HETAL PAGARE, ACIT 16(2), MUMBAI, MUMBAI vs. HASMUKH KABABHAI RAVAT, MULUND WEST

5. After receiving the approval from PCIT for issuing show cause notice u/s 148A(b) of the Act dated 22.03.2022, Ld. AO asked the assessee as to why notice u/s 148 should not be issued as income chargeable to tax has escaped assessment and assessee was given 7 days time till 29-03-2022 to respond to this notice. In response, the assessee submitted his reply dated 29.03.2022 requesting to drop the current proceedings initiated u/s 148A as all the details of the interest expenses on Vihang project were submitted to the AO and the same were scrutinized and accepted. However, the assessee has not put forth any documentary evidence regarding this claim. Further, on perusal of the Assessment records, this assertion of the Assessee is found to be incorrect. Specific questions pertaining to this interest expense were not asked and the issue was not analyzed, hence resulted in the favor of the Assessee. The AO stated that the condition for Page | 5 reopening as stated in section 149(1)(b) of the Act is satisfied as the income being interest expense of Rs. 50,25,843/- represented in the form of asset being the Vihag project. Accordingly, notice issued u/s 148A of the Act was issued on 07.04.2022 and several opportunities were given for different dates as mentioned in the reassessment order, but no reply was filed. The show cause notice u/s 144 of the Act was issued on 14.07.2023 for compliance on 28.07.2023. Subsequently show cause notice was issued on 04.10.2023 for compliance on 19.10.2023. On 02.11.2023, the assessee has requested for adjournment to 17.11.2023.

6. In response to the notice u/s 148 of the Act, the assessee has submitted a letter dated 09.03.2023 along with audited financials and claimed that assessee correctly filed his return of income u/s 139(1) of the Act, hence not filed further return of income u/s 148 of the Act. In reply dated 09.03.2023, assessee has submitted that he has correctly filed the return of income u/s 139(1) of the Act, therefore no necessity to file the return u/s 148 of the Act because the computation of total income and audited financial statements are attached and it was clarified that he has procured loan for investment in LLP and the interest on such loan has been claimed as business expense. Therefore, the business loss has been set off Page | 6 against net surplus of his professional income. The Ld. AO noted that the reply of the assessee was perused wherein assessee has claimed a total of unsecured loan to the tune of Rs. 2,32,69,006/- as on 31/03/2015. Further a notice u/s 142(1) dated 13.03.2023 was issued and asked the details of loan obtained, but the assessee has not responded to the notice issued. Further a reminder notice was also issued to the assessee on 20/06/2023 to respond to the notice issued u/s 142(1) dated 13/03/2023, but the assessee has not responded. Thereafter, a show cause notice u/s 144 dated 14/07/2023 was issued and duly delivered to the assessee. The assessee was provided an opportunity to show cause as to why the assessment should not be completed u/s 144 of the Act, but the assessee failed to make compliance to the said show cause notice u/s 148 of the Act. Since the assessee has not responded to the show cause notice within the time provided upto 19/10/2023, but in the meanwhile, the assessee has submitted a request on 02/11/2023 for adjournment till 17/11/2023 with a promise that on or before 17/11/2023, he will submit all required details, but the assessee has not adhered to the promise made and the assessee has also neither submitted any reply to the show cause notice nor submitted any details / documents called for. In the absence of any explanation from the assessee in spite of providing numerous opportunities, the assessment proceedings in this case is completed u/s 147 r.w.s 144 r.w.s 144B of the Act. The total income of assessee was computed and extracted below:- “4.6.1. INTEREST EXPENDITURE FOR LLP: Since the interest expenses of Rs. 50,25,843/- is for the borrowed fund used for the investment in LLP of the assessee and the interest expenses is not related to professional income earned, the interest expenses to the tune of Rs. 50,25,843/- is proposed fo be disallowed and it will be added to the total income of the assessee for the A.Y. 2015-16. Penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 will be initiated for concealment of income.

4.6.2. UNEXPLAINED UNSECURED LOAN: It was noted that the assessee has claimed unsecured loan as on 31/03/2015 at Rs. 2,32,69,006/- vide notice issued u/s 142(1) dated 13/03/2023, the assessee was requested to submit details of the lenders along with their copy of ROI and confirmation, but the assessee has failed to furnish any details. Therefore, in the absence of any explanation from assessee, the unsecured loan to the tune of Rs. 2,32,69,006/- is proposed to be treated as unexplained credit u/s 68 r.w.s. 115BBE of the Income Tax Act 1961 and it will be added to the total income of the assessee for the A.Y. 2015-16. Penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 will be initiated for concealment of income.

Penalty proceedings u/s 271(1)(b) will be initiated for non responding to notices issued under section 142(1) of the Act.

5. TABLE OF VARIATIONS:

SL No Description Amount

1 Income as per Return of Income u/s 148 NIL 2 Income as computed u/s143(1)(a) -- 3 Variation in respect of issue as per para 4.6.1 Rs. 50,25,843/- 4 Variation in respect of issue as per para 4.6.2 Rs. 2,32,69,006/- 5 Total Income determined as per the above Rs. 2,82,94,849/- proposal

7. Aggrieved by the impugned assessment order, assessee preferred the appeal before Ld. CIT(A) and has raised before him total 5 grounds in which the ground no.1 is legal grounds which extracts as under:-

1. On the facts and circumstances of the case and in law, Circle 16 (2), Mumbai has erred in issuing the notice u/s. 148 dated 07.04.2022 without appreciating that he was not having the jurisdiction for the same in view of Section 151A and the notification dated 29.03.2022 issued there under notifying e-Assessment of Income Escaping Assessment Scheme, 2022 and, thereby, rendering the said the notice as well as the entire assessment proceeding as null and void.

The Ld. A.O. erred in making assessment u/s 148 ignoring the fact that assessment proceedings concluded u/s 143(3) on 22.12.2017, which already dealt with the issue and the assessment proceedings are null & void.

In para-1 of the instant assessment order dated 30-11-2023 presently in appeal, the AO while mentioning the response of the assessee to notice u/s 148A(b) of the IT Act, stated as follows:

"....Assessee submitted his reply dated 29.03.2022 requesting to drop the current proceedings-initiated u/s 148A as all the details of the interest expenses on Vihang project were submitted. The same were scrutinized & accepted. The Assessee has not put forth any documentary evidence regarding this claim. Further, on perusal of the Assessment records, this assertion of the Assessee was found to be incorrect. Specific questions pertaining to this interest expense were not asked and the issue was not analyzed in the favor of the Assessee."

In this regard and in the context the ground raised the appellant, the following details are required to be perused since the jurisdiction is challenged and it goes to the root of the matter.

1. Reasons for which the case was selected for scrutiny earlier under CASS [as mentioned in assessment order dated 22-12-2017]

2. Information received in AIR as well as its the reconciliation [as mentioned in assessment order dated 22-12-2017]

3. Notice u/s 142(1) of the IT Act issued during previous scrutiny [as mentioned in assessment order dated 22-12-2017]

4. Notices/Order sheet noting with regard to the details called for and submitted [as mentioned in assessment order dated 22-12-2017]

5. Copies of all the relevant documents/assessment record based on which AO held that the assessee's assertion was found to be incorrect [as per the re-assessment order relevant portion of which is reproduced above].

Your reply submitting the above documents from the previous assessment record, should reach this office on or before 17.10.2024 It is discernible that the details called for from the AO are:

2. Information received in AIR as well as its the reconciliation done during earlier scrutiny assessment proceedings.

3. Notice u/s 142(1) of the IT Act issued during previous scrutiny assessment proceedings, TAX DEPAN

4. Notices/Order sheet noting with regard to the details called for and submitted during the previous scrutiny assessment proceedings

Hence, another opportunity is given to the AO and a reminder is sent to the AO seeking his response/details to the above letter on 09.11.2024 and the AO was asked to submit the reply by 15/11/2024, since the appellant had challenged the jurisdiction of the AO and it goes to the root of the matter in the appeal.

The AO had not responded even to the reminder. Thus, the AO had not substantiated his conclusion that "the assessee's assertion is found to be incorrect". As against this the appellant had submitted the details of the previous scrutiny assessment proceedings as already discussed above.

It is very much evident from the facts examined above that the issue which triggered the proposed reopening of assessment was already dealt with in the previous assessment proceedings. This fact is accepted by the AO in the SCN u/s 148A(b) of the IT Act in as much as the AO himself mentioned therein as follows[vide para-4 of the Annexure to SCN

As regards interest expenses of Rs. 50,25,843/- being set off against professional income you stated that the interest on loan is for different venture and is not pertaining to professional income. Since the income was not forthcoming from different venture, said interest was claimed as loss venture and was offset against the net surplus of professional income.

It is unambiguously clear that the issue of interest of Rs 50,25,843/-which triggered the issue of SCN u/s 148A(b) was very much an issue that was dealt with during previous assessment proceedings as admitted by the AO himself. While the AO's statement as above shows that the issue was already considered during previous assessment proceedings, yet the AO wasn't ready to accept the same and the reason given by the AO is that on a perusal of the assessment records the assertion of the assessee (that the issue was already taken into consideration during previous assessment proceedings) is found to be incorrect. However, the fact that remains is that the AO inspite of being specifically asked to furnish the details available on assessment record based on which he came to a conclusion that the assessee's assertion is incorrect, failed to respond and so the conclusion of the AO regarding the said assertion of appellant stands unsubstantiated.

According to the AO, specific questions pertaining to this interest expense were not asked during previous assessment proceedings. This finding of the AO cannot be correct, as he himself stated in the SCN u/s 148A(b)of the IT Act that interest in issue pertains to loan related to Vihang project and that it was a different venture unconnected to professional income. All this information (that was called for during previous assessment proceedings) was available on record and so it was mentioned by the AO at the stage of issue of notice u/s 148A(b) of the IT Act. In the wake of the facts available on record regarding the interest claimed by the assessee, it is incorrect to say that no specific question was asked during previous assessment proceedings.

The AO further stated that the issue was not analysed in the favour of the assessee and that the silence of the (then) AO can not be presumed to be Page | 14 favourable to the assessee. In a very recent judgement in the case of ACIT v. AIM Fincon (P.) Ltd reported in 166 taxmann.com 681 (SC)[13-09-2024], the hon'ble supreme court held that, when the Assessing Officer had all material with respect to a transaction at time of Moriginal assessment and if Assessing Officer was not satisfied with explanation furnished by assessee at that stage, he could have exercised powers to make addition but did not choose to do anything on such count, thus, action of reopening was merely change of opinion and was to be set aside.

The hon'ble high court of Delhi, in the case of Usha International Ltd, reported in 348 ITR 485 dealt with the question "Whether the bar or prohibition under the principle 'change of opinion' will apply even when the Assessing Officer has not asked any question or query with respect to an entry/note, but there is evidence and material to show that the Assessing Officer had raised queries and questions on other aspects?"

The decision of the hon'ble high court as in para-13 is as below:

"13. It is, therefore, clear from the aforesaid position that (1) Reassessment proceedings can be validly initiated in case return of income is processed under Section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion;

(2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assesse. Reassessment proceedings in the said cases will be hit by principle of "change of opinion".

(3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons."

Thus, it is a well settled law that the AO cannot issue a notice based on the facts and information gained by reading the documents and information that the assessee has already submitted during the course of the assessment. The AO can only issue a notice if and only if he has new information other than that available on record since already furnished by the assessee during earlier assessment proceedings. Thus, the formation of any opinion based on the same facts and circumstances which were then available to the AO at the time of scrutiny was change of opinion and thereby the same is not permissible.

At the conclusion of the above discussion and in consonance with facts on record as well as the judicial pronouncements on the subject matter, it is held that the issue of notice u/s 148 of the IT Act is bad in law. Thus, the original ground No. 1 stands allowed.

6. In view of the above, since the appellant succeeds on the legal ground challenging the jurisdiction, all the other grounds become infructuous and hence the same needs no adjudication.

Page | 16

1. Whether on the fact and circumstance of the case, the Ld.CIT(A) failed to appreciate the AO's reasoning in reopening the case, which was based on valid grounds under the provisions of the Act. The jurisdiction exercised by the AO to initiate reassessment proceedings u/s.148 of the Act was correct and justified and also the issue of interest expense was not adequately analyzed in the previous assessment, and the AO had reason to believe that certain facts were not properly examined?

2. Whether on the fact and circumstance of the case, the Ld. CIT(A) erred in not discussing or providing any reasoning on the addition made by the Assessing Officer (AO). The Ld. CIT(A) erred in not examining the specific findings of the AO regarding two significant issues interest expenses and unexplained unsecured loan, despite them being crucial to the case?

3. Whether on the fact and circumstance of the case, the Ld. CIT(A) erred in not discussing the issue of unexplained unsecured loan amounting to Rs. 2,32,69,006/-, which was the new fact in this re-assessment and not discussed in the original assessment order, which was crucial to this case?”

11. Since, the Ld. CIT(A) has dealt with only ground no. 1 and has allowed the appeal of the assessee while holding the notice u/s 148 of the Act as bad in law, therefore, the ground no. 1 raised before us is relevant to the findings returned by the Ld. CIT(A) in the impugned order. On perusal of the same, the question arises whether the findings returned by the Ld. CIT(A) suffers from illegality or perversity which may warrant interference of this Tribunal? Therefore the question to be determined is whether the impugned notice u/s 148 of the Act for initiating reassessment was bad in Page | 17 law on being issued only on account of change of opinion and without any legal basis for reassessment u/s 148 of the Act?

The Ld. DR is directed to file status report along with copy of the notice dated 30.10.2017 u/s 142 (1) of the act as well as notice u/s 143 (2) issued in the original assessment proceedings, which culminated into passing the Assessment Order dated 22.12.2017 u/s 143 (3) of the act. The AO should also clarify whether in the original assessment proceedings, the issue pertaining to deduction claimed on account of interest of loan taken from investment in LLP Vihagheg on the basis of which, the case was reopened u/s 147 of the Act, was ever examined or not. The assessing officer is also directed to produce the assessment record as well, without default/excuse. Adjourned to 12.03.2025.

17. Ld. AR has also brought to our notice point no. 3 at page no. 4 of the paper book wherein the reply of the assessee was filed on 27.09.2016 against the notice issued u/s 143(2) of the Act, which are reproduced below:-

3. Deduction Main deduction is Interest on Loan taken for Investment in LLP Vihag Rs.5025843/-. There is no other Income from LLP, Interest on investment is only a loss which was adjusted against Professional Income. We enclose herewith Statement of Income for the year ended 31.03.2015.

18. Ld. AR has also brought to our notice point no. 2 in respect of income from profit/gains of business /profession at page no. 2 of the paper book, which are reproduced below:-

Income from profit/gains of business /profession Net profit /Loss from profession 14,933,810 Loss from Vihang Interest on Vihang 5,025,843 5,025,843 9,907,967

Assessee submitted his reply dated 29.03.2022 requesting to drop the current proceedings initiated u/s 148A as all the details of the interest expenses on Vihang project were submitted to the Assessing officer & the same were scrutinized & accepted. The Assessee has not put forth any documentary evidence regarding this claim. Further, on perusal of the Assessment records, this assertion of the Assessee is found to be incorrect. Specific questions pertaining to this interest expense were not asked and the issue was not analyzed in the favor of the Assessee. Silence of the Assessing Officer cannot be presumed to be favorable to the Assessee and thus it is income escaping assessment.

37 The Assessing Officer does not have any power to review his own assessment when during the original assessment petitioner provided all the relevant information which was considered by him before passing the assessment order under section 143(3) of the Act dated 23rd December 2018. Petitioner had debited an amount of Rs.6,41,87,931/- on account of software consumables in the profit and loss account and a detailed break-up of the said expenses were submitted before the Assessing Officer during the course of assessment proceedings vide a letter dated 6th December 2018. It is settled law that proceedings under section 148 cannot be initiated to review the earlier stand adopted by the Assessing Officer. The Assessing Officer cannot initiate reassessment proceedings to have a relook at the documents that were filed and considered by him in the original assessment proceedings as the power to reassess cannot be exercised to review an assessment. In petitioner‟s case the Assessing Officer having allowed the amount of software consumables as a revenue expenditure now seeks to treat the same as capital expenditure which is a clear change of opinion. Various judicial precedents have held that reassessment proceedings initiated on the basis of a mere change of opinion are invalid and without jurisdiction. 38 The Apex Court in Kelvinator of India Ltd.(Supra) emphasised on the difference between a power to review and the power to reassess. The Apex Court held that the Assessing Officer has no power to review but has only the power to reassess. The concept of „change of opinion‟ must be treated as an in-built test to check abuse of power by the Assessing Officer. The relevant extract of the judgement is reproduced as under:-

“…….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 re-open 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 re-assess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition 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 1-4-1989 , Assessing Officer has power to reopen, provided 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. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987 Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the Companies against Page | 27 omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer………….”

39 The Delhi High Court in Seema Gupta v. ITO held that the order under section 148A(d) and notice under section 148 of the Act should be set aside when the reassessment was initiated on a change of opinion where the same was discussed and verified by the Assessing Officer at the time of original assessment proceedings.