2022 (1) TMI 436 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - Eligibility of reasons to believe - change of opinion - HELD THAT - Once a query is raised during the assessment proceeding and the assessee has replied to it it follows that the query raised was a subject for consideration of the Assessment Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussions to disclose its satisfaction in respect of the query raised. There can be no doubt that in the present facts the five points mentioned was a subject matter of consideration by the AO during the original assessment proceeding leading to an order dated 17th March 2006. It would therefore follow that the reopening of the assessment by the impugned notice dated 26th March 2008 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding leading to the order dated 17th March 2006. This change of opinion does not constitute justification and/or reasons to believe that the income chargeable to tax has escaped assessment. We have to also add that item No. 5 in the reasons noted above includes item No. 3 mentioned earlier. Moreover in the assessment order a sum of 57, 16, 601/- out of 31, 40, 96, 154/- has already been added to petitioner s income. Therefore to say in the reasons for reopening that the assessee s claim of bad debts of 31, 40, 96, 154/- was not allowable and that has resulted in escapement of income of the said amount shows non application of mind. On this count alone it can be held that the Assessment Officer should not have formed the reasons to believe that income chargeable to tax has escaped assessment. We set aside the undated order rejecting petitioner s objections. We also hold that there was no reason for the Assessing Officer to have a reasonable belief that income chargeable to tax has escaped assessment. - Decided in favour of assessee.

Summary

Issues Involved:
Challenging the reopening of assessment for assessment year 2003-2004 under section 148 of the Income Tax Act, 1961 based on five issues raised by the Assessing Officer.

Detailed Analysis:

1. Reopening of Assessment: The petitioner, engaged in the manufacture and trading of tobacco products, received a notice under section 148 for reopening the assessment for the year 2003-2004. The petitioner contended that all material facts were disclosed during the original assessment under section 143(3) and objected to the reopening based on five issues raised by the Assessing Officer.

2. Disclosure of Facts: The petitioner filed its return of income in November 2003, disclosing a total loss. Subsequently, in response to a questionnaire in 2006, detailed information was provided on various issues. The original assessment order in March 2006 resulted in additions and disallowances, leading to a revised total loss. The notice for reopening in 2008 was challenged based on the contention that there was no reason to believe that income had escaped assessment.

3. Reasons for Reopening: The five issues raised for reopening included depreciation of property, write-off of unrecovered amounts from share sales, bad debts written off, deduction for third-party securities, and bad debts claimed. The court examined each issue and found that queries were raised during the original assessment, and explanations were provided by the petitioner.

4. Change of Opinion: The court emphasized that a mere change of opinion cannot justify reopening an assessment. It was noted that if queries were raised during the original assessment and addressed by the assessee, it indicates consideration by the Assessing Officer. The court cited a previous judgment to support the position that the reopening based on the same set of facts was merely a change of opinion.

5. Judicial Precedent: Referring to settled law, the court highlighted that reasons for reopening assessments must be examined based on the recorded reasons at the time of issuing the notice under section 148. Any attempt to impugn or supplement these reasons through affidavits or oral submissions was deemed impermissible.

6. Decision: The court set aside the order rejecting the petitioner's objections, ruling that there was no reasonable belief for the Assessing Officer to conclude that income had escaped assessment. The petition was allowed, quashing the notice to reopen the assessment for the year 2003-2004 and related consequential notices.

In conclusion, the court's detailed analysis focused on the sufficiency of disclosures during the original assessment, the relevance of the issues raised for reopening, and the legal principles governing the justification for reopening assessments based on a change of opinion.