2022 (4) TMI 1327 - HC - Income Tax

Reopening of assessment u/s 147 - notice issued under Section 142(1) Assessing Officer had called upon Petitioner to give details of payments made to the persons covered by section 40A(2)(b) - HELD THAT - It is settled law as held by this Court in Aroni Commercials Ltd. 2014 (2) TMI 659 - BOMBAY HIGH COURT , that 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. The issues have been subject of consideration before the AO during the original assessment proceedings. There can be no doubt in the present facts, the very issue of incentives to the senior executives and the difference in the VAT turnover 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 by the impugned notice is merely on the basis of change of opinion from that held earlier during the course of assessment proceedings. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.

Summary

Issues:
1. Validity of notice under Section 148 of the Income Tax Act, 1961
2. Rejection of objections by the Petitioner
3. Assessment proceedings under Section 143(3)
4. Consideration of issues during original assessment proceedings
5. Change of opinion as a basis for re-opening assessment

Analysis:

1. The Petitioner challenged a notice dated 30th March, 2021, issued under Section 148 of the Income Tax Act, 1961, along with an Order dated 24th February, 2022, rejecting the Petitioner's objections and a subsequent notice dated 25th February, 2022, issued under Section 143(3). The notice was based on two main issues: payments to senior employees and a difference in VAT returns.

2. The Petitioner had filed its return of income for A.Y. 2017-2018, declaring income at ?19,08,72,160. The assessment proceedings under Section 143(3) were completed on 16th December, 2019, assessing the income at the same amount.

3. The reasons for re-opening the assessment included payments made to senior employees and the difference in VAT returns. The Petitioner's objections to the re-opening were rejected by an Order dated 24th February, 2022.

4. The Petitioner argued that since an assessment had already been completed under Section 143(3), proposing to re-open the assessment based on a change of opinion was not permissible. The issues raised during re-opening were claimed to have been considered during the original assessment proceedings.

5. The Respondent contended that the amounts paid as incentives to senior employees were actually a share of dividend, which had not been considered in the original assessment. However, the Court held that the issues raised in the re-opening notice were indeed subject to consideration during the original assessment proceedings.

6. The Court emphasized that once a query is raised during assessment proceedings and the assessee responds, it is deemed to have been considered by the Assessing Officer. The absence of specific discussion in the assessment order does not negate the consideration of the raised issues.

7. The Court noted that the issues of incentives to senior employees and the difference in VAT turnover were addressed during the original assessment proceedings. Therefore, the re-opening of the assessment based on a change of opinion was not justified as it did not indicate that income chargeable to tax had escaped assessment.

8. Consequently, the Court allowed the petition and quashed the notice under Section 148, the order rejecting objections, and the subsequent notice under Section 143(3). The petition was disposed of with no order as to costs.