ITP-3(1)(4) vs. M/s Everlon Synthetics Pvt. Ltd. [ITA No. 6965/Mum/2013; Date of order: 23rd May, 2016; A.Y.: 2006-07; Mum. ITAT] Section 147: Reassessment – Within four years – Regular assessment u/s 143(3) – Issue of one-time settlement with bank and consequential relief granted by the bank was discussed and deliberated by the AO – Reopening notice issued on same ground is bad in law

12. The Pr. CIT-3 vs. M/s Everlon Synthetics Pvt. Ltd. [Income tax Appeal No. 1039 of 2017] Date of order: 4^th November, 2019 (Bombay High Court)

ITP-3(1)(4) vs. M/s Everlon Synthetics Pvt. Ltd. [ITA No. 6965/Mum/2013; Date of order: 23^rd May, 2016; A.Y.: 2006-07; Mum. ITAT]

Section 147: Reassessment – Within four years – Regular assessment u/s 143(3) – Issue of one-time settlement with bank and consequential relief granted by the bank was discussed and deliberated by the AO – Reopening notice issued on same ground is bad in law

The assessee is engaged in the business of manufacture of polyester and texturised / twisted yarn and management consultancy. The assessee filed its return of income on 29^th November, 2006. The AO completed the assessment on 24^th November, 2008 u/s 143(3) of the Act, accepting ‘Nil’ return of income as filed by the assessee. Thereafter, on 28^th March, 2011, a notice was issued u/s 148 of the Act to the assessee, seeking to re-open the assessment. The reason in support of the re-opening notice was in regards to cessation of liability u/s 41 of the Act.

The assessee objected to the re-opening notice on the ground that it was based on ‘change of opinion’ and, therefore, without jurisdiction. However, this contention was not accepted by the AO. This resulted in the assessment order dated 30^th August, 2011 u/s 143(3) r/w/s 147 of the Act, adding the sum of Rs. 1.37 lakhs to the income of the assessee by holding it to be a revenue receipt.

Aggrieved by this order, the assessee company filed an appeal to the CIT(A). The CIT(A) recorded a finding of fact that during the course of regular scrutiny proceedings u/s 143(3), the issue of the assessee’s one-time settlement with the bank and consequential relief granted by the bank was discussed and deliberated by the AO. In fact, queries were raised by the AO with regard to the one-time settlement; the assessee, by its communication dated 11^th November, 2008, responded with complete details of the one-time settlement with its bankers, including the details of relief / waiver obtained. The CIT(A) held the settlements to the extent of Rs. 2.06 crores as revenue receipt, as reflected in the Profit and Loss Account, and the fact that the amount of Rs. 1.37 crores was transferred to the capital account was deliberated upon by the AO before passing an order u/s 143(3) of the Act. Thus, the CIT(A) held that the re-opening notice was without jurisdiction as it was based on a mere change of opinion.

Being aggrieved by the order of the CIT(A), the Revenue filed an appeal to the Tribunal. The Tribunal held that the issue of one-time settlement with the bank and the treatment being given to the benefit received on account of settlement, was a subject matter of consideration by the AO. It found on facts that during the regular assessment proceedings, the issue of one-time settlement was inquired into by the AO and the appellant had furnished all details in its letter dated 11^th November, 2008. It also records the fact that the impugned notice was only on the basis of audit objection and the AO had not applied his mind before issuing a re-opening notice and merely acted on the dictate of the audit party. In the circumstances, the Tribunal upheld the view of the CIT(A) that the re-opening notice is without jurisdiction.

Aggrieved by the order of the ITAT, the Revenue filed an Appeal to the High Court. The Revenue submitted that the issue of one-time settlement found no mention in the assessment order passed u/s 143(3). Thus, no opinion was formed by the AO while passing the regular assessment order. Therefore, there was no bar on him on issuing the re-opening notice. It was, thus, submitted that the issue requires consideration and the appeal be admitted.

The Court observed that during the scrutiny assessment proceedings, queries were raised and the petitioner filed a detailed response on 11^th November, 2008 giving complete details to the AO of the one-time settlement and the manner in which it was treated. This finding of fact was not shown to be perverse in any manner. The re-opening notice is not based on any fresh tangible material but proceeds on the material already on record with the AO and also considered before passing the order u/s 143(3). The submission of Revenue that consideration of an issue by the AO must be reflected in the assessment order, is in the face of the decision of the Court in GKN Sinter Metals Ltd. vs. Ms Ramapriya Raghavan 371 ITR 225 which approved the view of the Hon’ble Gujarat High Court in CIT vs. Nirma Chemicals Ltd., 305 ITR 607, to the effect that an assessment order cannot deal with all queries which the AO had raised during the assessment proceedings. The AO restricts himself only to dealing with those issues where he does not agree with the assessee’s submission and gives reasons for it. Otherwise, it would be impossible to complete all the assessments within the time limit available.

Thus, the Court held that once a query is raised during assessment proceedings and the assessee has responded to the query to the satisfaction of the AO, then there has been due consideration of the same. Therefore, issuing of the re-opening notice on the same facts which were considered earlier, clearly amounts to a change of opinion and is, thus, without jurisdiction. Accordingly, the Revenue appeal is dismissed.