2024 (5) TMI 228 - HC - Income Tax

Reopening of assessment u/s 147 - Disallowance u/s 14A r.w.r. 8D - concept of change of opinion - as per assessee no exempt income earned during the relevant assessment year and the assessee had made investment in long term, non-trade (unquoted investment) in private limited companies being carried forward from earlier years - HELD THAT - As respondent has failed to assume jurisdiction to issue such notice on the basis of the material which was available on record even during the course of original assessment proceedings and in absence of any fresh tangible material for reopening, the respondents could not have formed any reason to believe that the income has escaped assessment, more particularly, when the impugned notice is issued after four years from the end of the assessment year and after framing assessment u/s 143(3), wherein the issue for which the reopening sought to be made is already considered by the AO. Therefore, as per proviso to section 147 of the Act, as the petitioner has disclosed truly and fully all material facts during the regular assessment, no notice could have neem issued under section 148 of the Act. Moreover, in view of scrutiny of the issue of disallowance u/s 14A of the Act read with Rule 8D of the Rules during the regular assessment proceedings, reopening on the same issue would amount to mere change of opinion of the assessing officer. Decided in favour of assessee.

Summary

Issues Involved: Jurisdiction of reopening assessment u/s 148 of the Income Tax Act, 1961, based on change of opinion and absence of new tangible material.

Summary:

Jurisdiction of Reopening Assessment u/s 148:

The petitioner challenged the notice dated 30th March 2021 for Assessment Year 2014-15 issued u/s 148 of the Income Tax Act, 1961, on grounds of it being without jurisdiction and based on a change of opinion by the Assessing Officer. The petitioner argued that the issue of disallowance under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962, was already scrutinized during the original assessment proceedings. The Assessing Officer had issued notices on 18th August 2016 and 3rd October 2016, to which the petitioner responded, explaining why no disallowance was required. The assessment order dated 26th December 2016 did not make any disallowance under Section 14A.

Change of Opinion and Absence of New Tangible Material:

The petitioner contended that the reopening was based on a mere change of opinion, as no new tangible material had come to the respondent's possession after the original assessment. The reasons for reopening stated that the petitioner had claimed exempt income and various expenses, which were already examined during the original assessment. The petitioner also argued that the reopening was based on an audit objection, which is not permissible, and that the required sanction from the competent officer u/s 151 was not obtained.

Respondent's Argument:

The respondent argued that the petitioner had an alternative remedy and that the reopening was justified as the petitioner had claimed exempt income and expenses, necessitating a disallowance under Section 14A. The respondent maintained that the notice was issued following due process and with the approval of the competent authority u/s 151. Reliance was placed on the decision in Lalita Ashwin Jain vs. Income Tax Officer, which justified reopening when income escaping assessment exceeded Rupees One Lakh.

Court's Findings:

The court found that the issue of disallowance under Section 14A read with Rule 8D was thoroughly scrutinized during the original assessment proceedings. The respondent failed to assume jurisdiction to issue the notice based on material already available during the original assessment. In the absence of any fresh tangible material, the reopening amounted to a mere change of opinion, which is not tenable in law, especially after four years from the assessment year. The court referred to the Supreme Court's decision in CIT, Delhi vs. Kelvinator of India, which held that reopening based on a change of opinion is not permissible.

Conclusion:

The petition was allowed, and the impugned notice dated 30th March 2021, issued by the Assessing Officer for reopening the Assessment Year 2014-15, was quashed and set aside. Consequently, the order rejecting the petitioner's objections was also quashed. Rule was made absolute to the aforesaid extent, with no order as to costs.