2014 (8) TMI 7 - HC - Income Tax

Notice for reopening of assessment u/s 148 - Reasons to believe that the income chargeable to tax has escaped assessment Held that - The AO have reasons to believe that there had been some omission or failure to disclose fully or truly all material facts necessary for the assessment must be based on some material facts which according to the AO is based on some reasonable belief and which would have a material bearing on the question of under assessment - relying upon Calcutta Discount Co. Ltd. Vs. Income Tax Officer and another 1960 (11) TMI 8 - SUPREME Court - the reasons recorded by the AO nowhere states that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year - the entire material had been placed by the petitioner before the AO at the time when the original assessment was made and that the AO had applied its mind to that material and accepted the contention canvassed by the assessee. Merely because the tax audit report opined that there was excess expenditure shown and that the excess payment should be treated as a deemed gift u/s 4(1)(c) of the Gift Tax Act on the basis of the same material is in our opinion a clear case of change of opinion - the AO has dealt with the audit report and justified his assessment order indicating in its order dated 4th July, 2000 that the issue pertaining to deemed gift and the purchase consideration was examined in detailed looking the business necessity for the petitioner company to acquire the copyright and held that the quantum of purchase consideration as disclosed by the petitioner was reasonable and was a true business transaction and that no gift appeared to be involved. Once the AO had made an assessment on the primary facts and documents placed before it, the AO could not at another point of time form another opinion on the same primary facts and arrive at a conclusion that he had committed an error or come to a conclusion that he has now reasons to believe that income had escaped assessment and reopen the assessment proceedings - on the basis of an audit report, notice u/s 148 of the Act could not be issued as such audit report cannot be regarded as information within the meaning of 147(b) of the Act for the purpose of reopening an assessment the notice issued u/s 148 is to be set aside Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reopening of assessment was based on a mere change of opinion.
3. The relevance of the audit report as a basis for reopening the assessment.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 23rd January 2001, issued under Section 148 of the Income Tax Act, 1961, claiming it was without jurisdiction. The petitioner argued that the Assessing Officer's reasons to believe that income had escaped assessment were not based on any fresh material but were a mere change of opinion. The court examined Sections 147 and 148 of the Act, emphasizing that the Assessing Officer must have "reasons to believe" that income chargeable to tax had escaped assessment. The court noted that "reasons to believe" cannot be based on a change of opinion and must be supported by new material facts.

2. Whether the reopening of assessment was based on a mere change of opinion:
The court found that the Assessing Officer had already scrutinized the valuation of the copyright purchase in the original assessment proceedings under Section 143(3) of the Act. The detailed office note dated 16th March 1998 showed that the quantum of purchase consideration was examined in detail, and the valuation of Rs. 17 crores for the copyright was deemed reasonable. The court held that the Assessing Officer's subsequent notice under Section 148 was based on the same material facts previously considered, indicating a mere change of opinion, which is not permissible for reopening an assessment.

3. The relevance of the audit report as a basis for reopening the assessment:
The court addressed the issue of the audit report suggesting that the consideration paid for the copyright was excessive and part of it should be treated as a deemed gift under Section 4(10)(c) of the Gift Tax Act. The court held that an audit report does not constitute "information" under Section 147(b) of the Act for reopening an assessment. Citing precedents, the court emphasized that reassessment proceedings cannot be initiated based on an audit report's opinion, as it does not qualify as new material or information.

Conclusion:
The court concluded that the notice issued under Section 148 was illegal and without application of mind. The Assessing Officer had already scrutinized the relevant facts and passed an assessment order after detailed inquiries. The reopening of the assessment was based on a mere change of opinion and an audit report, neither of which justified the reassessment. Consequently, the court quashed the notice under Section 148 and allowed the writ petition.