2021 (10) TMI 466 - HC - Income Tax

Reopening of assessment u/s 147 - validity of reasons to believe - Long term capital loss on account of capital reduction - HELD THAT - Assessee had incurred long term capital loss during the year against the equity shares of Ponds Exports Limited on account of capital reduction of Ponds Exports Limited wherein the face value of the shares of Ponds Exports Limited was reduced from ₹ 10/- to Re. 1/each and thus, there was an extinguishment of the proportionate right in the shares held by the Petitioner. This resulted in long term capital loss on account of capital reduction. AO had based its assessment on the accounts books and arrived at conclusion that the Petitioner had incurred long term capital loss and had allowed such long term capital loss while completing the assessment u/s 143(3) of the Act. Respondent No. 1 in the reopening of the assessment on account of change of opinion placed reliance on the same account books to opine that the Petitioner assessee had not incurred any long term capital loss during the year against the equity shares of Ponds Exports Limited and there had been no transfer of shares during the year as claimed by the Petitioner assessee - a different view has been taken from the view conclusively taken by the Assessing Officer and as held in Ananta Landmark Pvt.Ltd. 2021 (10) TMI 71 - BOMBAY HIGH COURT it would not be open to reopen the assessment based on the very same material with a view to take another view. Petitioner had truly and fully disclosed all the material facts necessary for the purpose of assessment and that this was a case where the assessment was sought to be reopened on account of change of opinion of Respondent No. 1. Respondent No. 1 by recording that I have reason to believe that income chargeable to tax amounting to ₹ 20.52 cr. had escaped assessment within the meaning of Section 147 of the Act read with proviso thereto has not referred to any material fact not disclosed and merely stated that the Petitioner had failed to disclose fully and truly all the material facts necessary for its assessment for Assessment Year 2012-13. This statement is clearly made with an attempt to take the case out of the restrictions imposed by the proviso to Section 147 - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Whether there was a failure to disclose fully and truly all material facts necessary for assessment by the Petitioner.
3. Whether the reopening of the assessment was based on a change of opinion by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Validity of the reopening of assessment under Section 148 of the Income Tax Act, 1961:
The Petitioner received a notice under Section 148 of the Act on 31st March 2019, informing them that income had escaped assessment for Assessment Year 2012-13. The Petitioner argued that the notice was issued beyond the period of four years from the end of the relevant assessment year, making it invalid under the first proviso to Section 147 of the Act. The court noted that the Assessing Officer must have tangible material to believe that there was an escapement of income and that there was a failure to disclose fully and truly all material facts. The court found that the reasons for reopening the assessment did not indicate any material fact that was not disclosed by the Petitioner. The court concluded that the reopening of the assessment was invalid as it did not meet the requirements of Section 147 of the Act.

2. Whether there was a failure to disclose fully and truly all material facts necessary for assessment by the Petitioner:
The Petitioner had disclosed all material facts in their return of income and during the assessment proceedings. The court observed that the Petitioner had provided detailed information regarding the long-term capital loss claimed on account of capital reduction in shares of its subsidiary, Ponds Exports Limited. The court found that the Petitioner had made a full and true disclosure of all material facts necessary for the assessment. The court referred to the Supreme Court's decision in Calcutta Discount Co. Ltd. v. Income Tax Officer, which held that the duty of the assessee is to disclose all primary facts relevant to the assessment. The court concluded that the Petitioner had fulfilled this duty and there was no failure to disclose material facts.

3. Whether the reopening of the assessment was based on a change of opinion by the Assessing Officer:
The court noted that the Assessing Officer had previously allowed the long-term capital loss claimed by the Petitioner during the original assessment under Section 143(3) of the Act. The reasons for reopening the assessment indicated that the Assessing Officer had taken a different view based on the same material facts that were already on record. The court referred to the decision in Ananta Landmark Pvt. Ltd. v. Deputy Commissioner of Income Tax, which held that reopening of assessment based on a change of opinion is not permissible. The court concluded that the reopening of the assessment in the present case was based on a mere change of opinion and was therefore invalid.

Conclusion:
The court ruled that the Assessing Officer had no jurisdiction to issue the notice under Section 148 of the Act, as the conditions for reopening the assessment after four years were not met. The court found that the Petitioner had fully and truly disclosed all material facts necessary for the assessment and that the reopening was based on a change of opinion. Consequently, the court quashed and set aside the impugned notice dated 31st March 2019 and the impugned order dated 10th September 2019. The writ petition was disposed of with no order as to costs.