2024 (1) TMI 865 - HC - Income Tax

Reopening of assessment u/s 147 - change of opinion - reasons to believe - Since there is no business activity during the year under consideration and project is yet to be commenced, hence the amount of financial cost along with depreciation and other expenses should be capitalized as preliminary expenses under the head work in progress and this fact was not verified by the assessing officer while finalizing the assessment - HELD THAT - During the assessment proceedings, petitioner received a notice dated 21st June 2019 in which petitioner was called upon to provide working of depreciation claimed as per the IT Act and party-wise details (name, address and amount) of interest on unsecured loan claimed alongwith details of TDS compliance. Petitioner was also asked to provide party-wise details of unsecured loans alongwith compliance to requirement of Section 68 of the Act and also party-wise details of loan from NBFCS/others. Petitioner responded to the same and provided the details. Subsequently, petitioner received another notice dated 4th September 2019 u/s 142(1) of the Act calling upon petitioner to provide details of the loans, advances and deposits received and given in the format prescribed and also details of all expenses above Rs. 1 lakh debited under each head of Profit and Loss account alongwith comparative analysis with previous year s figures. Petitioner provided these details. It is true that in the assessment order there is no elaborate discussion regarding these items but there has been disallowance on interest on TDS amount debited to Profit and Loss account. This is an indication that the subject matter of financial cost and other expenses has been discussed during the assessment proceedings. As held in Aroni Commercials Limited 2014 (2) TMI 659 - BOMBAY HIGH COURT 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 Assessing Officer 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 only requirement is that the AO ought to have considered the objection now raised in the grounds for issuing notice u/s 148 during the original assessment proceedings. Therefore, it is obvious that the reopening of the assessment by impugned notice dated 30th March 2021 is merely on the basis of change of opinion of the AO from that held earlier during the course of assessment proceeding leading to the assessment order dated 20th December 2019. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. Thus this Hon ble Court be pleased to issue a writ of Certiorari calling for records pertaining to the impugned notice u/s 148 by the Respondent No. 3 and after going into the validity and legality thereof to quash and set aside the same.

Summary

Issues:
The issues involved in the judgment are the impugning of a notice under Section 148 of the Income Tax Act, 1961 for Assessment Year 2017-2018, related to the business activities of the petitioner, specifically concerning short term/long term borrowings, non-commencement of a project, financial costs, and other expenses.

Details of the Judgment:

1. The petitioner, engaged in real estate development and construction, filed its return of income for Assessment Year 2018-2019, showing a total loss. Subsequently, a notice was issued under Section 148 for Assessment Year 2017-2018, alleging that income chargeable to tax had escaped assessment due to certain financial discrepancies.

2. The reasons for reopening the assessment highlighted the petitioner's borrowings, project status, financial costs, and alleged failure to disclose material facts necessary for assessment. The notice aimed to disallow certain financial costs and add them to the total income of the petitioner.

3. During the assessment proceedings, queries were raised regarding interest on unsecured loans, details of loans received, and other financial aspects. Although these were not extensively discussed in the assessment order, there was a disallowance indicating that these matters were considered during the assessment.

4. The petitioner argued that the reopening was based on a change of opinion by the Assessing Officer, citing precedents to support the claim that once a query is raised and responded to during assessment, it is considered by the officer, even if not explicitly mentioned in the order.

5. The judgment referred to a case law to emphasize that the Assessing Officer's consideration of issues raised during assessment, even if not explicitly stated in the order, is sufficient to prevent reopening based solely on a change of opinion. The court allowed the petition, quashing the notice issued under Section 148 for Assessment Year 2017-2018.

6. The court's decision was in favor of the petitioner, concluding that the notice for reassessment lacked justification and was primarily based on a change of opinion rather than new evidence or grounds for believing that income had escaped assessment.