2013 (4) TMI 452 - HC - Income Tax

Reassessment U/s 147 - Ground is change of opinion - Capitalization of interest on capital work in progress and on addition to fixed assets - Held that - Since the notice is based upon application of law, which has the effect on the total income computed by the assessee, the same cannot be said to be without jurisdiction which may warrant interference by the Writ Court at the threshold. We do not find that this Court in the writ petition at the stage of issuance of a show cause notice can return a finding on the basis of inference drawn by the petitioner - Since the assessment order does not deal with either allowance or disallowance of interest capitalized, therefore, it cannot be said that the Assessing Officer is seeking to re-open the assessment only on mere change of opinion Consequently, we do not find any reason to quash the show cause notice at this stage. Hence, the present writ petition is dismissed - It shall be open to the assessee to raise all pleas as are raised before this Court in the proceedings for re-assessment

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Allegation of reassessment based on a change of opinion.
3. Applicability of Section 36(1)(iii) and Section 14(A) of the Income Tax Act.
4. Jurisdiction of the Assessing Officer to issue a reassessment notice.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The petitioner challenged the show cause notice dated 29.3.2011, which proposed to initiate reassessment proceedings under Section 147 of the Income Tax Act, 1961. The primary contention was that the notice was based on a change of opinion and did not fall within the scope of reassessment. The court examined whether the reassessment proceedings were validly initiated within the statutory time limit and whether the Assessing Officer had "reason to believe" that income chargeable to tax had escaped assessment.

2. Allegation of Reassessment Based on a Change of Opinion:
The petitioner argued that the reassessment proceedings were merely a change of opinion since the facts regarding capitalized interest on capital work in progress and additions to fixed assets were disclosed during the original assessment. The court noted that the assessment order did not reflect any discussion on the capitalized interest, and thus, it could not be inferred that the Assessing Officer had formed an opinion on this matter. The court held that the reassessment was not based on a mere change of opinion but on a mistake detected, which justified the reassessment proceedings.

3. Applicability of Section 36(1)(iii) and Section 14(A):
The reassessment notice cited two primary reasons:
- Investment in capital work in progress amounting to Rs. 1,20,92,92,905/- and interest expenditure of Rs. 23,80,26,558/-. The court referred to the proviso to Section 36(1)(iii), which disallows interest paid in respect of capital borrowed for acquisition of an asset until the asset is put to use.
- Investment of Rs. 50,38,88,268/- in equity shares, with income claimed as exempt. The court noted that the Assessing Officer was required to determine the expenditure related to such income as per Section 14(A) and Rule 8(d) of the Income Tax Rules, 1962.

The court found that these reasons were not mere changes of opinion but involved the application of statutory provisions, which warranted reassessment.

4. Jurisdiction of the Assessing Officer:
The petitioner contended that the Assessing Officer lacked jurisdiction to initiate reassessment proceedings based on previously disclosed facts. The court referred to judgments such as Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Broken Private Limited, which clarified that at the stage of issuing a show cause notice, the requirement is "reason to believe" and not the established fact of income escapement. The court emphasized that the sufficiency of reasons for forming the belief is not for the court to judge at the stage of issuing the notice.

The court concluded that the Assessing Officer had the jurisdiction to issue the reassessment notice as the reasons provided had a live link with the formation of the belief that income had escaped assessment.

Conclusion:
The court dismissed the writ petition, allowing the reassessment proceedings to continue. It held that the petitioner could raise all relevant pleas during the reassessment proceedings. The court found no reason to quash the show cause notice at this stage, as the reassessment was not based on a mere change of opinion but on valid grounds involving the application of statutory provisions.