2022 (9) TMI 1098 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - Reopen v/s review - communication of the DGIT Investigation that has triggered the reassessment - differential pricing of the shares issued to the petitioners, at par, and those issued to South Asia Entertainment Holdings ltd., at a premium - HELD THAT - While it is a settled position that a re-assessment does not permit of a review, the critical difference between the one and the other is that while a review is premised upon the same material upon which two officers adopt differing views or even a situation where the same officer has had a change of heart/mind in regard to the view previously taken, a re-assessment has to survive only based upon new material. The critical test is therefore as to whether the Department had in its possession any material over and above those available in the original records. In this case, the reasons disclose so. The Assessing Authority refers to material received from the DGIT Investigation bringing to his notice information relating to the allegedly offending share allocation and pricing. This constitutes tangible material on the basis of which jurisdiction has been assumed. As in the case of Commissioner of Income Tax. Delhi V. Kelvinator of India 2010 (1) TMI 11 - SUPREME COURT considered the impact of re-assessment proceedings initiated within four years, and upon noticing that there was no new material that had come to the possession of the Department held that the re-assessment was nothing but a review. The assumption of jurisdiction in this case, is based upon additional material over and above what formed part of the records, that have lead to the belief that income has escaped assessment and not a review of existing materials that found part of the assessment records of the petitioners. This issue is answered in favour of the revenue.

Issues Involved:
1. Validity of reassessment proceedings under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment constitutes a review of the original assessment.
3. Applicability of Sections 2(24)(iv), 28(iv), and 17(2)(vi) of the Income Tax Act.
4. Differential treatment in reassessment compared to similarly placed assessees.
5. Jurisdictional authority and procedural compliance in reassessment.

Issue-wise Detailed Analysis:

1. Validity of reassessment proceedings under Section 148 of the Income Tax Act, 1961:
The court examined whether the reassessment notices issued under Section 148 were valid. The petitioners contended that the reassessments were based on a mere change of opinion and lacked new tangible material. The court noted that the reasons for reassessment disclosed new information received from the Director General of Income Tax (Investigation), which indicated that income had escaped assessment. This new information was deemed sufficient to initiate reassessment proceedings. The court emphasized that the reasons recorded must stand prima facie scrutiny and should not be arbitrary or illegal. The court upheld the validity of the reassessment notices, stating that the reasons disclosed new and tangible material, justifying the initiation of reassessment proceedings.

2. Whether the reassessment constitutes a review of the original assessment:
The petitioners argued that the reassessment constituted a review of the original assessment, which is impermissible in law. The court examined whether the reassessment was based on new material or a mere change of opinion. For Petitioner A, whose original assessment was completed under scrutiny, the court found that the reassessment was based on new information received from the DGIT Investigation, which was not available during the original assessment. Therefore, the reassessment did not constitute a review. For Petitioner B, whose return was not scrutinized initially, the court held that there was no question of change of opinion, and the reassessment was valid based on new information.

3. Applicability of Sections 2(24)(iv), 28(iv), and 17(2)(vi) of the Income Tax Act:
The petitioners contended that the impugned enhancement could only be made under Section 17(2)(vi), which took effect from 01.04.2010, and not under Sections 2(24)(iv) or 28(iv). The court noted that Section 2(24)(iv) includes within the ambit of 'income' the value of any benefit or perquisite obtained from a company by a director. Section 28(iv) provides that the value of any benefit or perquisite arising from business or the exercise of a profession shall be chargeable to income-tax. The court held that the applicability of these sections and the interpretation of statutory provisions should be decided by the assessing authority during the reassessment proceedings.

4. Differential treatment in reassessment compared to similarly placed assessees:
The petitioners alleged that they were being singled out for differential treatment, as other similarly placed assessees who engaged in identical transactions were not reassessed. The court acknowledged the petitioners' submissions but did not find this argument sufficient to invalidate the reassessment proceedings. The court emphasized that the focus should be on the validity of the reasons recorded for reassessment and the procedural compliance, rather than the treatment of other assessees.

5. Jurisdictional authority and procedural compliance in reassessment:
The court examined whether the assessing officer had the requisite authority to initiate reassessment proceedings and whether the procedural requirements were followed. The court found that the reassessment notices were issued within the statutory timelines, and the reasons recorded disclosed new and tangible material. The court also noted that the procedure prescribed in GKN Driveshafts (India) Ltd vs Income Tax Officer and Ors (259 ITR 19) was followed, including the communication of reasons for reassessment and the disposal of objections by the assessing officer. The court upheld the jurisdictional authority and procedural compliance in the reassessment proceedings.

Conclusion:
The court dismissed the writ petitions, upholding the validity of the reassessment proceedings initiated under Section 148 of the Income Tax Act. The court directed the assessing officer to proceed with the reassessment on merits, allowing the petitioners to advance all arguments and defenses, barring the challenge to the assumption of jurisdiction. The reassessment proceedings were to be completed within sixteen weeks from the date of issuance of the certified copy of the order.

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