Case: Icici Home Finance Company Limited Vs. Assistant Commissioner of Income Tax 10(1), Mumbai &amp; Another

3. The facts leading to the present petition are as under:a) The Petitioner is engaged in the business of home finance. For the assessment year(previous year ending on 31.03.2006), the Petitioner filed its return of income declaring a loss of Rs.9.11 crores. Thereafter, on 31.12.2008, by an order passed under Section 143(3) of the Act, the Assessing Officer assessed the Petitioner, to a loss of Rs.18.24 crores under Section 115(JB) of the Act.b) On 29.12.2009, an audit objection was raised by the Dy. Commissioner of Income Tax (Audit) with regard to the Petitioners assessment to tax for assessment yearThe audit objections were as under:"I) Perusal of the records made available reveal that the assessee bank is engaged in the business of Housing Finance. During the year under review, assessee claims a turnover of Rs.After reducing the direct and indirect expenses the assessee companies Profit and Loss Account shows a net profit of Rs.However, reading of the computation reveal that the assessee company has claimed the following deductions which are essentially provisions/contingencies in nature andBack of serving cost disallowedBack of provisions for delinquencies, Prepayment and conversion risk disallowedof provisions on sale of Loanfacie, by and large, these are provisions on various accounts, though the nomenclature adopted by the assessee primarily appears to be varied.It is an accepted fact that no provisions are eligible for deduction while arriving at the taxable profit of the year. In principle, only amounts expended wholly and exclusively for the purpose of earning the profit from the said business are eligible for deduction before arriving at the taxable income.Rummaging of the records made available, reveal that the disallowance of these provisions amounting to Rs.57,87,86,431/has ineligible as admissible deduction. Subject to further verification the tax effect on this lapse works out toPerusal of the Profit and Loss Account and the submissions on record reveal that TDS has remained to be deducted on advertisement and sales promotion expenses to tune of Rs.22,48,91,672/under the head Establishment and other expenses in accordance with Chapterof the I.T. Act, 1961.The aforementioned expenses are to be disallowed under section 40(a)(ia) r/w Section 200(1) of the I.T.Act, 1961 for non deduction of tax at source. Tax effect on this account is Rs.Further, the quantum of TDS that has remained to be deducted could be quantified atfor non compliance of TDS provision could be quantified at Rs.The assessee company has declared short term capital gain to the tune ofthe submissions on record does not reveal that details of the transactions relating to these short term capital gains in order to ascertain as to why the same could not be classified as business income. The correctness of these transactions therefore, has prima facie, remained to have been examined during the assessment proceedings. Prima facie, from the records it appears that the guidelines and directions laid down in instruction number 4 of 2007 dated 15th June, 2007 for distinguishing shares held asand shares held as investment, has remained to have been followed during the assessment proceedings. Revenue effect can only be worked out after verifying the details of the transactions, hence not quantified."c) On 24.03.2011, the Assessing Officer issued a notice under Section 148 of the Act pointing out that he has reason to believe that income chargeable to tax had escaped assessment for the assessment yearand therefore he proposes to reassess the income for the assessment yearThereafter at the instance of the Petitioner, on 12.10.2011 the Assessing Officer provided the Petitioner the reasons for issuing of said notice under Section 148 of the Act. The reasons read as under :"Perusal of the records made available reveal that the assessee company is engaged in the business of Housing Finance. During the year assessee had a turnover of Rs.After reducing the direct and indirect expenses the company showed a net profit of Rs.However, the computation of income reveal that the company has claimed the following deductions which are provisions/ contingencies in nature and character:1) WriteBack of serving cost disallowedck of provisions for delinquencies, Prepayment and conversion risk disallowedof provisions on sale of Loana facie, by and large, these are provisions on various accounts, though the nomenclature adopted by the assessee primarily appears to be varied. It is an accepted fact that no provisions are eligible for deduction while arriving at the taxable profit of the year. In principle, only amounts expended wholly and exclusively for the purpose of earning the profit from the said business are eligible for deduction before arriving at the taxable income. The records reveal that the disallowance of these provisions amounting to Rs.57,87,86,431/has remained to have been disallowed during the assessment proceedings.Perusal of the Profit and Loss Account and the submissions on record reveal that TDS has remained to be deducted on advertisement and sales promotion expenses to tune of Rs.22,48,91,672/under the head Establishment and other expenses in accordance with Chapterof the I.T. Act, 1961. The aforementioned expenses are to be disallowed under section 40(a)(ia) r/w Section 200(1) of the I.T.Act, 1961 for non deduction of tax at source. The company has declared short term capital gain to the tune of Rs.Prima facie, from the records it appears that as per the guidelines and directions laid down in instruction No.4 of 2007 dated 15th June, 2007 for distinguishing shares held asand shares held as investment this STCG is to be treated as the business income has remained to have been followedIn view of the above, I have reason to believe that income of Rs.83,99,78,690/chargeable to tax has escaped assessment. Hence, the assessment is proposed to be reopened and notice under Section 148 is to be issued. "e) On 28.11.2011, the Petitioner filed its objection to the reasons communicated on 24.10.2011 for reopening the assessment for assessment yearIn its objection, the Petitioner pointed out that there has been no escapement of income for the assessment yearIn any event, all facts in respect of which the assessment is being sought to be reopened were available with the Assessing Officer at the time of assessment and the issues now raised were specifically raised during the assessment proceeding for the assessment yearTherefore, the notice under Section 148 of the Act was a mere change of opinion and unwarranted. Without prejudice the above, it was pointed out that the reopening of the assessment has been done only at the behest of the audit department and not on independent application of mind. In view of the above, the petitioner requested that the said notice under Section 148 of the Act be withdrawn.f) On 07.12.2011, the Assessing Officer by the impugned order disposed of the Petitioners objection to reopening of assessment for assessment yearby the impugned notice. The relevant portion of the reasons recorded in the impugned order read as under:Whereas notice u/s. 148 of the Income Tax Act, 1961(hereinafter referred to as the Act) was issued on 24.03.2011 and duly served on the assessee company on 28.03.2011;2 Whereas objections have been raised by the assessee company, vide its letter dated 28.11.2011 submitted on 29.11.2011 against the issuance of the said notice, which are summarized as under:(I) There is no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment.(II) No reopening can be done for the reason of mere change of opinion.3.1. The objections raised by the assessee are not maintainable and rejected in numerous judgments discussed hereunder. The gist of all these judgments is that mere acceptance of the claim of the assessee and mere production of various details does not amount to full and true disclosure and the Assessing Officer has information in his possession leading to a prima facie belief that the income has escaped assessment, the notice u/s 148 is valid. It is pertinent to refer to the Explanation 1 to Section 147 which provides that "Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso". Therefore, all the ingredients of the apex courts judgment in the case of 259 ITR 0019(SC), GKN Driveshafts (India) Ltd. have been complied with in this case which says that the objection of the assessee, if any, are to be disposed off by passing a speaking order.Besides the impugned order relied upon extract of various case laws without mentioning how the same are relevant to the present purposes.

Court's reasoning:
6. The power to reopen a completed assessment under Section 147 of the Act has been bestowed on the Assessing Officer, if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. However, this belief that income has escaped assessment has to be the reasonable belief of the Assessing Officer himself and cannot be an opinion and/or belief of some other authority. In fact, the Supreme Court in the matter of India Eastern Newspaper Society v. Commissioner of Income Tax, New Delhi, reported in 119 ITR page 996 has held that whether an assessment has escaped assessment or not must be determined by the Assessing Officer himself. The Assessing Officer cannot blindly follow the opinion of an audit authority for the purpose of arriving at a belief that income has escaped assessment. In the present facts, it would be noticed that the reasons for which the assessment for the assessment yearis sought to be reopened by communication dated 12.10.2011 are identical to the objection of the audit authority dated 29.12.2009. The reasons do not rely upon any tangible material in the audit report but merely upon an opinion and the existing material already on record. This itself indicates that there was no independent application of mind by the Assessing Officer before he issued the impugned notice. On this ground alone, the assumption of jurisdiction by the Assessing Officer can be faulted.Therefore, in the present facts one would have to examine the contention of the Petitioner that the impugned notice is without jurisdiction as the self same facts were not only before the Assessing Officer but he had also viewed the very issues on which the assessment is sought to be reopened. So far as, the issue in respect of provisions claimed as deduction for arriving at taxable profit aggregating to Rs.52.87 crores is concerned, the same was not only disclosed in the notes to account filed with the return of Income but also in response to specific queries raised during the assessment proceeding. It was reiterated at the hearing that on the aforesaid account of provision, the tax had already been paid in the earlier years and the amounts were merely written back in this year to the extent they were in excess of the provisions required. So far as, failure to deduct TDS on advertisement and sales promotion are concerned leading to disallowance of the entire amount of Rs.22.48 crores under Section 40(a)(ia) the same was also subject to scrutiny by the Assessing Officer during the assessment proceedings.In fact, the clause 17(f) of the tax audit report submitted alongwith return of income clearly brings out the fact that where tax has not been deducted, then the entire amount of payment has been offered for disallowance under Section 40(a)(ia). In fact, by letters dated 10.11.2008 and 26.12.2008 in response to specific queries of the Assessing Officer during assessment proceedings the petitioner had pointed out alongwith details the expenses in respect of which the tax had not been deducted and which were offered to tax. So far as, the reason to reopen the assessment on the ground that the petitioner had declared short term capital gains of Rs.3.63 crores in respect of income earned out of investments had to be taxed/classified as business Income is concerned, it is not disputed before us that the treatment given was consistent with the earlier year practice and accepted by the Respondent. Further, it is not disputed before us that the short term capital gains have been assessed to the maximum marginal rate and even if considered as business income, the tax effect would be the same. Consequently, there could be no reasonable basis to have a belief that there is any escapement of Income.9. Therefore, in view of the above, we are of the view that the impugned notice is without jurisdiction and the impugned order dealing with the objection of the Petitioner is non speaking order in as much as it does not deal with any of the objections raised by the Petitioner in its objections.