2023 (3) TMI 1245 - HC - Income Tax

Validity of reopening of assessment u/s 147 - reasons to believe - increase in share capital - HELD THAT - It is difficult for this Court to come to a conclusion that there is a failure on the part of the assessee in disclosing true and correct facts, more particularly, when it is also not the case of the Department that there is a failure on the part of assessee in disclosing true and correct facts. Hence, when the reopening is sought beyond the period of four years, this basic element of failure on the part of the assessee is missing. Accordingly, it appears that the entire reopening which is sought by the authority is based upon a change of opinion and the law on the change of opinion is already well established, and as a result of this, a case is made out by the petitioner to call for an interference. As we have noticed that the entire reassessment is not on the basis of any fresh tangible material distinct from what was already available during the assessment proceedings, and as such, the petitioner has made out a case to fall within the proposition as laid in the case of Shanti Enterprise 2016 (9) TMI 1614 - GUJARAT HIGH COURT There was no allegation that there is any failure on the part of the assessee, i.e., the petitioner to truly and fully disclose the material facts, and further the reopening is sought on the basis of verification of record, and as such, there was no fresh tangible material distinct from what was available at the time of assessment proceedings and by making a reference to the notice by virtue of which the petitioner was called upon to furnish all the details as stated herein above, the assessment order is passed, and as such, this entire exercise which is sough to be undertaken by the authority is based upon change of opinion. Contention with regard to escapement of income being assessed, the respondent-authority has hardly made out any case for invoking the provisions of Section 56(1) or Section 68. Since the entire exercise is sought to be undertaken on the basis of change of opinion, simply because the Assessing Officer, while passing an order of assessment, has not dealt with specifically in an elaborate form, would not be a ground for opening of an assessment. In view of the aforesaid circumstances and the conjoint effect of the relevant discussion in consonance with the proposition of law, we are of the opinion that a case is made out by the petitioner to call for an interference. The impugned notice of reopening are hereby quashed and set aside.

Summary

Issues Involved:

1. Legality and validity of the impugned notice dated 21st March 2021 and the impugned order dated 22nd November 2021.
2. Reopening of assessment based on material already available on record.
3. Reopening beyond the period of four years without failure on the part of the assessee to disclose material facts.
4. Alleged escapement of income and applicability of Section 56(1) or Section 68.
5. Reopening based on change of opinion.

Summary:

Issue 1: Legality and Validity of the Impugned Notice and Order

The petitioner challenged the legality and validity of the impugned notice dated 21st March 2021 and the impugned order dated 22nd November 2021 under Article 226 of the Constitution of India. The petitioner argued that the reopening of the assessment was based on material already available on record and lacked fresh tangible material, making it impermissible.

Issue 2: Reopening of Assessment Based on Existing Material

The petitioner contended that the reopening of the assessment was done on the basis of material already available during the scrutiny process. The Assessing Officer had previously raised queries regarding the share capital increase and share premium, to which the petitioner had provided detailed replies. The assessment order was passed on 6th November 2017, accepting the returned income without any additions.

Issue 3: Reopening Beyond Four Years Without Failure to Disclose Facts

The petitioner argued that the reopening was beyond the period of four years from the end of the assessment year and there was no failure on the part of the assessee to fully disclose material facts. The petitioner cited various judgments to substantiate that the reopening in such circumstances was not sustainable in law.

Issue 4: Alleged Escapement of Income

The petitioner contended that the income had not escaped assessment, particularly as the share premium received from a non-resident parent company was exempt from taxation. The reasons for reopening were deemed ex-facie bad, and there was no substance in the allegations under Section 56(1) or Section 68.

Issue 5: Reopening Based on Change of Opinion

The court noted that the reopening was sought based on a change of opinion, which is impermissible under well-established legal principles. The court referred to several judgments, including those in the cases of Shanti Enterprise, Premium Finance (P.) Ltd., and Gujarat State Board of School Textbooks, to emphasize that reopening based on a change of opinion is not allowed.

Conclusion:

The court concluded that the entire reopening exercise was based on a change of opinion without any fresh tangible material distinct from what was already available during the assessment proceedings. The court quashed and set aside the impugned notice dated 21st March 2021 and the consequential order dated 22nd November 2021. The special civil application was allowed, and the rule was made absolute to the aforesaid extent, with no order as to costs.