2021 (9) TMI 200 - HC - Income Tax

Reopening of assessment u/s 147 - Validity of reasons to believe - non disposing of objections - Change of opinion - HELD THAT - we find that there is a reference to the First Proviso to Section 147 of the Act, which would not arise in the case of the assessee, as neither in the reasons for reopening, the same has been pointed out nor it was the case of the assessee in their objections. - The observation of the AO is an outcome of non application of mind. In the absence of any allegation that there was any fresh material to come to a conclusion that income escaped assessment, the Assessing Officer cannot now take a stand that the claim made by the assessee under Section 37 of the Act, which was acceded to by the Assessing Officer, was incorrect and the expenditure is in the nature referred to in Section 35D of the Act. If this is the observation and reason for reopening, it would be a clear case of change of opinion. What the Assessing Officer purported to do is to review his earlier decision. As held by the Supreme Court, it is not for the assessee to tell as to how the Assessing Officer has to complete the assessment. The AO, while disposing of the objections vide order dated 26.2.2016, has not touched upon the issue relating to jurisdiction. Submission of respondent that if the Court has to come to such a conclusion, then the matter may be remanded to the Assessing Officer to pass a speaking order on the objections filed by the assessee is not convinced to accept the said contention for more than one reason. - Therefore, we are inclined to quash the proceedings of reopening. - Decided against the Revenue.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for the year 2010-11; Maintainability of writ petition against order disposing of objections by Assessing Officer; Justification of reopening and fulfillment of parameters under Section 147/148 of the Act.

Analysis:
The appellant challenged a notice under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the year 2010-11, leading to a writ petition dismissed on the ground that the reasons for reopening could only be scrutinized in reassessment proceedings, not in a writ proceeding. The Supreme Court precedent in GKN Driveshafts case emphasized furnishing reasons for reopening and the right of the assessee to file objections, which should be disposed of by a speaking order. Writ petitions under Article 226 are maintainable against orders disposing of objections, allowing scrutiny of the justification for reopening and fulfillment of Section 147/148 parameters.

The Constitution Bench decision in Calcutta Discount Company Ltd. case highlighted that while an assessment could be reopened, there should be no review or rethinking of the original assessment. The Supreme Court precedent in M/s. Whirlpool Corporation case established the maintainability of writ petitions, especially in cases of violation of natural justice or manifest arbitrariness in orders. The Court must ensure that the reopening was not based on a change of opinion and that the Assessing Officer establishes the justification for reopening.

In this case, the Assessing Officer issued a notice for reopening citing expenses related to convertible preference shares, but the appellant argued against jurisdiction to initiate reassessment since details were previously provided. The appellant contended that the reopening was a clear case of change of opinion, as the Assessing Officer did not have fresh material to justify it. The Court found the reopening without jurisdiction, as the Assessing Officer failed to address the jurisdiction issue in the order disposing of objections.

The Court rejected the respondent's plea for remand, citing the reopening as a clear case of change of opinion and emphasizing the need to quash proceedings not in line with the law. Consequently, the writ appeal was allowed, the impugned order set aside, and the proceedings, including the notice for reopening and the order disposing of objections, were quashed, with no costs incurred.