Ltd. (supra) in an affidavit was unconscionable and misleading in as much as the full bench of the Delhi High Court has dissented from the decision in the case of CIT v Usha International Ltd. [2012] 348 ITR 485where it was held that the principle of change of opinion cannot be a basis for reopening completed assessments where AO has applied his mind and taken a conscious decision on a particular matter in issue. Moreover, the decision of the AO u/s 143(3) dated 22nd December 2017 is against the Petitioner who has filed an appeal therefrom that is pending adjudication before the CIT (A). Furthermore, a perusal of the reasons recorded by Respondent No.1 indicates that the Respondent No. 1 has relied upon facts and figures available from the audited account. It appears that there was no tangible material available on record to conclude that income had escaped assessment. The ratio in the case of Ananta Landmark (supra) is clearly applicable to the facts of this case.
14. For the aforesaid reasons, the AO has acted in excess of the limit of his jurisdiction to reopen the assessment in the exercise of powers under section 147 read with section 148 of the Act. Accordingly the Petitioner would be entitled to succeed in this proceeding.
15. We, therefore pass the following order-
i. The impugned notice dated 27th March 2021 and the order dated 2nd December 2021 issued / passed by Respondent No. 1 for AY 2015-16 are quashed and set aside;
ii. Rule made absolute in above terms.
iii. CIT (A) to decide the appeal preferably within 6 months of this order.
