2014 (2) TMI 791 - HC - Income Tax

Reassessment u/s 147/148 of the Act Whether the income on purchase and sale of shares to be treated as business income OR Short Term Capital Gain Held that - The reasons provided u/s 148 must indicate specifically what such objective material facts are, on the basis of which a reopening is initiated under Section 148 - There is a vague reference in this case to material facts , which does not meet the standard under Section 148 Relying upon Phool Chand Bajrang Lal and Anr. v. Income Tax Officer and Anr., 1993 (7) TMI 1 - SUPREME Court - the return was processed under Section 143(1) for the A.Y. 2005-06, which involves a mere intimation, rather than an application of mind or true assessment of the return, a less stringent threshold must be taken in terms of reasons to believe that income has escaped assessment or not. The decision in CIT v. Orient Craft 2013 (1) TMI 177 - DELHI HIGH COURT followed the expression reason to believe cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1) - it is open to the assessee to contend that notwithstanding that the argument of change of opinion is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment - it is open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards Decided in favour of Assessee.

Summary

Issues involved:
Challenge to orders dated 26.03.2012 and 09.08.2012 of Income Tax authorities under Section 148 for reassessment for A.Y. 2005-06.

Detailed Analysis:

1. Reopening of Assessment for A.Y. 2005-06:
The petitioner, a Hindu Undivided Family, filed its return for A.Y. 2005-06 declaring net income. The Income Tax authorities issued a notice under Section 148 for reopening the assessment, citing the need to assess income from purchase and sale of shares as business income instead of Short Term Capital Gain (STCG). The reasons provided for reopening highlighted the discrepancy in treatment of income in the subsequent A.Y. 2007-08, where STCG was treated as business income. The petitioner raised objections, which were rejected, leading to the writ petition challenging the reassessment.

2. Nature of Income and Assessing Officer's Order:
The assessment order for A.Y. 2007-08 concluded that the share transactions were in the nature of a business activity, not investment, despite previous treatment as STCG. However, the CIT (Appeals) reversed this finding, holding the income should be treated as STCG. Despite this, the Income Tax authorities proceeded with reassessment for A.Y. 2005-06, emphasizing that an order under Section 143(1) does not involve detailed assessment and new information warranted reassessment.

3. Legal Principles and Reasoning for Reopening:
The judgment delves into legal principles regarding the reopening of assessments under Section 147, emphasizing the requirement of "reasons to believe" that income has escaped assessment. The court highlighted the need for specific and relevant information forming the basis of such belief. It was noted that the reasons provided for reopening lacked specificity and were more akin to a review or change of opinion rather than new information justifying reassessment. The judgment referenced previous Supreme Court decisions to underscore the importance of tangible material supporting the belief of income escapement.

4. Interpretation of Section 147 and Precedents:
The judgment analyzed the interpretation of Section 147 in light of previous court decisions, emphasizing that the same standards apply regardless of whether the assessment was under Section 143(1) or 143(3). It rejected the argument that a less stringent threshold for "reasons to believe" should apply in cases processed under Section 143(1), highlighting the potential abuse of power if such distinctions were made. The court emphasized that the assessing officer must have valid reasons supported by tangible material to justify reassessment.

5. Conclusion and Set Aside of Notices:
Based on the analysis of legal principles and precedents, the court allowed the writ petition, setting aside the notices dated 26.03.2012 and 09.08.2012 for reassessment of A.Y. 2005-06. The judgment underscored the importance of adhering to the prescribed standards and ensuring that the reasons for reassessment are based on concrete and specific information rather than a mere change of opinion.