Bombay High Court
Bajaj Energy Limited vs Assistant Commissioner Of Income Tax ... on 23 January, 2024
Author: Neela Gokhale
Bench: K. R. Shriram, Neela Gokhale
2024:BHC-OS:1510-DB
Digitally
signed by
SHAMBHAVI
SHAMBHAVI NILESH 1/13 453-WP-1225-2022-J.doc
NILESH SHIVGAN
SHIVGAN Date:
2024.01.25
17:09:05
+0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.1225 OF 2022
1. Bajaj Energy Limited,
having its office at 2nd floor, Bajaj Bhawan,
Jamnalal Bajaj Marg,
226 Nariman Point,
Mumbai-400 021. ...Petitioner
Versus
1. Assistant Commissioner of Income Tax,
Circle 3(1)(1),
having his office at room no.607, 6th floor,
Aayakar Bhavan, Maharishi Karve Road,
Mumbai-400 020.
2. Additional/Joint/Deputy/Assistant,
Commissioner of Income Tax/ Income-tax
Officer, National Faceless Assessment
Centre,Delhi.
3. Union of India,
Through the Secretary,
Department of Finance, Ministry of
Finance, Government of India, North Block,
New Delhi-110 001. ...Respondents
Mr. Jeet Kamdar, i/by Mr. Sameer G. Dalal, for Petitioner.
Mr. Akhileshwar Sharma, for Respondents-Revenue.
CORAM : K. R. SHRIRAM &
DR. NEELA GOKHALE, JJ.
DATED : 23rd January 2024.
JUDGMENT:
(Per Dr. Neela Gokhale, J.)
1. Rule. Heard the parties finally by consent. Rule is made
returnable forthwith.
2. Petitioner assails order dated 21st January 2022 rejecting the
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objections raised by Petitioner to the notice of Respondents conveying
reasons to believe that income has escaped assessment. Petitioner
also assails notice dated 31st March 2021 issued by Respondents
under Section 148 of the Income Tax Act, 1961 ("Act") seeking to
reopen the assessment for Assessment Year ("AY") 2016-17 and other
consequential relief.
3. Petitioner is a company registered under the Companies Act,
1956, engaged in the business of power generation. Respondent No.1
is the Assistant Commissioner of Income Tax having jurisdiction over
Petitioner. Respondent No.2 is the National Faceless Assessment
Centre set up by the Central Board of Direct Taxes ("CBDT") and
Respondent No.3 is the Union of India.
4. Petitioner filed its return of income for AY 2016-17 on 27th
September 2016 declaring a total income of Rs.1,24,47,75,691/- and
Rs.1,68,00,96,627/- under the provisions of Section 115JB of the Act.
Respondent No.1- Assessing Officer ("AO") issued a notice dated 17th
July 2016 under Section 143(2) of the Act, selecting the case of
Petitioner for scrutiny assessment. Petitioner by its letter dated 4th
August 2017 provided all the required details and documents to the
AO including audited accounts, tax audit report, return of income
and computation of income. The AO by another notice dated 10th
May 2018 raised specific queries and sought further
details/documents from Petitioner. Petitioner by its letter dated 20th
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June 2018 responded with details and documents as sought by the
AO followed by letters dated 2nd July 2018 and 16th July 2018
specifically providing party wise details of expenses and details of
other investments as required by the AO. Relying upon the
information provided by Petitioner, an assessment order dated 20th
July 2018 was passed under Section 143(3) of the Act determining
the total income of Petitioner to be Rs.123,38,96,585/-. Petitioner
sought rectification of an error apparent on record in the assessment
order and the AO passed the said order under Section 154 r/w
Section 143(3) of the Act and granted credit of tax deducted at
source.
5. The AO issued a notice dated 31st March 2021 under Section
148 of the Act stating that the AO had reasons to believe that
Petitioner's income for AY 2016-17 has escaped assessment. While
filing the return of income on 24th April 2021, Petitioner also
requested the AO to furnish a copy of the reasons recorded for
reopening the assessment. The reasons were provided by notice dated
22nd November 2021 to which Petitioner took objections, but the
objections came to be rejected by order dated 21st January 2022. It is
this order, which is assailed by Petitioner along with notice of 31st
March 2021 seeking to reopen the assessment for AY under
consideration. Further notices dated 3rd February 2022 and 8th
February 2022 were issued under Section 142(1) of the Act calling
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upon Petitioner to submit its response. Petitioner has thus, filed the
present Writ Petition.
6. Mr. Jeet Kamdar, learned counsel appearing for Petitioner,
objects to the reopening of assessment essentially on the ground that
Petitioner had provided information regarding all the queries raised
by the AO and it is only after satisfying himself regarding all the
information that the original assessment order was passed. He
contends that there are no reasons to believe that income has escaped
the assessment and the reopening is based on a mere change of
opinion of the AO, which is impermissible in law.
7. Mr. Kamdar raises the following objections:
(1) The impugned notice and the order are invalid, improper
and without jurisdiction on the ground that the reasons to
believe escapement based on a mere suspicion do not
constitute a reason to believe. The queries raised by the AO
and answered by Petitioner by letters dated 20th June 2019,
2nd July 2019 and 16th July 2018 clearly show that not only
was the entire material before the AO but he had applied his
mind to the details and accepted the claim of Petitioner.
(2) The details of expenses and investments relating to
earning of exempt income were accepted by the AO and after
conducting relevant inquiries the assessment order was passed.
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Thus, re-evaluation of the same facts by the AO tantamounts to
a change of opinion which is not permitted by law.
(3) In the absence of any tangible material indicating
escapement of income, the AO cannot exercise the power of
reassessment.
(4) The details pertaining to disallowance of expenses as per
Section 14A r/w Rule 8D was already submitted in the course
of the original assessment proceedings and hence, the AO
cannot exercise the power of reassessment in the garb of
review.
(5) Reassessment proceedings initiated within four years from
the end of the relevant assessment year is untenable
considering that there is no new fact or tangible material
coming to the possession of the AO and thus, reopening the
assessment on the basis of very same material is a mere change
of opinion.
(6) The onus on Petitioner is only to disclose primary facts
and not inferential facts.
(7) The notice under Section 148 of the Act is not digitally
signed by the AO and the sanction given by the officer
concerned is not a proper sanction.
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Petitioner thus, urges us to quash and set aside the order and the
notice impugned herein.
8. Mr. Akhileshwar Sharma appears for the Revenue and contests
the petition on merits. He contends that Petitioner has made
investments from a common pool of funds and incurred common
administrative and other expenditure, debiting it to the P & L
Account thereby attracting the provisions of Section 14A of the Act.
He states that expenses attributable to exempt income worked out in
accordance with Rule 8D are to be disallowed in view of CBDT
circular dated 11th February 2014. To buttress his point, he places
reliance upon the decision of the Income Tax Appellate Tribunal
("ITAT"), Special Bench, Mumbai in the case of Daga Capital
Management Private Limited 1and also on the decision of this Court
in the case of Godrej & Boyce Manufacturing Co. Limited v. Deputy
Commissioner of Income Tax, Range 10(2), Mumbai and Anr. 2. He
further cites a decision of the Supreme Court in the matter of
Raymond Woolen Mills Limited v. Income Tax Officer & Ors. 3 and in
the case of Kalyanji Mavji and Company v. CIT, West Bengal-II 4 to
buttress his argument that information may be obtained even from
the record of the original assessment and such an action is not based
on mere change of opinion.
1 117 ITD 169(Mumbai)
2 ITXA No.626 of 2010 in WP No.785 of 2010 (Unreported).
3 (1999) 236 ITR 34 (S.C.)
4 102 ITR 287 (SC)
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9. Mr. Sharma, drawing our attention to the affidavit-in-reply
filed on behalf of the Respondents, contends that an audit objection
raised by the Revenue Audit Party prompted the AO to form an
opinion on the basis of which the reassessment was initiated, but he
was quick to concede that this was neither a part of the reasons
recorded for reopening or order rejecting objections of Petitioner or
was this information communicated to Petitioner in any
communication between the parties. Mr. Sharma also stands by the
sanction obtained from the Principal Commissioner of Income Tax-3,
Mumbai, approving issuance of notice dated 31st March 2021 by the
AO under Section 148 of the Act. He thus justifies reopening of
assessment of income of Petitioner as legally tenable and urges the
Court to dismiss the petition.
10. It is settled law that reopening of assessment proceedings on
the basis of escapement of income is not permissible on the ground of
change of opinion of the AO. Once a query is raised during
assessment proceedings and the assessee has replied to it, it follows
that the query raised was a subject of consideration of the AO while
completing the assessment. It is not necessary that an assessment
order should contain reference and/or discussion to disclose its
satisfaction in respect of the query itself. This Court in its decision in
the matter of Aroni Commercials Limited v. The Deputy
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Commissioner of Income Tax and Another 5 has expounded the law in
this regard. Paragraph 14 of the said decision reads as thus,
"14)..........We are of the view that once a query is raised
during the assessment proceedings and the assessee has
replied to it, it follows that the query raised was a subject
of consideration of the Assessing Officer while completing
the assessment. It is not necessary that an assessment
order should contain reference and/or discussion to
disclose its satisfaction in respect of the query raised. If an
Assessing Officer has to record the consideration bestowed
by him on all issues raised by him during the assessment
proceeding even where he is satisfied then it would be
impossible for the Assessing Officer to complete all the
assessments which are required to be scrutinized by him
under Section 143(3) of the Act. Moreover, one must not
forget that the manner in which an assessment order is to
be drafted is the sole domain of the Assessing Officer and
it is not open to an assessee to insist that the assessment
order must record all the questions raised and the
satisfaction in respect thereof of the Assessing Officer. The
only requirement is that the Assessing Officer ought to
have considered the objection now raised in the grounds
for issuing notice under Section 148 of the Act, during the
original assessment proceedings. There can be no doubt
in the present facts as evidenced by a letter dated 8
September 2012 the very issue of taxability of sale of
shares under the head capital gain or the head profits and
gains from business was a subject matter of consideration
by the Assessing Officer during the original ASN 19/23
WP-137-14.sxw assessment proceedings leading to an
order dated 12 October 2010. It would therefore, follow
that the reopening of the assessment by impugned notice
dated 28 March 2013 is merely on the basis of change of
opinion of the Assessing Officer from that held earlier
during the course of assessment proceeding leading to the
order dated 12 October 2010. This change of opinion
does not constitute justification and/or reasons to believe
that income chargeable to tax has escaped assessment."
11. A Three Judges Bench of the Supreme Court in Commissioner
of Income Tax, Delhi v. Kelvinator of India Limited 6, after considering
the previous decisions in Phool Chand Bajrang Lal and Others v.
5 [2014] 362 ITR 403 (Bom).
6 2010(1) SCR 768.
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Income Tax Officer and Others7, restated the correct position
pertaining to change of opinion as follows:
"5....where the Assessing Officer has reason to believe that
income has escaped assessment, the section confers
jurisdiction to re-open the assessment. Therefore, post-1st
April, 1989, power to re-open is much wider. However,
one needs to give a schematic interpretation to the words
"reason to believe" failing which 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 re-open.
6. One 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 re-assess, but the re-assessment has to be based
on fulfillment of certain pre-conditions and if the concept
of 'change of opinion' is removed, as contended on behalf
of the Department, then, in the garb of re-opening the
assessment, review would take place.
7. 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 1st April, 1989, the Assessing Officer
has power to re-open, provided there is "tangible material"
to come to conclusion that there is escapement of income
from assessment. Reasons must have a live link with the
formation of the belief."
12. From the settled legal position ascertained from the various
decisions of this Court and the Apex Court, it is clear that the basis
for valid reopening of assessment should be availability of tangible
material, leaving the AO to scrutinize the returns for the assessment
year in question to determine whether a notice under Section 147 of
the Act is called for. In the present case, the queries raised by the AO
in the course of the original assessing proceedings followed by replies
given by the Petitioner clearly show that the entire material was
7 1993 Suppl. (1) SCR 28.
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before the AO and applying his mind to the said material, the AO has
passed the Assessment Order dated 20th July 2018. The statement of
accounts regarding details of expenses and investment relating to
earning of exempt income was accepted by the AO. The letter dated
4th August 2017 issued by Petitioner alongwith the financial
statements, on record indicates that all queries raised by the AO by its
letter dated 19th July 2017 were answered. Similarly, paragraphs 7,
9 & 12 of letter dated 20th June 2018 of Petitioner in response to a
letter dated 10th May 2018 issued by the AO under Section 142(1) of
the Act read as thus,
"7.In Notice your good self have asked for details of
expenses incurred in relation to earn exempt income. In
this regard, the company had not earned any exempt
income during the year and hence disallowance of
expenses as per section 14A r.w.r 8D is not applicable.
Further the company had Reserves of Rs. 1111.78 crores
and Share Capital of Rs. 41.18 crores which is more than
adequate to cover the investments of Rs. 634.33 crores
made by the company. Hence disallowance u/s. 14A is not
warranted.
9. Party wise details of unsecured loan along with of
Balance Confirmation as on 31.03.2016 are enclosed
herewith as Annexure "F".
12.In the Assessment Orders u/s 143(3) of the Income Tax
Act, 1961 for AY 2012-13, AY 2013-14 & AY 2014-15 the
returned income was accepted as assessed income and
there were no disallowances. Refer Annexure "E"."
13. Petitioner issued another letter dated 16th July 2018 also
bringing to the notice of the AO the substantive answer to the
contention of AO regarding disallowance of expenditure. Paragraph
2 of the said letter reads as thus,
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"2.The assessee co. has also made investment in Lalitpur
Power Generation Co. Ltd. ("LPGCL") (1980 MW Super
Critical Thermal Projects), which is engaged in the
business of generation of power. Out of the total
investments of Rs. 711.37 crores as reflecting the Balance
Sheet as on 31 March 2016, the investments in group
companies (LPGCL) is Rs. 634.33 crores. It may be noted
from the investment schedule that the assessee co. has
made investments with a view to hold controlling interest
in power generating company and not for the purpose of
earning dividend income. Such investments are held with
a long-term objective of holding strategic interest in the
above group companies. Further, it is submitted that the
aforesaid investments do not require day-to-day
monitoring and accordingly no expenditure is attributable
to the earning of exempt income therefrom. Accordingly,
it is humbly submitted no disallowance ought to be made
in respect of investment in group companies."
14. The aforesaid detailed information was in the know of the AO
while passing the original assessment order dated 20th July 2018 as
well as the computation sheet of the same date. The AO is now not
within his rights to claim that he has a reason to believe that taxable
income by virtue of an incorrect claim of expenses has escaped
assessment within the meaning of Section 147 of the Act. The
objections taken by Mr. Sharma justifying the reliance of the AO on a
CBDT circular dated 11th February 2014 mandating such
disallowance whether there is an exempt income or not from the
investments is untenable since no such objection was taken at the
time of issuance of original assessment order on the same
information which was within the knowledge of the AO even on that
date.
15. Mr. Sharma's contention regarding reopening of assessment on
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the basis of an audit objection is only to be rejected for the very
reason that the said ground has been admittedly taken for the very
first time in the affidavit-in-reply and was not taken in the reasons to
believe and never communicated to Petitioner in any of the
correspondence between the parties.
16. The 'reasons to believe' forming part of Section 147 of the Act
in this case, clearly points to the fact that the reopening of
assessment was based on the information accessible by the AO. There
is no tangible material available with the AO to justify reopening of
assessment of income. Considering all the facts in the present matter
and the settled legal position, we have no hesitation in holding that
the reopening of assessment of Petitioner's income by the AO is only
on the basis of a change in his opinion, which is impermissible in law.
Petition thus deserves to be allowed.
17. Rule is made absolute in terms of prayer clause (a), which
reads as thus,
"a. this Hon'ble Court may be pleased to
issue a Writ of Certiorari or a writ in the nature of
Certiorari or any other appropriate writ, order or
direction under Article 226 of the Constitution of
India calling for the records of the Petitioner's
case and after examining the legality and validity
thereof quash and set aside the notice dated
March 31, 2021 (Exhibit- 'L') (together with
consequential notices and orders) issued by
Respondent No. 1 under Section 148 of the Act
seeking to reopen the assessment for AY 2016-17
and the order dated January 21, 2022 issued by
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Respondent No. 2 (Exhibit- 'R')."
18. There will be no order as to costs.
(DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
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