2021 (12) TMI 881 - HC - Income Tax

Reopening of assessment u/s 147 - Taxability of income of a non-resident by way of capital gain - HELD THAT - The reassessment proceedings are initiated purely on change of opinion with regard to the rate of tax payable by petitioner on the long term capital gain made by it on the sale of shares of Hindustan Lever Ltd. The issue of applicability of first proviso to Section 48 as well as rate of tax under Section 112 were discussed and considered at the time of the said assessment proceedings under Section 143(3). As held in First Source Solutions Limited V/s. The Assistant Commissioner of Income Tax 12(2) (1) 2021 (9) TMI 248 - BOMBAY HIGH COURT reasons of re-opening the assessment has to be based / examined only on the basis of reasons recorded at the time of issuing a notice under Section 148 of the Act seeking to re-open the assessment. These reasons cannot be improved upon and/or supplemented much less substituted by an affidavit and/or oral submissions. Once a query has been raised by Assessing Officer through the assessment proceeding and the assessee has responded to that query, it would necessarily follow that Assessing Officer has accepted petitioner's submissions so as not to deal with that issue in the assessment year. Even if, the assessment order passed under Section 143(3) of the Act does not reflect any consideration of the issue, it must follow that no opinion was formed by Assessing Officer in the regular assessment proceedings - once all the material was placed before Assessing Officer and he chose not to refer to the deduction / claim which was being allowed in the assessment order, it could not be contended that Assessing Officer had not applied his mind while passing the assessment order. When a query has been raised, as has been done in this case, with regard to a particular issue during regular assessment proceedings, it must follow that Assessing Officer had applied his mind and taken a view in the matter as is reflected in the assessment order - once a query has been raised in the assessment proceedings with regard to rate at which capital gains should be taxed under Section 112(1)(c)(ii) and petitioner has responded to the query to the satisfaction of Assessing Officer as is evident from the fact in the assessment order dated 15th November 2006, accepts petitioner's submissions as to why taxation should be only 10% under Section 112 read with Section 148 of the Act, it must follow that there is due application of mind by Assessing Officer to the issue raised. Non rejection of the explanation in the assessment order would amount to Assessing Officer accepting the view of petitioner, thus taking a view / forming an opinion. Where on consideration of material on record, one view is conclusively taken by the Assessing Officer, it would not be open to reopen the assessment based on the very same material with a view to take another view. - Decided in favour of assessee.

Summary

Issues:
Impugning notice under Section 148 of the Income Tax Act and rejection of objections to re-opening of assessment.

Analysis:
The petitioner challenged a notice dated 13th March 2008 under Section 148 of the Income Tax Act and an order dated 14th October 2008 rejecting objections to the proposed re-opening of assessment. The petitioner was issued shares of a company and later transferred them, earning a substantial long-term capital gain. The petitioner filed a return of income for the assessment year 2004-2005, declaring the capital gain and paying the applicable tax. During the assessment proceedings, the petitioner clarified queries raised by the Assessing Officer regarding the tax rate on capital gains. The assessment order was passed, accepting the petitioner's submissions. Subsequently, a notice was issued proposing to re-assess the income, alleging that income had escaped assessment. The reasons for re-opening were provided, focusing on the tax rate applied to the capital gain. The petitioner's objections were rejected, leading to the legal challenge.

The High Court emphasized that certain jurisdictional conditions must be met before initiating proceedings under Section 148 of the Act. These conditions include the Assessing Officer having a reason to believe that income has escaped assessment and that the reassessment is not based solely on a change of opinion. In this case, it was found that these conditions were not complied with. The reasons for re-opening focused on changing the tax rate on the capital gain, which had already been considered during the initial assessment proceedings. The court noted that the reassessment was initiated purely on a change of opinion regarding the tax rate, which had already been discussed and decided during the original assessment.

The court also highlighted that once a query is raised during assessment proceedings, and the assessee responds satisfactorily, it indicates that the Assessing Officer has accepted the submissions. In this case, the petitioner had responded to queries regarding the tax rate on capital gains, and the Assessing Officer had accepted the explanation in the assessment order. Therefore, it was concluded that there was due application of mind by the Assessing Officer during the initial assessment, and reopening the assessment based on the same material to take a different view was not permissible. The court allowed the petition, quashing the notice and order in question, focusing solely on the jurisdiction of the Assessing Officer to re-open the assessment without making any observations on the merits of the case.

In conclusion, the judgment highlighted the importance of adhering to jurisdictional conditions before re-opening assessments under the Income Tax Act and emphasized that reassessments should not be initiated based solely on a change of opinion regarding issues already considered during the original assessment proceedings.