Case Note & Summary
The petitioner, Siemens Financial Services Pvt Ltd, a Non-Banking Finance Company registered with RBI, filed its return of income for Assessment Year 2016-2017 on 28 November 2016 declaring a total income of Rs.44,92,46,370/-, and later filed a revised return on 28 March 2018 declaring a total income of Rs.50,67,32,580/-. The return was selected for scrutiny, and after issuing notices under Sections 143(2) and 142(1) of the Income Tax Act, 1961, the Assessing Officer passed an assessment order under Section 143(3) on 23 December 2018 without making any adjustments to the income reported in the revised return. Almost three years later, on 25 June 2021, the petitioner received a notice under Section 148 of the Act stating that there was reason to believe that income chargeable to tax had escaped assessment within the meaning of Section 147. The notice mentioned that necessary satisfaction of Range 8(2), Mumbai had been obtained. The petitioner was provided with the reasons recorded for reopening, which pertained to the treatment of software expenditure as revenue expenditure instead of capital expenditure. The petitioner challenged the reassessment notice by way of a writ petition. The court examined whether the reopening was valid, particularly since it was beyond four years from the end of the relevant assessment year. The court noted that the original assessment was completed under Section 143(3) after scrutiny, and the issue of software expenditure had been examined during the original assessment. The reasons recorded for reopening did not disclose any fresh tangible material; they were based on the same material already considered. The court held that the reassessment was based on a mere change of opinion, which is not permissible under Section 147. Additionally, the satisfaction recorded by the higher authority under Section 151 was mechanical and did not reflect independent application of mind. Consequently, the court quashed the reassessment notice and allowed the writ petition.
Headnote
A) Income Tax - Reassessment - Section 147, 148, 151 of Income Tax Act, 1961 - Reopening of assessment beyond four years requires that income escaped assessment due to failure of assessee to disclose material facts fully and truly - In the present case, the original assessment under Section 143(3) was completed after scrutiny, and the reasons for reopening were based on the same material already considered - Held that the reassessment notice was based on mere change of opinion and lacked fresh tangible material, hence invalid (Paras 1-10). B) Income Tax - Satisfaction of Higher Authority - Section 151 of Income Tax Act, 1961 - The notice under Section 148 mentioned that necessary satisfaction of Range 8(2) was obtained, but the reasons recorded did not indicate any independent application of mind by the higher authority - Held that the satisfaction recorded was mechanical and not in accordance with law (Paras 11-15). C) Income Tax - Change of Opinion - Reassessment based on same material already considered in original assessment amounts to change of opinion, which is not permissible under Section 147 - The Assessing Officer had examined the issue of software expenditure during the original assessment and accepted the claim - Held that reopening on the same issue without fresh material is invalid (Paras 16-20).
Issue of Consideration
Whether the reassessment notice under Section 148 of the Income Tax Act, 1961, issued beyond four years from the end of the relevant assessment year, was valid when the reasons recorded were based on the same material already considered in the original assessment and there was no failure on the part of the assessee to disclose material facts fully and truly.
Final Decision
The court quashed the reassessment notice dated 25 June 2021 and the reasons recorded for reopening, and allowed the writ petition.
Law Points
- Reassessment under Section 147 requires reason to believe based on fresh tangible material
- not mere change of opinion
- Satisfaction of higher authority under Section 151 is mandatory
- Reopening beyond four years requires failure to disclose material facts fully and truly
