The Delhi High Court( HC )has held that a mere change of opinion cannot form the basis for initiating reassessment proceedings under Income TaxAct,1961.
Ambarnuj Finance and Investment, the Petitioner filed a petition seeking the quashing of the rectification order dated 15th February 2021, 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 (‘Act of 2020’).
The Assessee filed its Return of Income (‘ROI’) on 2nd November 2017, and thereafter, filed its revised return on 14th May 2018, both times declaring an income of NIL, as there was a business loss in the AY 2017-18.The Assessing Officer (‘AO’) initiated scrutiny assessment proceedings under Section 143(3) of the Income Tax Act, 1961 (‘the Act of 1961’) for the said assessment year and passed the assessment order dated 21st December 2019. The AO disallowed the write-off of the ‘bad debt’ and made an addition to an income of Rs.30,00,152/-.
The Petitioner opted for the said scheme and filed relevant forms and declarations stipulated under Section 4 of the Act of 2020. The Assessee received an email from Respondent No. 1 stating that upon verification of Form-1 and Form-2, filed under the DTVSV Scheme, it was noticed that there was a computation mistake and the addition of Rs.30,00,152/- on account of ‘bad debt written off’, has been inadvertently taken as income chargeable to tax at special rates instead of business income It was further stated in the e-mail that the application of the Assessee under the DTVSV Scheme could not be entertained in the absence of correct tax liability.
The assessee replied that it was a debatable issue andthat any rectification based on a debatable issue is impermissible as it would amount to a case of change of opinion by the AO.It was stated that the AO’s stance of changing the sequence of set-off of business loss from one head to another head is nothing but a change of opinion.
Rejecting the objections raised by the Assessee, the AO passed the impugned rectification order dated 15th February 2021, purportedly in the exercise of his jurisdiction under Section 154 of the Act of 1961, modifying the original assessment demand dated 21st December 2019, and raising a fresh enhanced demand of Rs. 9,27,047/along with the interest.
The HC comprisingJustice Manmohan and Justice Manmeet Pritam Singh Arora observed that the rectification order dated 15th February 2021, effectively resulted in a re-assessment of income and not rectification.
Further viewed that the objection raised by the Audit Party regarding the lawwas debatable in light of the Circular bearing No. 26 (LXXVI-3) dated 7th July 1955, and it could not have formed the basis for passing a rectification order under Section 154 of the Act.
The HC set aside the impugned rectification order dated 15th February 2021 and 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.
It was directed by the HC to restore the application to the file of the AO to determine the amount payable by the assessee by the provisions of the Act of 2020 and grant a Certificate to the assessee containing particulars of tax arrears and the amount payable, by law.
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