2022 (12) TMI 928 - AT - Income Tax

Reopening of assessment - validity of assessment framed under section 147 - exemption claimed on the sale of shares - HELD THAT - From the reasons recorded by the AO, it is revealed that the proceedings under section 147 of the Act were initiated on the verification of the case records which were available with the AO during the original assessment proceedings framed under section 143(3) of the Act. In the reason recorded there no whisper that the AO was having any fresh tangible material. Thus, the reopening of the assessment was initiated on the basis of same set of document already available with the AO at the time of regular assessment which is nothing but change of opinion. To our considered opinion reopening of assessment cannot be initiated in absence of fresh material or based on change of opinion. In holding so we draw support and guidance from the judgment of PCIT vs. Fibers and Fabrics International (P.) Ltd. 2022 (4) TMI 1433 - SC ORDER Admittedly, the AO on verification of the same set of documents which were available during the original proceedings formed reasons to believe that there is an escapement of income on account of exemption claimed on the sale of shares. In view of the above, we hold that the proceedings initiated under section 147 of the Act are not sustainable and therefore liable to be quashed for the reasons discussed above. Hence, the ground of cross objection raised by the assessee is hereby allowed.

Summary

Issues Involved:
1. Validity of the assessment order under section 143(3) r.w.s 147 of the Income Tax Act.
2. Validity of the notice under section 148 and the action of reassessment under section 147.
3. Demand of Rs. 11,47,675/- and its correctness.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3) r.w.s 147 of the Income Tax Act:
The assessee, a public company engaged in trading shares and investment, declared a loss of Rs. 2,06,78,596/- in its return for the relevant year. The regular assessment under section 143(3) was completed, assessing the loss at Rs. 2,01,03,550/-. The assessment was reopened via a notice dated 30th March 2013, served on 1st April 2013, on the grounds that the income had escaped assessment. The AO argued that the assessee engaged in large-scale trading of shares and securities and claimed exempted long-term capital gain on the sale of bonus shares, which should be treated as trading receipts. The assessee contended that the notice under section 148 was served after the expiry of four years from the end of the relevant assessment year and that the exemption under section 10(38) was rightly claimed. The CIT(A) upheld the validity of the assessment, stating that the AO complied with the principles laid down by the Hon'ble Supreme Court in the case of GN Driveshafts Ltd. The objection raised by the assessee regarding the belated service of notice was dismissed based on the provisions of section 292BB.

2. Validity of the Notice under Section 148 and the Action of Reassessment under Section 147:
The assessee argued that the reopening was based on the same set of documents available during the original assessment, constituting a change of opinion. The AO initiated the proceedings under section 147 after recording reasons based on the verification of case records, not fresh tangible material. The Tribunal held that the reopening of the assessment was initiated on the basis of the same documents available during the original assessment, which is a change of opinion. The Tribunal referred to the Hon'ble Supreme Court's judgment in the case of PCIT vs. Fibers and Fabrics International (P.) Ltd., which stated that reopening based on inferences drawn from the same facts is not permissible. Consequently, the Tribunal quashed the proceedings initiated under section 147, deeming them unsustainable.

3. Demand of Rs. 11,47,675/- and its Correctness:
The assessee contended that the demand was erroneous and excessive, requesting credit for tax payments and rebate under section 88E. However, since the Tribunal quashed the proceedings under section 147, the demand issue became infructuous. The Tribunal did not provide an independent finding on the merit of this objection, as the technical ground of reopening was already decided in favor of the assessee.

Conclusion:
The Tribunal allowed the cross objection filed by the assessee, quashing the proceedings initiated under section 147 due to the lack of fresh material and the change of opinion. Consequently, the appeal of the Revenue was dismissed as infructuous. The combined result was that the cross objection by the assessee was partly allowed, and the appeal by the Revenue was dismissed as infructuous. The order was pronounced on 07/12/2022 at Ahmedabad.