2022 (1) TMI 946 - HC - Income Tax

Reopening of assessment u/s 147 - Existence of reason to believe - conditions precedent to the exercise of the powers to re-assessment - loan being given to group companies either at low interest rate or no interest rate - HELD THAT - There can be no doubt in the facts of the present case that the issue of loan being given to group companies either at low interest rate or no interest rate was a subject matter of consideration by the Assessing Officer during the original assessment proceedings. It would therefore, follow that the re-opening of the assessment is merely on the basis of change of opinion of JAO from that held during the course of assessment proceedings leading to the assessment order dated 21st December, 2019. This change of opinion does not constitute justification and/or reason to believe that income chargeable to tax has escaped assessment. According to the JAO, survey report submitted by DDIT investigation indicate that interest should be charged at 12% per annum on loan given to sister concern totaling to ₹ 4,17,04,380/- and therefore income chargeable to tax has been under assessed by the said amount. According to the JAO this interest income of ₹ 4,17,04,380/- has escaped assessment. We find it rather strange that such an opinion is formed by the JAO. It is an accepted position that petitioner has in fact not received any interest in respect of the loans/advances given to seven of its group companies in the assessment order 2017-18. When no income is received there is no question of paying any tax on income which respondent think should have been received but was in fact not received. Income which accrues to a person is taxable in his hands but we have not seen any provision of law which says that income which he could have earned but he has not earned is taxable as income accrued to him. When the primary facts necessary for assessment are fully and truly disclosed, the Assessing Officer is not entitled on change of opinion to commence proceedings for reassessment.Even if the Assessing Officer, who passed the assessment order, may have raised too many legal inferences from the facts disclosed, on that account the Assessing Officer, who has decided to reopen assessment, is not competent to reopen assessment proceedings. See INDIAN AND EASTERN NEWSPAPER SOCIETY VERSUS COMMISSIONER OF INCOME-TAX, NEW DELHI 1979 (8) TMI 1 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for re-opening the assessment for A.Y. 2017-18.
2. Whether the re-opening of assessment is based on tangible material or mere change of opinion.
3. Consideration of facts and reasons communicated to the petitioner.
4. Assessment proceedings and queries raised by the Assessing Officer.
5. Justification for re-opening the assessment based on change of opinion.
6. Determination of income chargeable to tax and reasons for alleged escapement of income.
7. Legal principles regarding the taxation of notional income on advances.

Detailed Analysis:
1. The High Court considered the validity of the notice issued under Section 148 of the Income Tax Act, 1961 to re-open the assessment for A.Y. 2017-18. The court emphasized that re-opening based on mere change of opinion without tangible material is not permissible under the law.

2. The court analyzed the reasons recorded for re-opening the assessment and found that the Jurisdictional Assessing Officer proceeded on incorrect facts and pure change of opinion. It was noted that the conditions precedent for re-assessment were not met as the information relied upon was received before the original assessment order was passed.

3. The court reviewed the assessment proceedings and queries raised by the Assessing Officer, highlighting that the petitioner had responded to the queries raised during the assessment process. It was established that the queries raised were considered by the Assessing Officer, even if not explicitly mentioned in the assessment order.

4. The judgment emphasized that change of opinion alone cannot justify re-opening the assessment if the Assessing Officer had already considered the relevant facts during the original assessment proceedings. The court held that re-opening the assessment solely based on a change of opinion is not valid under the law.

5. The court examined the alleged escapement of income and the justification provided by the Jurisdictional Assessing Officer. It was observed that the opinion formed regarding the under-assessment of income was not supported by the facts, as the petitioner had not received any interest income as claimed by the Assessing Officer.

6. Legal principles regarding the taxation of notional income on advances were discussed, citing relevant case laws. The court highlighted that unless there is a specific provision empowering the tax authorities to tax notional income, such income cannot be subject to taxation.

7. The judgment concluded by quashing the notice issued under Section 148 of the Act and the order rejecting the petitioner's objections. The court held that re-opening the assessment based on a change of opinion without tangible material was not justified, and the petition was allowed with no order as to costs.