STATE BANK OF PATIALA vs. COMMISSIONER OF INCOME TAX AND ANR.

Facts

The petitioner, State Bank of Patiala, filed writ petitions challenging the order dated 25.03.2013 by the Assistant Commissioner of Income Tax (ACIT) rejecting its objections to notices issued under Section 148 of the Income Tax Act, 1961, for reopening assessments for AY 2005-06, 2006-07, and 2007-08. The bank had claimed depreciation at 60% on ATMs by treating them as computers, which was allowed in original assessments under Section 143(3) for AY 2005-06 and 2006-07. After four years, notices were issued under Sections 147 & 148, citing that in subsequent years (2008-09), depreciation on ATMs was disallowed at 60% and only 15% was allowed, leading to an addition of ₹3,71,00,000. The bank contended this was a change of opinion, impermissible after four years without failure to disclose material facts. The ACIT rejected objections, stating ATMs were not separately shown for depreciation and this aspect came to light later.

Held

The High Court allowed the writ petitions, quashing the notices dated 27.03.2012 and the order dated 25.03.2013. The Court held that the notices issued for reopening the assessments did not fulfill the mandatory requirement of recording that the assessee had failed to disclose fully and truly all material facts, which is a necessary condition for reopening after four years. The reasons recorded by the AO for reopening were based on a subsequent year's assessment where depreciation on ATMs was disallowed. The Court found that this constituted a "change of opinion" by the AO, which is not a valid ground for reopening assessments, especially after the original assessments had been concluded. The Court relied on the Supreme Court's decision in CIT, Delhi vs. Kelvinator of India Ltd. [2010] 320 ITR 561, which held that jurisdiction for reopening cannot be conferred on the basis of a "mere change of opinion" and that such a change is not a relevant ground for forming a "reason to believe" for issuing a notice under Section 147. The Court concluded that the AO was reviewing his earlier decision, which is impermissible. No issue was expressly left undecided.

Key Issues

1. Whether the reopening of assessment under Section 147 of the Income Tax Act, 1961, for AY 2005-06 and 2006-07 was valid, given that more than four years had expired from the end of the relevant assessment year and the Assessing Officer (AO) had not recorded a finding that the assessee had failed to disclose fully and truly all material facts, thereby constituting a "change of opinion"? 2. Whether the reopening of assessment under Section 147 of the Income Tax Act, 1961, for AY 2007-08 was valid, on the ground that it was based solely on a "change of opinion"? Assessee's Contentions: The assessee argued that since more than four years had passed since the original assessment orders, reopening was only permissible if there was a failure to disclose fully and truly all material facts. They contended that all material facts were disclosed, and the notices were based on a "change of opinion" by the successor AO, which is impermissible. Reliance was placed on judgments from the Bombay High Court (CIT vs. M/s Saraswat Infotech Ltd.) and ITAT rulings (New Delhi and Bangalore Benches) supporting the claim that ATMs are computers eligible for 60% depreciation. Revenue's Contentions: The revenue justified the reopening by stating that the AO had reason to believe income had escaped assessment because the ATM was not a computer, full disclosure was not made in the annual report, and depreciation at 33.33% on a straight-line method was provided. They asserted that necessary permission was taken from the competent authority before issuing the notice.