Reassessment of Cooperative Bank: Invalid if Based on Change of Opinion and No New Material Facts

Issue: Whether a reopening notice issued after four years (beyond the four-year limit for cases where original assessment was completed under Section 143(3) and no failure to disclose material facts is alleged) to a cooperative bank for issues related to Section 80P deduction and non-deduction of TDS on interest payment to depositors is valid, when these issues were examined during the original assessment.

Facts:

For Assessment Year 2014-15, the assessee, a cooperative bank, had an assessment order passed under Section 143(3).
After four years (i.e., beyond the general four-year period from the end of the relevant assessment year for reopening, where no failure to disclose is alleged), a reopening notice was issued.
The grounds for reopening were that the assessee had claimed a deduction under Section 80P and had not deducted TDS on interest payment to depositors.
There was no allegation by the Revenue of any failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment.
Crucially, the issues of deduction under Section 80P and disallowance for non-deduction of TDS had been examined during the course of the original assessment proceedings under Section 143(3).

Decision: The court held that since there was no allegation of failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment, and the issue of deduction under Section 80P and disallowance for non-deduction of TDS had already been examined during the original assessment proceedings, the reopening notice was not valid.

Key Takeaways:

Conditions for Reopening (Beyond 4 Years): For reassessment proceedings initiated beyond four years from the end of the relevant assessment year, it is a mandatory prerequisite that the Assessing Officer must allege and prove a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. In the absence of such an allegation, the reopening is invalid.
Change of Opinion: If an issue has been examined by the Assessing Officer during the original assessment (especially under Section 143(3), implying detailed scrutiny), and no new material facts have come to light, then initiating reopening proceedings on the same issue merely amounts to a “change of opinion,” which is not permissible for reopening, particularly after the four-year period.
Section 80P and TDS Issues: The fact that the deduction under Section 80P and the TDS compliance related to interest payments were already on record and examined during the original assessment strengthens the assessee’s argument against reopening based on a mere change of opinion.
Protecting Assessees from Indefinite Scrutiny: This ruling reinforces the principle that once an assessment is completed after scrutiny, it should not be reopened without fresh, tangible material or a clear failure of disclosure, preventing arbitrary and indefinite re-examination of settled issues.

HIGH COURT OF BOMBAY

Prithvi Apartments Co-operative Housing Society Ltd.

Assistant Commissioner of Income-tax

M.S. Sonak and Jitendra Jain, JJ.

WRIT PETITION NO. 3086 OF 2022

APRIL 21, 2025

Rohan Deshpande and Ms. Alisha Pinto, Advs. for the Petitioner. Akhileshwar Sharma and Ms. Shraddha Worlikar, Advs. for the Respondent.

JUDGMENT

Jitendra Jain, J.- Heard learned Counsel for the parties.

2. Rule. Rule is made returnable forthwith. By consent, the Petition is taken up for final hearing, since the pleadings in this case are completed.

3. This Petition challenges notice under Section 148 of the Act dated 31.03.2021 for the assessment year 2014 -15.

4. In this case, an assessment order under Section 143(3) of the Act was passed on 07.12.2016. The impugned notice under Section 148 is dated 31.03.2021 i. e. after a period of four years from the end of the relevant assessment year.

5. The reasons recorded for re-opening the concluded assessment which were furnished to the Petitioner on 18.11.2021 read as under :-

6. The pre-condition as per first proviso to Section 147 of the Act for re-opening the case, where an assessment order under Section 143(3) is passed and the case is to be re-opened after a period of four years is that there has to be failure to disclose fully and truly all material facts necessary for the assessment.

7. On a perusal of the reasons recorded which are reproduced above, there is no allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Even on a perusal of the reasons recorded, the said pre-condition cannot be discerned with even in the absence of such allegation. Paragraph Nos. 2 to 6 categorically admit that the reasons are based on verification of the profit and loss account and the other relevant records. If that be so, we fail to understand how the pre-condition specified in first proviso to Section 147 of the Act is satisfied. Therefore, on this short ground itself, the re-opening notice under Section 148 dated 31.03.2021 for assessment year 2014 -15 is required to be quashed and set aside.

8. Even otherwise, the issue of eligibility of interest under Section 80P was a subject matter of investigation in the course of the regular assessment proceedings and same is evident from paragraph 3 of the original assessment order, wherein the issue of deduction under Section 80P is discussed. Insofar as the issue of disallowance under Section 40(a)(ia) is concerned, a query was raised by the Respondents in the course of the assessment proceedings vide notice dated 18.07.2016 and same was replied by the assessee vide letter dated 09.11.2016, wherein all the details with respect to the TDS were furnished. The details are also filed along with this Petition from page 125 to 135. Therefore, on both these grounds i. e. deduction under Section 80P and disallowance for non-deduction of TDS, the issue was examined during the course of the assessment proceedings and therefore, any attempt to re-open the case on these two issues would amount to re-opening on the basis of change of opinion and review of the earlier order passed under Section 143(3) of the Act. This is not permissible under the Act which confers the power to re-open the case under Section 147 of the Act.

9. In view of above, on both the grounds i. e. there being no allegation of failure to disclose fully and truly all material facts necessary for the assessment and the issues having examined during the course of the original assessment proceedings, the impugned notice under Section 148 of the Act dated 31.03.2021 seeking to re-open concluded assessment of assessment year 2014 – 15 is quashed and set aside.

10. Rule is made absolute in the above terms.

11. Accordingly, the Petition stands disposed of.