2020 (5) TMI 332 - HC - Income Tax

Reopening of assessment u/s 148 - 'reason to believe '- Valuation of shares u/s 56(2) (viib) - HELD THAT - Admittedly no tangible or fresh material that has come to the notice of the Assessing Authority and this is an admitted fact as may be seen from the reasons that have been extracted elsewhere in this order. The relevant phrase in Section 147 is ' reason to believe ', and it has been the consistent stand of the Supreme Court that such reason must emanate from tangible or new material that has come to the notice of the AO and should not tantamount to review of the material already available on record. If this were to be permitted, there would be no end to the number of times when successive officers might apply and re-apply their mind to the same stale material coming to different conclusions every time. In the present case, the financials annexed to the return of income disclose two lot of shares, one numbering 1,00,000 and second numbering 2,17,870. The valuation thereof is also stated clearly. This has not escaped the attention of the Assessing Authority at the original instance and he has in fact made a modification to the valuation of the first lot of shares. For reasons best known to him, the second lot has been left untouched. Admittedly, there is no material that has come to the notice of the Assessing Authority in 2018 to warrant re-assessment. The proceedings impugned before me are thus nothing but a change of opinion, impermissible in law.

Summary

Issues Involved:
1. Validity of the re-assessment proceedings initiated under Section 148 of the Income Tax Act, 1961.
2. Existence of tangible or fresh material to justify the re-assessment.
3. Whether the re-assessment constitutes a mere change of opinion, which is impermissible in law.

Detailed Analysis:

1. Validity of the Re-assessment Proceedings:
The petitioner challenged the re-assessment proceedings for the Assessment Year 2014-15 initiated by a notice under Section 148 of the Income Tax Act, 1961. The initial assessment was completed under Section 143(3) on 30.12.2016, wherein the Assessing Officer had already scrutinized the share premium on the first lot of 1,00,000 shares and made an addition under Section 56(2)(viib). The petitioner argued that the re-assessment notice issued on 17.08.2017 was within four years but lacked new or tangible material to justify the re-opening of the assessment.

2. Existence of Tangible or Fresh Material:
The reasons for re-assessment provided by the Assessing Officer indicated that the valuation of the second lot of 2,17,870 shares was incorrect according to Rule 11UA(2)(a) of the Income Tax Rules. However, the court observed that all details regarding both lots of shares were available during the original assessment. The court emphasized that for re-assessment to be valid, there must be "reason to believe" based on new or tangible material that was not previously considered. The court cited precedents, including the Supreme Court's decision in Kelvinator of India Limited, which held that re-assessment should not be based on a mere change of opinion without new material.

3. Change of Opinion:
The court found that the Assessing Officer's attempt to re-assess the second lot of shares was based on the same material that was available during the original assessment. The court ruled that this constituted a change of opinion, which is impermissible under the law. The court referred to the Delhi High Court's Full Bench decision in Kelvinator of India Limited, which stated that re-assessment based on a change of opinion is unconstitutional. The court also noted that the Supreme Court in Kelvinator of India Limited affirmed this view, emphasizing that re-assessment must be based on tangible material and not merely a different interpretation of the same facts.

Conclusion:
The court concluded that the re-assessment proceedings were invalid as they were based on a change of opinion without any new or tangible material. The court quashed the impugned proceedings and allowed the writ petition, emphasizing the necessity for finality in legal proceedings and the impermissibility of re-opening assessments based on stale issues. The court's decision reinforces the principle that re-assessment must be grounded in new information and not merely a re-evaluation of existing records.