2022 (5) TMI 57 - HC - Income Tax

Reopening of assessment u/s 147 - Eligible reasons to believe for reopening the assessment qua the petitioner/assessee - HELD THAT - Having heard the learned counsel for the parties and perused the record, we are of the view that the petitioner/assessee, at this juncture, has established a prima facie case. The balance of convenience is, presently, in favour of the petitioner/assessee, as, if the assessment proceedings are allowed to continue, it may cause detriment to the petitioner s/assessee s interest. What is required to be noticed in the matter, at this stage, is that the AO has formed a belief, according to us, erroneously, that the entire amount which the petitioner/assessee is said to have invested in bonds/debentures will form part of its taxable income. Investment in bonds/debentures, ordinarily, constitutes a loan transaction. Interest, if any, earned on such investment would possibly form a part of the investor s taxable income. However, at this juncture, there is no material to reach a conclusion either way.

Summary

Issues:
1. Challenge to notice under Section 148 of the Income Tax Act, 1961 for assessment year 2014-15.
2. Legality of order rejecting objections for reopening assessment.
3. Prima facie case established by petitioner/assessee.
4. Interpretation of taxable income regarding investment in bonds/debentures.

Analysis:

Issue 1: Challenge to notice under Section 148
The petitioner challenged the notice issued by the revenue under Section 148 of the Income Tax Act, 1961 for the assessment year 2014-15. The petitioner contended that the order rejecting objections for reopening assessment was illegal and flawed.

Issue 2: Legality of order rejecting objections
The Assessing Officer's reasons for believing that the petitioner's taxable income had escaped assessment were based on large transactions made by the assessee. The petitioner argued that the entire amount invested in bonds/debentures could not be considered as taxable income. Legal precedents were cited to support the Revenue's jurisdiction to issue the notice under Section 148.

Issue 3: Prima facie case established
After hearing both parties, the Court found that the petitioner had established a prima facie case. The balance of convenience favored the petitioner as continuing assessment proceedings could harm their interests. The Court noted that the Assessing Officer had erroneously assumed the entire investment in bonds/debentures as taxable income without sufficient evidence.

Issue 4: Interpretation of taxable income
The Court highlighted that investment in bonds/debentures typically constitutes a loan transaction, and interest earned would contribute to taxable income. However, at the current stage, there was insufficient material to conclusively determine the taxability of the investment. Further examination was deemed necessary regarding any interest earned by the petitioner.

The Court directed the petitioner to provide legible copies of relevant documents before the next hearing. The matter was scheduled for further proceedings, with a stay on the operation of the impugned notice until then. The respondents were required to file a counter-affidavit, and a rejoinder could be submitted by the petitioner if needed. The issue of interest earned on the investment in bonds/debentures by the petitioner was to be examined in the upcoming hearing.