2007 (9) TMI 258 - HC - Income Tax

Reopening the assessment by issuance of a notice u/s 148 - notice after four years that speculative loss cannot be allowed to be set off against the business income of the assessee on ground that dealing in shares is not main business of assessee - Complete details of the sale and purchase of shares and the comparative figures of the earlier years had been given by the assessee to AO - reopening of the completed assessment is only as a result of change of opinion of the Assessing Officer - notice was clearly barred by limitation

Summary

Issues:

1. Validity of reopening assessment under section 148 of the Income-tax Act, 1961.
2. Disclosure of material to Assessing Officer and change of opinion.
3. Bar on issuing notice after the expiry of the limitation period.

Issue 1: Validity of reopening assessment under section 148 of the Income-tax Act, 1961

The appeal under section 260A of the Income-tax Act, 1961, involved the Revenue contesting an order passed by the Income-tax Appellate Tribunal ("the Tribunal") regarding the reopening of assessment for the assessment year 1996-97 under section 148 of the Act. The Tribunal's reasons for reopening the assessment included the treatment of a loss from share transactions as speculative loss, which the assessee had set off against business income. The Tribunal believed that income had escaped assessment due to this treatment.

Issue 2: Disclosure of material to Assessing Officer and change of opinion

The assessee argued that all relevant material, including details of share transactions, was disclosed to the Assessing Officer during the original assessment. The assessee contended that the Assessing Officer's decision to reopen the assessment was merely a change of opinion, as all information had already been provided. Both the Commissioner of Income-tax (Appeals) and the Tribunal upheld the assessee's contention, emphasizing that the notice for reopening the assessment was issued beyond the four-year limitation period and was thus unsustainable in law.

Issue 3: Bar on issuing notice after the expiry of the limitation period

The High Court, after considering the facts and the material disclosed by the assessee to the Assessing Officer, concluded that the reopening of the assessment was indeed a result of a change of opinion by the Assessing Officer. Given that all necessary material had been presented to the authorities, the Court agreed with the lower authorities that the notice issued after the expiry of the limitation period was barred by law. Consequently, it was held that no substantial question of law arose, and the appeal was dismissed.

In conclusion, the High Court's judgment in this case primarily focused on the validity of reopening the assessment under section 148 of the Income-tax Act, 1961. The Court emphasized the importance of disclosing all relevant material to the Assessing Officer and highlighted that the reopening of an assessment based solely on a change of opinion is not permissible after the limitation period has expired. The decision reaffirmed that the notice issued in this case was legally unsustainable due to being time-barred, ultimately leading to the dismissal of the appeal.