THE PRINCIPAL COMMISSIONER O vs. M/S.MANSI FINANCE (CHENNAI)

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TCA/71/2021HC Madras23 February 2021Bench: Hon`ble Mr Justice T. S. SIVAGNANAM8 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the reopening of the assessment was invalid and constituted a change of opinion. The Court noted that there was no allegation against the assessee for failing to fully and truly disclose all details during the initial assessment under Section 143(3). The Tribunal was therefore correct in holding that there was no negligence on the part of the assessee. Consequently, the reason for reopening, which was to recalculate expenditure under Section 14A based on a different interpretation of Rule 8D(2), clearly amounted to a change of opinion. The Court distinguished the facts of the case from the P.V.S. Beedies P. Ltd. decision, finding it not applicable. The appeal filed by the Revenue was dismissed, and the substantial questions of law were answered against the Revenue.

What were the facts?

The Revenue, represented by the Principal Commissioner of Income Tax, Chennai, filed an appeal before the High Court against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had allowed the assessee's appeal, holding that the reopening of assessment by the Assessing Officer was invalid due to a change of opinion. The assessment year in question is 2008-09. The Assessing Officer reopened the assessment based on the calculation of expenditure in relation to income not includable in total income under Section 14A, stating it should have been calculated as per clause (ii) of Rule 8D(2) and not just clause (iii). The assessee contended that reopening beyond four years requires failure to disclose fully and truly, and otherwise amounts to a change of opinion. The CIT(A) had dismissed the assessee's appeal.

What were the issues?

1. Whether, on the facts and in law, the ITAT was right in holding that the reopening of assessment under Section 147 of the Income Tax Act, 1961, is invalid? 2. Whether, on the facts and in law, the ITAT was right and justified in holding that the reopening of the assessment by the Assessing Officer constitutes a change of opinion? Assessee's contentions: The assessee argued that reopening beyond four years is permissible only if the assessee failed to fully and truly disclose all facts. If such failure is not present, reopening amounts to a change of opinion. The assessee relied on the principle that a change of opinion, without any new material or failure to disclose, invalidates reopening. Revenue's contentions: The Revenue argued that reopening is valid if an audit department points out an overlooked fact, and based on such a report, the assessment is reopened. The Revenue relied on the Supreme Court decision in CIT Vs P.V.S. Beedies P. Ltd. to support this argument.

Which sections of the Income-tax Act were involved?

Section 14A,Section 143(3),Section 147,Section 260A

AI-generated summary — verify with the full judgment below

TCA.No.71 of 2021 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 23.02.2021 CORAM : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Ms.Justice R.N.MANJULA Tax Case Appeal No.71 of 2021 The Principal Commissioner of Income Tax, Corporate Circle - 4(1), Chennai - 34. ...Appellant Vs M/s.Mansi Finance (Chennai) Ltd., No.22, Mulla Sahib Street, Sowcarpet, Chennai - 600 079. ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 19.06.2018 made in ITA.No.2651/Chny/2017 on the file of the Income Tax Appellate Tribunal, Madras 'D' Bench, for the assessment year 2008-09. For Appellant: Mr.R.Karthik Ranganathan, SSC assisted by Mr.S.Rajesh, JSC For Respondent: Mr.G.Baskar assisted by Ms.S.Sriniranjani 1/8 https://www.mhc.tn.gov.in/judis/ TCA.No.71 of 2021 JUDGMENT (Delivered by

T.S.Sivagnanam,J

) This appeal, filed by the Revenue under Section 260A of the Income Tax Act, 1961 ('the Act' for brevity) is directed against the order dated 19.06.2018 made in ITA.No.2651/Chny/2017 on the file of the Income Tax Appellate Tribunal, Madras 'D' Bench ('the Tribunal' for brevity) for the assessment year 2008-09. 2. The Revenue has raised the following substantial questions of law for consideration: "1. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is right in holding that the re-opening u/s 147 of the Income Tax Act is invalid? 2. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was right and justified in holding that the re-opening of the assessment by the Assessing Officer is change of opinion?" 3. We have heard Mr.R.Karthik Ranganathan, learned Senior Standing Counsel assisted by Mr.S.Rajesh, learned Junior Standing 2/8 https://www.mhc.tn.gov.in/judis/ TCA.No.71 of 2021 Counsel appearing for the appellant-Revenue and Mr.G.Baskar, learned counsel assisted by Ms.S.Sriniranjani, learned counsel for the respondent. 4. The short issue, which falls for consideration, is whether the reopening of the assessment done by the Assessing Officer culminated in the assessment order dated 30.12.2016 was valid. 5. As could be seen from the assessment order, the reason for re- opening is as hereunder: "The expenditure in relation to income not includable in total income under Sec. 14A was calculated as per clause (iii) of Rule 8D(2), only, the same should also have been calculated as per clause (ii) of Rule 8D(2), which works out to Rs.6,97,838/-, since the amount of interest expenditure incurred being Rs.37,09,570/-." 6. The assessee resisted the notice issued for reopening by contending that the reopening have been done beyond the period of four years. Unless the assessee fails to fully and truly disclose all facts, 3/8 https://www.mhc.tn.gov.in/judis/ TCA.No.71 of 2021 reopening cannot be done and if done so, it would amount to change of opinion. The Assessing Officer did not accept the contention of the assessee and completed the assessment. Aggrieved by the same, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-8, Chennai [CIT(A)], which was dismissed by order dated 23.08.2017. Challenging the said order, the assessee went before the Tribunal and the Tribunal, by the impugned order, has allowed the appeal holding that the reassessment proceeding was a clear case of change of opinion. Aggrieved by the order passed by the Tribunal, the Revenue has filed the present appeal. 7. Mr.R.Karthik Ranganathan, learned Senior Standing Counsel would place heavy reliance on the decision of the Hon'ble Supreme Court in the case of CIT Vs P.V.S. Beedies P. Ltd. reported in (1999) 103 Taxman 294. This judgment is pressed only to support his argument that if an audit department points out a fact, which is being overlooked by an Assessing Officer and based on such report, if an assessment is reopened, it would be valid in law. 4/8 https://www.mhc.tn.gov.in/judis/ TCA.No.71 of 2021 8. Firstly, we need to see as to whether there is any allegation against the respondent-assessee having failed to fully and truly disclose all the details before the Assessing Officer when the assessment was initially completed under Section 143(3) of the Act on 31.12.2010. Admittedly, there is no allegation against the assessee and the Tribunal was right in holding that there was no negligence on the part of the assessee in furnishing necessary materials in completing the assessment. If such is the admitted factual position, the reason for reopening, stating that expenditure in relation to income not includable in total income under Section 14A of the Act should be calculated as per Clause (ii) of Rule 8D(2), would clearly amount to change of opinion. 9. The stand taken by the Revenue before us by placing reliance on the decision in the case of P.V.S. Beedies P. Ltd. is not substantiating their case on account of the factual position in the case of P.V.S. Beedies P. Ltd. In the said case, the audit department noted that the trust under the name of P.V.S. Memorial Charitable Trust had been initially granted recognition, which had expired on 22.09.1972 and therefore for the relevant years under consideration in the said case, namely AY 1974-75 and 1975-76, the trust 5/8 https://www.mhc.tn.gov.in/judis/ TCA.No.71 of 2021 was not a recognized charitable trust. Therefore, the audit department having pointed out the same, the assessment was reopened. The factual position in P.V.S. Beedies P. Ltd is quite distinct and different from the case before us. Therefore, the said decision would not render assistance to the case of the Revenue. 10. For the above reasons, we find no good grounds to interfere with the order passed by the Tribunal. Accordingly, the appeal fails and it is dismissed and the substantial questions of law are answered against the Revenue. No costs. (T.S.S.,J.) (R.N.M.,J.) 23.02.2021 Index:Yes/No Internet:Yes/No hvk 6/8 https://www.mhc.tn.gov.in/judis/ TCA.No.71 of 2021 To 1. The Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai. 2. The Principal Commissioner of Income Tax, Corporate Circle - 4(1), Chennai - 34. 7/8 https://www.mhc.tn.gov.in/judis/ TCA.No.71 of 2021 T.S.SIVAGNANAM,J AND R.N.MANJULA,J hvk TCA.No.71 of 2021 23.02.2021 8/8 https://www.mhc.tn.gov.in/judis/

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