2023 (2) TMI 972 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - redemption of preference shares - HELD THAT - The assessing officer has not recorded that there was any failure on the part of the assessee to disclose fully and truly the material facts, which were otherwise necessary for assessment. Therefore, the jurisdictional conditions for exercise of power of reassessment under Section 147 of the Act beyond the period of four year had not been satisfied by the assessing officer. The proceedings impugned are, therefore, liable to be set aside on this ground alone. As during the course of the earlier proceedings u/s 143(3), the Petitioner in its Note 10 annexed with the Auditor's report dated 24 August 2012, had shown Rs.75,00,000/- on account of redemption of preference shares of G.R. Infratech Pvt. Ltd. AO in his notice issued under Section 142(1) required the Petitioner to submit various details, which included profit on sale of investments/shares/capital assets, details and working of capital gain or such income along with the evidences. In response to the said notice, the Petitioner submitted its reply giving details of the investments and stated therein that during the year, there was no purchase and sale of the shares, except redemption of preference shares of M/s G.R. Infratech Pvt. Ltd. It, thus, appears to be clear that the issue pertaining to redemption of preference shares must be deemed to have been considered while passing the Order of assessment under Section 143(3) by the assessing officer. Since an Order under Section 143(3) had been passed, pursuant to a query raised, which was responded to, it must be presumed that the Order under Section 143(3) had considered all issues notwithstanding the fact that no specific mention is made in that regard in the Order of assessment. Decided in favour of assessee.

Summary

Issues Involved:
1. Challenge to the notice under Section 148 of the Income Tax Act, 1961.
2. Validity of reopening assessment under Section 147 of the Income Tax Act, 1961.
3. Jurisdictional requirements for reassessment beyond four years.
4. Allegation of change of opinion by the Assessing Officer.

Detailed Analysis:

1. Challenge to the notice under Section 148 of the Income Tax Act, 1961:
The Petitioner contested the notice dated 29 March 2019, issued under Section 148, aimed at reopening the assessment for the assessment year 2012-13 on the grounds that income chargeable to tax had escaped assessment. The Petitioner argued that the notice was issued mechanically without specifying what information was undisclosed by the assessee, rendering the proceedings unsustainable in law.

2. Validity of reopening assessment under Section 147 of the Income Tax Act, 1961:
The Petitioner highlighted that the reasons recorded for reopening did not reflect any failure to disclose fully and truly any material facts necessary for assessment during the original assessment proceedings. The Petitioner maintained that the reopening was based on a change of opinion, which is impermissible as per the judgment in Commissioner of Income-tax, Delhi Vs. Kelvinator of India Ltd. [2010] 187 Taxman 312 (SC).

3. Jurisdictional requirements for reassessment beyond four years:
The court noted that under Section 147, the Assessing Officer (A.O.) could reopen an assessment within four years if there is reason to believe that income has escaped assessment. Beyond four years, the A.O. must also be satisfied that the assessee failed to disclose fully and truly all material facts necessary for assessment. In this case, the reopening was sought beyond four years, necessitating both conditions to be met. The court found that the reasons recorded did not indicate any failure on the Petitioner's part to disclose material facts, thus failing the jurisdictional requirements.

4. Allegation of change of opinion by the Assessing Officer:
The court emphasized that the reassessment must be based on tangible material and should not merely be a review of the earlier assessment. The court referred to the Supreme Court's ruling in Commissioner of Income-tax Vs. Kelvinator of India Ltd [2010] 320 ITR 561 (SC), which held that the A.O. has no power to review and that reassessment should be based on new tangible material. The court found that the issue of Rs.75,00,000/- received on redemption of preference shares was already considered during the original assessment under Section 143(3), and reopening on the same grounds amounted to a change of opinion, which is not permissible.

Conclusion:
The court concluded that the jurisdictional conditions for reassessment under Section 147 beyond four years were not satisfied, as there was no failure on the Petitioner's part to disclose material facts. Additionally, the reassessment was based on a change of opinion, lacking tangible new material. Therefore, the court quashed the notice dated 29 March 2019, the Order dated 4 October 2019, and the further communication dated 5 November 2019. The Petition was allowed, setting aside the impugned proceedings.