2012 (9) TMI 69 - HC - Income Tax

Reopening of the assessment - exemption u/s 10(23G) has been wrongly granted - had the interest been earned on long term finance as defined in section 10(23G) r.w.s. 36(1)(viii) the investment would have been classified in Schedule 8 of Balance Sheet as Loans and Advances and not as investment in Schedule 5 as shown by assessee - Held that - The assessee put forth his claim for exemption u/s 10(23G) with respect to three different incomes namely (1) interest from SSNNL bonds (2) interest from GIPCL bonds and (3) capital gain from sale of shares by GPEC being supported by the notes forming part of the return of income. It is not as if the AO did not notice these claims. In fact the AO asked the assessee to justify all the claims and the assessee gave detailed reply to the query raised with respect to capital gain. The assessee thereafter contended that such justification would apply with respect to interest on the bonds also. As if for some reason the AO was not satisfied with such explanation surely it was open for him to call for further explanation. In the final order of assessment it is not as if the Assessing Officer totally lost sight of such claims. He in fact took into account the fact that the assessee was claiming exemption on the interest income from the bonds. He therefore examined as to what extent expenditure for earning such tax free income should be disallowed. In the order of assessment he gave detailed reasons why a portion of the expenditure relating to earning tax free interest should be disallowed thus in the reasons which the AO recorded for reopening the assessment he based his case on wrong exemption of interest from SSNNL/GIPCL Bonds claimed under section 10(23G)such reopening would be based on a mere change of opinion - the reasons of AO started with the words from the records it can be seen that ..... thus the entire information and the material that the AO therefore had at his command was reflected from the record itself. This coupled with the fact that in the original assessment the Assessing Officer examined such claims in detail would convince that any reopening of the assessment of same claims on the basis of same material amounts to a mere change of opinion - thus notice was issued without jurisdiction - in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Whether the reopening of the assessment within four years was permissible on the basis of material already on record.
3. Whether the reopening of the assessment amounted to a mere change of opinion.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148
The petitioner challenged the notice dated 14.11.2006 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2002-03. The petitioner argued that the notice was without jurisdiction as the Assessing Officer had already scrutinized the claims during the original assessment and any attempt to tax such income would be based on a change of opinion. The petitioner contended that the reopening was impermissible as there was no new material and the reasons recorded for reopening were based on the material already on record.

2. Permissibility of Reopening Based on Material Already on Record
The court examined whether reopening the assessment within four years from the end of the relevant assessment year was permissible based on the material already on record. It was noted that the provisions of Section 147 of the Act post-1.4.1989 allowed for reopening an assessment if the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment. The court held that reopening within four years could be permissible as long as it was not based on a mere change of opinion and there was some tangible material, even if it formed part of the original record.

3. Reopening Amounting to a Mere Change of Opinion
The court addressed whether the reopening of the assessment amounted to a mere change of opinion. It was found that during the original assessment, the Assessing Officer had raised queries and received detailed responses from the petitioner regarding the claims for exemption under Section 10(23G) of the Act. The Assessing Officer had considered these claims and had not made any disallowance in the final assessment order. The court concluded that the reopening was based on the same material that was already scrutinized, and therefore, it amounted to a mere change of opinion, which is impermissible.

Conclusion
The court quashed the notice issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment, holding that it was without jurisdiction. The court emphasized that reopening an assessment based on the same material that was already scrutinized during the original assessment amounts to a mere change of opinion, which is not permissible under the law. The rule was made absolute with no order as to costs.