2021 (8) TMI 1013 - HC - Income Tax

Reopening of assessment u/s 147 - disposal of the objections filed on the reasons furnished - HELD THAT - Disposal of objections submitted by the petitioner on the reasons furnished is to be done based on objective satisfaction and not on subjective satisfaction. An elaborate adjudication is required and such adjudications are to be done during the course of reopening proceedings and certainly not at the stage of disposal of objections filed by the Assessee on the reasons furnished. Once the Assessing Officer prima facie arrived a conclusion that he has reason to believe and reasons are furnished, objections received and disposed of by the authority, the said procedure as directed by the Hon'ble Supreme Court of India in GKN Driveshafts case 2002 (11) TMI 7 - SUPREME COURT is to be construed as completion of compliance of the principles of natural justice. Considering the initiation of reopening proceedings, reasons furnished and the disposal of objections in the impugned proceedings this Court has no hesitation in arriving a conclusion that the respondents have established the reasons to believe for reopening of assessment, which is a pre-condition contemplated under Section 147 of the Act - adjudications with reference to the disputed facts are to be done during the course of reopening proceedings and the High Court cannot venture into an adjudication of such disputed facts with reference to the intricacies in accounting system based on certain original documents in the writ proceedings under Article 226 of the Constitution of India. The power of judicial review under Article 226 of the Constitution of India is to ensure that the processes through which a decision is taken by the Competent Authority in consonance with the provisions of the Act, but not the decision itself. This being the scope of power of judicial review, the High Court is not expected to adjudicate certain disputed facts with reference to original documents and evidences, which is to be done by the Competent Original Authority and thereafter by the Appellate Authority in the manner known to law. Once the adjudications are done by the Original Authority and by the Appellate Authorities as contemplated under the Statutes, then those findings of the Authorities at various stages would be of greater assistance to the High Court for the purpose of exercise of the power of judicial review under Article 226 of the Constitution of India in an effective and efficient manner. Based on the elaborate discussions made in the aforementioned paragraphs, the petitioner has to cooperate for the completion of the reopening proceedings, which is to be done as expeditiously as possible.

Issues Involved:
1. Validity of reopening proceedings under Section 148 of the Income Tax Act, 1961.
2. Alleged change of opinion by the Assessing Officer.
3. Consideration of audit objections as a basis for reopening.
4. Specific grounds for reopening related to stock compensation expenses, forward contract gains, depreciation claims, and other tax computations.

Issue-wise Detailed Analysis:

1. Validity of Reopening Proceedings under Section 148:
The writ petition challenges the reopening of assessment for the assessment year 2010-2011. The petitioner argued that the reopening was a result of a change of opinion rather than new tangible material. The court examined whether the reopening was justified under Section 147 of the Act, which permits reopening if the Assessing Officer has "reason to believe" that income has escaped assessment. The court found that the reasons provided for reopening, such as discrepancies in stock compensation expenses and forward contract gains, were valid grounds for reassessment. The court emphasized that the sufficiency of reasons is not to be scrutinized in writ proceedings but during the reassessment process.

2. Alleged Change of Opinion by the Assessing Officer:
The petitioner contended that the reopening was based on a mere change of opinion, which is not permissible. The court clarified that a change of opinion occurs when the same material is re-evaluated without any new information. However, in this case, the court noted that the Assessing Officer identified new aspects within the existing materials that were not previously considered, thus justifying the reopening. The court highlighted that the Assessing Officer's belief that income had escaped assessment was based on fresh insights into the same data, which does not constitute a change of opinion.

3. Consideration of Audit Objections as a Basis for Reopening:
The petitioner argued that audit objections alone cannot justify reopening. The court acknowledged that while audit objections can trigger reassessment, they must be accompanied by the Assessing Officer's independent application of mind. The court found that the Assessing Officer had independently reviewed the audit objections and formed a belief that income had escaped assessment, thus meeting the legal requirement for reopening.

4. Specific Grounds for Reopening:
- Stock Compensation Expenses: The court examined the claim that stock compensation expenses were not correctly accounted for in the assessment year 2010-2011. The Assessing Officer had reason to believe that part of these expenses related to the previous year, leading to under-computation of income.
- Forward Contract Gains: The court considered the issue of gains from forward contracts being included in the tax holiday deduction under Sections 10A and 10AA. The Assessing Officer believed these gains were not derived from the business of the undertakings, necessitating a proportionate disallowance.
- Depreciation Claims: The court reviewed the claim that depreciation on computer software should be restricted to 25% instead of 60%. The Assessing Officer's belief that the software licenses should be considered intangible assets justified the reassessment.
- Other Tax Computations: The court also addressed other grounds such as the relief under Section 90 and the depreciation for the Kolkata Bantala SEZ unit. The Assessing Officer identified discrepancies in these areas that warranted reopening.

Conclusion:
The court concluded that the reopening proceedings were justified based on the reasons provided by the Assessing Officer, which were not merely a change of opinion but involved new insights into existing materials. The petitioner’s objections were considered but found insufficient to disprove the reasons for reopening. The court dismissed the writ petition, allowing the reassessment proceedings to continue. The detailed analysis of the reopening grounds and the legal principles applied ensures that the reassessment process adheres to the provisions of the Income Tax Act, 1961.

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