2024 (2) TMI 467 - HC - Income Tax

Reopening of assessment - notice issued after the expiry of more than 4 years - reasons to believe - allegation of details picked up from the assessment records - claim of interest income being capitalised to work in progress - HELD THAT - As bare perusal of the reasons recorded indicates that all details mentioned therein have been picked up from the assessment records. There can be no failure on the part of petitioner to truly and fully disclose all material facts. The reasons recorded also alleged that the claim of interest income being capitalised to work in progress or claim of provision made for income tax was not considered during the course of assessment proceedings and hence no opinion was formed by the assessing officer in this respect. To the petition is annexed a copy which shows that during the year under consideration petitioner has incurred interest expenditure of Rs. 33,06,72,763/- and earned interest income of Rs. 5,61,89,376/- and the treatment of those figures in the accounts of petitioner were subject matter of consideration. It is true that these issues have not been specifically discussed in the original assessment order dated 29th February 2016. But in the assessment order, the assessing officer has reworked the work in progress, which indicates that these issues were certainly subject matter of consideration during the assessment proceedings. As held by the Division Bench of this Court in Aroni Commercials Ltd. 2014 (2) TMI 659 - BOMBAY HIGH COURT the settled law is once a query is raised during the 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 raised. The only requirement is that the AO ought to have considered, the objection now raised in the grounds for issuing notice under Section 148 of the Act, during the original assessment proceedings. In the case at hand, the AO having raised a query and the petitioner having replied to it, it follows that the query raised was subject of consideration of the AO while passing the assessment order - In our view, the re-opening of assessment by the impugned notice is merely on the basis of change of opinion of the AO from that held earlier during the course of assessment proceedings and this change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice under Section 148 of the Income Tax Act, 1961.
2. Alleged failure to disclose material facts fully and truly.
3. Reopening of assessment based on change of opinion.

Summary:

1. Validity of Notice under Section 148:
The petitioner challenged the notice dated 27th March 2021 issued under Section 148 of the Income Tax Act, 1961, and the order disposing of objections passed on 14th January 2022. The petitioner argued that the notice was issued after more than four years from the relevant assessment year, invoking the proviso to Section 147, which applies only if there was a failure on the part of the assessee to disclose all material facts fully and truly.

2. Alleged Failure to Disclose Material Facts Fully and Truly:
The reasons for reopening the assessment included the incorrect accounting treatment of interest income of Rs. 5,61,89,376/-, which was netted off against interest expenses and capitalized to Work-in-Progress (WIP). The revenue authorities argued that this interest income should have been taxed under "Income from Other Sources" as per the decisions of the Hon'ble Apex Court in Tuticorin Alkali Chemicals and Fertilizers Ltd vs CIT and the Rajasthan High Court in CIT vs Rajasthan Land Development Corporation. Additionally, an amount of Rs. 4,28,636/- was found inadmissible under Section 40(a) being provision for income tax but was not added in the computation of income.

3. Reopening of Assessment Based on Change of Opinion:
The court noted that the reasons recorded for reopening the assessment were derived from the assessment records, indicating that the issues were already considered during the original assessment proceedings. The court referred to the case of Aroni Commercials Ltd. Vs. Deputy Commissioner of Income Tax, stating that once a query is raised and replied to during assessment proceedings, it follows that the query was considered by the Assessing Officer (AO). The court concluded that the reopening was merely based on a change of opinion, which does not justify the reasons to believe that income chargeable to tax has escaped assessment.

Conclusion:
The court ruled that there was no failure on the part of the petitioner to disclose all material facts fully and truly. The reopening of the assessment was based on a change of opinion, which is not a valid ground for issuing a notice under Section 148. Consequently, the court quashed the notice dated 27th March 2021 and the order disposing of objections dated 14th January 2022. The petition was disposed of with Rule made absolute in terms of prayer clause (a).