2014 (8) TMI 390 - HC - Income Tax

Reopening of completed assessment Power of the AO u/s 147 and 148 of the Act Held that - Following the decision in Aroni Commercials Limited Versus The Dy. Commissioner of Income Tax And Another 2014 (2) TMI 659 - BOMBAY HIGH COURT - The power to reassess cannot be exercised on the basis of mere change of opinion i.e. if all facts are available on record and a particular opinion is formed, then merely because there is change of opinion on the part of the Assessing Officer notice under Section 147/148 of the Act is not permissible - Once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment - It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised - If an AO has to record the consideration bestowed by him on all issues raised by him during the assessment proceeding even where he is satisfied then it would be impossible for the AO to complete all the assessments which are required to be scrutinized by him under Section 143(3) of the Act. The notice u/s 147 of the Act seeking to reopen the AY and the order rejecting the petitioner s objection to reopen the assessment are not sustainable in law - The entire proceeding for reopening the assessment had emanated only on account of change of opinion on the part of the AO thus, the assessment order set aside - there was no reason for the AO to have had a reasonable belief that income chargeable to tax has escaped assessment thus, the Notice issued u/s 148 of the Act also set aside Decided in favour of Assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for A.Y. 2007-08.
2. Whether the reopening of the assessment was based on a mere change of opinion.
3. Whether the petition suffers from laches.
4. Whether the Court should exercise its jurisdiction under Article 226 of the Constitution of India.
5. Whether the affidavit filed by the Revenue introduces new reasons for reopening.
6. Whether the profit and loss account indicated that the assessee was engaged only in share trading.
7. Whether the Assessing Officer had applied his mind during the original assessment proceedings.

Detailed Analysis:

1. Validity of the Notice Issued under Section 148:
The petition challenges the notice dated 29.3.2012 issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for A.Y. 2007-08. The reasons for reopening were that the assessee was engaged in share trading and manipulated its affairs to claim short-term capital gains at a lower tax rate and long-term capital gains as exempt. The Court observed that the reasons for reopening the assessment for A.Y. 2007-08 were identical to those for A.Y. 2008-09, which had been adjudicated in favor of the petitioner in a previous case (362 ITR 403).

2. Reopening Based on Change of Opinion:
The Court noted that the reopening was contested on the grounds that it was merely a change of opinion. The objections raised by the assessee were dismissed by the Assessing Officer, who argued that the reopening was based on clear observations that the income should have been treated as business income and taxed at 30% instead of 10% or claimed as exempt. The Court found that the issue had already been examined during the original assessment proceedings under Section 143(3), where the Assessing Officer had accepted the assessee's contention after considering their explanations.

3. Laches:
The Revenue argued that the petition should be dismissed due to laches, as the objections to the reopening were rejected on 6.8.2012, and the petition was filed on 4.12.2012. The Court held that the delay was not significant enough to dismiss the petition on the grounds of laches, emphasizing that the Limitation Act does not apply rigidly to petitions under Article 226 of the Constitution of India.

4. Jurisdiction under Article 226:
The Revenue contended that the Court should not exercise its writ jurisdiction and that the petitioner should avail of statutory remedies. The Court distinguished between adjudicatory and jurisdictional facts, noting that the challenge was based on the lack of jurisdiction due to the reopening being a change of opinion. The Court decided to entertain the petition, as the challenge was based on jurisdictional facts.

5. Affidavit Introducing New Reasons:
The Revenue filed an affidavit introducing new reasons for reopening, citing an internal audit report. The Court held that the reasons for reopening must be based on the reasons recorded at the time of issuing the notice and that no new reasons could be added later. The Court found no mention of the audit report in the original reasons furnished to the petitioner.

6. Profit and Loss Account Indicating Share Trading:
The Revenue argued that the profit and loss account indicated that the assessee was only engaged in share trading. The Court noted that this aspect had been examined during the original assessment proceedings, where the Assessing Officer had specifically queried the nature of the income, and the assessee had provided explanations that were accepted.

7. Application of Mind by the Assessing Officer:
The Revenue contended that the Assessing Officer had not applied his mind during the original assessment proceedings. The Court rejected this argument, stating that once a query had been raised and responded to, it must be assumed that the Assessing Officer had applied his mind and taken a view on the matter. The Court found no basis for the assertion that the Assessing Officer had not applied his mind.

Conclusion:
The Court concluded that there was no reason for the Assessing Officer to have a reasonable belief that the income chargeable to tax had escaped assessment. Consequently, the impugned notice dated 29.3.2012 issued under Section 148 of the Act for A.Y. 2007-08 and the order dated 6.8.2012 disposing of the petitioner's objections were set aside. The petition was allowed with no order as to costs.

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