Mere Change of Opinion Cannot Form Basis for Initiating Income Tax Reassessment Proceedings: Delhi High Court

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The Delhi High Court ruled that mere change of opinion cannot form the basis for initiating Income Tax reassessment proceedings.

Background 

The writ petition has been filed by the Petitioner, Assessee, seeking quashing of the rectification order passed by the Respondent during the consideration of the Assessee’s application for settlement of disputed tax under the Direct Tax Vivad Se Vishwas Act, 2020.

The Assessee is also seeking a direction to the Respondent to reconsider its application for settlement of disputed tax under the Act of 2020, for the Assessment Year (‘AY’) 2017-18.

Arguments 

Counsel for the Petitioner submitted that the petition has been filed against the arbitrary action of the Respondent in modifying its original assessment order, which was pending in appeal, while considering the Assessee’s application for resolution of the tax dispute of AY 2017-18 under the DTVSV Scheme.

Respondent contended that the AO has only followed the audit objection raised by the Audit Party and consequently, he amended the original assessment order.

It is further stated that the rejection of the application filed by the Assessee under the DTVSV Scheme was a consequence of the rectification order dated 15th February 2021.

Decision 

The division bench of Justice Manmeet Pritam Singh Arora and Justice Manmohan noted that consequent to the modification, the returned income has remained the same but there is an increase in total tax payable, on account of change in rate at which payable tax is calculated.

The bench stated that no legal error in the method of computation made in the original assessment order has been brought to our attention during the course of arguments.

“In contrast, as per the computation in TABLE B, the AO acting upon the Audit Party’s objection has set-off the business loss as claimed by the Assessee in its original return, first against the other heads of income and then taxed the amount of disallowed bad debt as a stand-alone addition to returned income. 

This is contrary to facts as the amount for the said disallowed bad debt has to be added to the business income of the assessee to arrive at the net income/net loss. It is not chargeable to tax as a separate head of income as is sought to be done in TABLE B” the court said. 

It was observed that the objection raised by the Audit Party in this case was not to a mistake apparent from the record, which can be corrected under Section 154 of the Act of 1961, but it is an opinion in law on the manner in which set-off of business losses is to be permitted.

The bench found that in the facts of the case there was no mistake apparent in the computation of income in the assessment order, within the meaning of Section 154 of the Act, which could have been a subject matter of rectification.

It further added that the AO himself was not of the independent opinion that the original assessment order passed by him was erroneous in law.

The court viewed that since the objection raised by the Audit Party was in regard to the law, which objection in the facts of the present case was debatable in light of the Circular, and thus, it could not have formed the basis for passing a rectification order under Section 154 of the Act. 

The bench set aside the consequential order of the Respondent rejecting the Petitioner’s application for settlement under the DTVSV Scheme, on the ground that the tax liability was not ascertained, and restored the application to the file of the AO as on December, 2020.

Furthermore the court directed the Respondent to determine the amount payable by the assessee in accordance with the provisions of the Act of 2020 and grant a Certificate to the assessee containing particulars of tax arrears and amount payable, in accordance with law, within a period of two weeks.

Case title: Ambarnuj Finance and Investment Pvt. Ltd v/s Deputy Commissioner of Income Tax & Anr.

Citation: W.P.(C) 4093/2021

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