2021 (12) TMI 1183 - HC - Income Tax

Reopening of assessment u/s 147 - correct head of income - non-compete fees receipt - Notice after expiry of 4 years from the end of relevant assessment year on the ground of escapement of income chargeable to tax on the non-compete fees in question by contending that it was taxable as business income under Section 28 (V-A) of the Act instead of income under the head capital gain - HELD THAT - In the facts and circumstances of the case assumption of jurisdiction under Section 147 by the respondent/AO and issuance of impugned notice under Section 148 of the said Act after the expiry of 4 years from the end of the relevant assessment year 2012-13 is bad and not tenable in the eye of law in view of non-fulfilment of criteria under the first proviso to Section 147 of the Act and in view of the fact that the respondent Assessing Officer could not establish from record that there was any omission or failure on the part of the assessee petitioner in disclosing fully and truly all relevant material facts necessary in course of scrutiny assessment under Section 143 (3) of the Income Tax Act, 1961. In the facts and circumstances of the case invoking of provision of Section 147 read with Section 148 of the Act by the Assessing Officer for reopening the assessment of the assessee on the self-same material which were very much available to the Assessing Officer at the time of scrutiny assessment under Section 143 (3) of the Income Tax Act, 1961 is not justified by taking a view different from his predecessor who had already allowed to tax the nom-compete fees in question as Long Term Capital Gain in scrutiny assessment and by taking a view that the same should be treated as income from business under Section 28 (V-A) of the Income Tax Act, 1961 instead of Long Term Capital Gain. In the facts and in the circumstances of the case the respondent assessing authority is legally not justified in reopening the assessment in question under Section 147 of the Income Tax Act, 1961 by ignoring the fact that non-compete fees in question had already been treated and taxed as capital gains by the Assessing Officer during the scrutiny assessment proceedings under Section 143 (3) of the Act by accepting the claim of the petitioner after examining, verifying and scrutinising all the facts, relevant documents, details and particulars which were requisitioned by the assessing officer in course of scrutiny assessment and which are matters of records. In the facts and in the circumstances of the case reopening of assessment by invoking Section 147 and issuance of notice under Section 148 of the Income Tax Act, 1961, after expiry of 4 years from the end of relevant assessment year on the basis of information received from investigation wing which are nothing new and are the same material which were already available before the Assessing Officer and were considered at the time of scrutiny assessment under Section 143 (3) of the Act, and taking a different view on the self-same material is a mere change of opinion. - Decided in favour of assessee.

Issues Involved:
1. Assumption of jurisdiction under Section 147 of the Income Tax Act, 1961.
2. Issuance of notice under Section 148 after the expiry of 4 years.
3. Justification of reopening assessment based on the same materials previously scrutinized.
4. Classification of non-compete fees as "Long Term Capital Gain" vs. "Business Income."

Detailed Analysis:

Issue 1: Assumption of jurisdiction under Section 147 of the Income Tax Act, 1961
The petitioner challenged the assumption of jurisdiction under Section 147 by the Assessing Officer, arguing that the criteria under the first proviso to Section 147 were not met. The court found that there was no omission or failure on the part of the petitioner in disclosing all relevant material facts during the original assessment under Section 143. The materials upon which the Assessing Officer based the reassessment were already available during the original scrutiny, making the assumption of jurisdiction invalid.

Issue 2: Issuance of notice under Section 148 after the expiry of 4 years
The court examined whether the issuance of the notice under Section 148 after the expiry of 4 years from the end of the relevant assessment year was lawful. It was determined that the notice was invalid as the criteria under the first proviso to Section 147 were not satisfied. The Assessing Officer could not establish any omission or failure by the petitioner to disclose fully and truly all material facts necessary for the assessment.

Issue 3: Justification of reopening assessment based on the same materials previously scrutinized
The court scrutinized whether the reopening of the assessment under Section 147, based on the same materials that were available during the original assessment, was justified. It concluded that the reopening was not justified, as it was merely a change of opinion by the current Assessing Officer. The non-compete fees had already been examined, verified, and accepted as "Long Term Capital Gain" during the original assessment under Section 143 (3).

Issue 4: Classification of non-compete fees as "Long Term Capital Gain" vs. "Business Income"
The court addressed whether the non-compete fees should be classified as "Long Term Capital Gain" or "Business Income." The original assessment had classified the non-compete fees as "Long Term Capital Gain," and the current Assessing Officer's attempt to reclassify it as "Business Income" under Section 28 (V-A) was deemed a mere change of opinion. The court held that the reassessment on this basis was not permissible, as it relied on the same materials previously considered.

Conclusion:
The court quashed the impugned notice dated 29th March 2019 issued under Section 148 and set aside all further proceedings based on the notice. The petition was allowed, and the court emphasized that the reopening of the assessment was based on a mere change of opinion, which is not permissible under the law. No costs were ordered, and urgent certified photocopies of the judgment were permitted upon compliance with requisite formalities.

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