2024 (1) TMI 1139 - HC - Income Tax

Validity of Reopening of assessment - reasons to believe - queries raised by the AO in the course of the original assessing proceedings - Petitioner, objects to the reopening of assessment essentially on the ground that Petitioner had provided information regarding all the queries raised by the AO and it is only after satisfying himself regarding all the information that the original assessment order was passed. He contends that there are no reasons to believe that income has escaped the assessment and the reopening is based on a mere change of opinion - HELD THAT - It is settled law that reopening of assessment proceedings on the basis of escapement of income is not permissible on the ground of change of opinion of the AO. Once a query is raised during assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment . It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query itself. This Court in its decision in the matter of Aroni Commercials Limited 2014 (2) TMI 659 - BOMBAY HIGH COURT has expounded the law in this regard. In the present case, the queries raised by the AO in the course of the original assessing proceedings followed by replies given by the Petitioner clearly show that the entire material was before the AO and applying his mind to the said material, the AO has passed the Assessment Order dated 20th July 2018. The statement of accounts regarding details of expenses and investment relating to earning of exempt income was accepted by the AO. The letter dated 4th August 2017 issued by Petitioner alongwith the financial statements, on record indicates that all queries raised by the AO by its letter dated 19th July 2017 were answered. In the Assessment Orders u/s 143(3) of the Income Tax Act, 1961 for AY 2012-13, AY 2013-14 AY 2014-15 the returned income was accepted as assessed income and there were no disallowances. Thus the reasons to believe forming part of Section 147 of the Act in this case, clearly points to the fact that the reopening of assessment was based on the information accessible by the AO. There is no tangible material available with the AO to justify reopening of assessment of income. Considering all no hesitation in holding that the reopening of assessment of Petitioner s income by the AO is only on the basis of a change in his opinion, which is impermissible in law. Petition thus deserves to be allowed.

Summary

Issues Involved:
1. Validity of the notice and order for reopening assessment.
2. Whether the reopening was based on a mere change of opinion.
3. Availability of tangible material for reassessment.
4. Compliance with procedural requirements for issuing the notice.

Summary:

1. Validity of the notice and order for reopening assessment:
The Petitioner challenged the notice dated 31st March 2021 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for AY 2016-17, and the order dated 21st January 2022 rejecting the objections to the notice. The Petitioner argued that the reasons to believe escapement of income were based on mere suspicion and did not constitute valid reasons to believe.

2. Whether the reopening was based on a mere change of opinion:
The Petitioner contended that all queries raised by the AO during the original assessment proceedings were answered, and the AO had accepted the claims after due consideration. The reopening was alleged to be based on a mere change of opinion, which is impermissible in law. The Court referenced the Supreme Court's decision in Commissioner of Income Tax, Delhi v. Kelvinator of India Limited, emphasizing that "mere change of opinion" cannot justify reopening.

3. Availability of tangible material for reassessment:
The Court noted that the AO had all the required information during the original assessment. The Petitioner had provided detailed responses to the AO's queries, and the AO had passed the assessment order based on this information. The Court concluded that there was no tangible material to justify the reopening of the assessment.

4. Compliance with procedural requirements for issuing the notice:
The Petitioner argued that the notice under Section 148 was not digitally signed and the sanction for reopening was not proper. The Court found that the AO's reliance on a CBDT circular and an audit objection, which was not part of the recorded reasons, was untenable. The Court held that the reopening was not justified as it was based on the same material considered during the original assessment.

Conclusion:
The Court held that the reopening of the assessment was based on a change of opinion and lacked tangible material. The notice and the order were quashed, and the Petition was allowed. The Court issued a Writ of Certiorari, quashing the notice dated 31st March 2021 and the order dated 21st January 2022. There was no order as to costs.