2015 (5) TMI 950 - HC - Income Tax

Reopening of assessment - capital gains earned by the assessee should be assessed as such or as business income - Held that - The legal position has been summarised that the capital gains earned by the assessee should be assessed as such and not as business income. Thus, each of the queries which have been raised came to be replied and, then, there is a further communication on December 11, 2009, under which the petitioner furnished the details of profits on share credit and calculated in the manner set out in this communication. The share transactions on which the short-term capital gains and long-term capital gains were computed were thus available. We find reference being made to the membership of the petitioner of the stock exchange and the gains which have been declared so also the total income. There is further reference to all the communications from the petitioner. We find that the issues and which are the subject matter of the impugned notice have been examined and duly considered. The issue of disallowance under section 40(a)(ia) of the Income-tax Act has been dealt with from paragraph 6.1 onwards. In the circumstances, we do not find as to on what basis the assessment could have been reopened. If not only the main contention and stand of the assessee has been dealt with but even the alternate contention and there is a reference to all the details which were supplied, then there was no reason at all for reopening the assessment. We have also been shown the details in the books of account. The break-up of income is extensively referred even in the assessment order. Thus, the present one is a clear case of reopening of the assessment on a mere change of opinion and that such a course is impermissible in law is by now well settled. We do not, therefore, find that the reasons which have been recorded for reopening the assessment meet and satisfy the statutory pre-conditions. Those having not being satisfied, there is no alternative but to quash and set aside the impugned notice and the assessment order following the same. - Decided in favour of assessee.

Issues Involved:

1. Legality of the notice under section 148 of the Income-tax Act, 1961.
2. Reopening of assessment based on change of opinion.
3. Compliance with statutory requirements and procedural fairness.

Detailed Analysis:

1. Legality of the notice under section 148 of the Income-tax Act, 1961:

The petitioner challenged the notice under section 148 of the Income-tax Act, 1961, dated March 29, 2014, and the order dated March 27, 2015, rejecting the objections to the reasons recorded for reopening the assessment. The petitioner, an individual engaged in share trading and investment, filed his return for the assessment year 2007-08 declaring a total income of Rs. 3,89,52,530. The return was selected for scrutiny, and after multiple submissions and compliance with notices, the assessment order was passed on December 14, 2009, determining the income at Rs. 4,45,57,283. The petitioner later received a notice on March 29, 2014, to reopen the assessment, which he objected to on the grounds that the reasons recorded for reopening were inadequate and did not meet statutory requirements. The court noted that the reasons recorded for reopening the assessment must disclose failure on the part of the assessee to fully and truly set out material facts necessary for the assessment year. The court found that the reasons recorded did not indicate any such failure, and thus, the statutory pre-conditions for reopening the assessment were not satisfied.

2. Reopening of assessment based on change of opinion:

The petitioner argued that the reopening of the assessment was not permissible merely because of a change of opinion. The court observed that the reasons for reopening indicated that the Revenue intended to revisit the conclusions in the original assessment order without any new material facts. The court referred to the case of Aroni Commercials Ltd. v. Deputy CIT, where it was held that reopening an assessment on a mere change of opinion is impermissible. The court found that the reasons recorded for reopening the assessment did not indicate any failure on the part of the assessee to disclose material facts. The court concluded that the reopening was based on a mere change of opinion, which is not permissible under the law.

3. Compliance with statutory requirements and procedural fairness:

The petitioner contended that the Assessing Officer did not wait for the requisite period of four weeks from the date of communication of the order rejecting the objections before passing the assessment order. The court noted that the objections to the reasons recorded for reopening the assessment were rejected by a communication dated March 5, 2015, and the assessment order was passed on March 27, 2015, within the four-week period. The court held that this was contrary to the mandate in the decisions of the Supreme Court and the Bombay High Court, which require the Assessing Officer to wait for four weeks before proceeding further. The court also found that the reasons recorded for reopening the assessment did not satisfy the statutory requirements, as they did not indicate any failure on the part of the assessee to disclose material facts. The court concluded that the impugned notice and the assessment order following the same were not in conformity with the law and quashed them.

Conclusion:

The court held that the reopening of the assessment was based on a mere change of opinion and did not satisfy the statutory pre-conditions. The court quashed the impugned notice under section 148 of the Income-tax Act and the assessment order dated March 27, 2015, following the same. The writ petition was allowed, and rule was made absolute in terms of prayer clause (a) with no order as to costs.

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