2024 (3) TMI 40 - HC - Income Tax

Validity of reopening of assessment - notice issued after expiry of four years - change of opinion - applicability of section 73 - HELD THAT - The reasons recorded to believe that there is escapement of income from assessment does not even make an allegation that there was failure to truly and fully disclose material fact. On this ground alone, in our view, the notice issued under Section 148 of the Act impugned in the petition has been quashed and set aside. Moreover, the fact that Section 73 of the Act was a subject matter of consideration during the assessment proceedings, also cannot be disputed. This is because in the order rejecting Petitioner s objections, there is an admission that Section 73 of the Act was discussed during the assessment proceedings. Moreover, in the letter dated 29th February 2016, Assessee has elaborately discussed as to why Section 73 of the Act is not applicable. In fact, in the said letter even the explanation of Section 73(4) of the Act has also been extracted. Therefore, it is clear that the applicability of Section 73 of the Act was a subject of consideration during the assessment proceedings and as held by Aroni Commercials Limited ( 2014 (2) TMI 659 - BOMBAY HIGH COURT ), once a query is raised during the assessment proceedings and Assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment and it is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. It would, therefore, follow that the reopening of assessment is merely based on the basis of change of opinion which does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. Decided in favour of assessee.

Summary

Issues Involved:
The issues involved in the judgment are the reopening of assessment under Section 148 of the Income Tax Act, 1961 for Assessment Year 2013-2014 based on the belief that income chargeable to tax had escaped assessment, specifically related to the treatment of losses arising from the purchase and sale of shares as speculation losses under Section 73 of the Act.

Reopening of Assessment under Section 148:
The petitioner filed a return of income for AY 2013-2014 declaring a loss, which was finalized under Section 143(3) of the Act. Subsequently, a notice under Section 148 was issued, alleging that income had escaped assessment. The petitioner argued that reopening was impermissible as there was no failure to disclose material facts necessary for assessment. The court noted that the reasons recorded did not allege any such failure, leading to the quashing of the notice.

Treatment of Losses as Speculation Losses:
The reasons for reopening highlighted the treatment of losses from the purchase and sale of shares as speculation losses under Section 73 of the Act. The petitioner contended that Section 73 was considered during the original assessment proceedings, as evidenced by a letter and discussions, thus reopening based on a change of opinion was unjustified. The court agreed, emphasizing that the AO's satisfaction regarding the law must be direct and solely determined by them, not influenced by audit opinions.

Judicial Precedents and Legal Interpretation:
The judgment referred to legal precedents such as Crompton Greaves Ltd. case and Aroni Commercials Limited case to establish the necessity of failure to disclose material facts for reopening assessments. It also cited Indian and Eastern Newspaper Society case to emphasize the AO's independent evaluation of the law. The court held that the reopening lacked justification and set aside the notice under Section 148 and related communication rejecting objections.