2023 (3) TMI 619 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - Reasons to believe - method of determining the Fair Market Value of the rights shares issued - HELD THAT - Paragraph No.2 of the reasons for the reopening has referred to the terms of the rights issue being 5% of the issue price per share and the balance unpaid amount of 95% of the issue price amounting to Rs.5, 46, 250/- per share being capitalized. However this time around the respondent No.1 claimed that on the very same transaction and valuation which was earlier accepted the excess of the issue price of the share over the Fair Market Value would attract the provisions of Section 56(2) (viib) and excess price or share for the Fair Market Value would be taxable under that provision. The notice does not refer to any other information forming the basis for the reasons for reopening. This is therefore a clear case of a change of opinion on the very same material which was before the earlier Assessment Officer and on which basis the first assessment order was passed after scrutiny. This line of action is impermissible under Section 147 of the Act. Even otherwise the impugned notice under Section 148 appears to suffer from total non-application of mind in that respondent No.1 has not considered all the documents furnished by the petitioner along with its reply / objections to the reopening notice wherein its valuation report of all the details of calculation and disclosures made in the earlier scrutiny proceedings had been produced. The impugned notice does not even deal with a single line of the objections of the petitioner to conclude that there was some element of suppression of material by the petitioner in the previous scrutiny assessment or that there was any material facts which the assessee had failed to disclose in the earlier assessment which had now come to the knowledge of the Assessing Officer to conclude that there was escapement of income which was assessable to tax. The order rejecting the objections has not even once adverted to the valuation report submitted by the petitioner during the earlier assessment proceedings after scrutiny nor does it refer to the method used by the petitioner for valuation. It therefore appears that the only reason and purpose for issuing the impugned notice under Section 148 appears to be that the Assessing Officer has come to a different opinion on the question of valuation from one adopted by the petitioner which has been accepted in the earlier assessment order dated 19/12/2017.For the reasons stated above we are of the opinion that the impugned notice dated 30/03/2021 issued under Section 148 of the Act is without jurisdiction and is barred by limitation - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality and validity of the notice dated 30/03/2021 issued under Section 148 of the Income Tax Act, 1961.
2. Rejection of objections to the aforementioned notice by the order dated 04/03/2022.
3. Jurisdictional issues and applicability of Section 147 and Section 148 of the Income Tax Act.
4. Alleged change of opinion by the Assessing Officer.
5. Non-disclosure of correspondence with the Revenue Audit Department.

Summary:

Legality and Validity of Notice under Section 148:
The petitioner challenged the notice dated 30/03/2021 issued under Section 148 of the Income Tax Act, 1961, alleging that the reasons for reopening the assessment for the Assessment Year 2015-2016 were based on a change of opinion, which is impermissible under the proviso to Section 147 of the Act. The petitioner argued that the Assessing Officer had previously accepted the valuation method for rights shares in the assessment order dated 19/12/2017, and there were no new grounds to reopen the assessment.

Rejection of Objections:
The petitioner contended that the order dated 04/03/2022 rejecting their objections was illegal and arbitrary. The petitioner had requested copies of all correspondence with the Revenue Audit Department, which were not furnished, thereby denying them the opportunity to address the basis for reopening the assessment.

Jurisdictional Issues and Applicability of Sections 147 and 148:
The petitioner argued that the reopening of the assessment beyond four years from the end of the relevant assessment year was barred by limitation, as there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The High Court held that the notice under Section 148 suffered from non-application of mind and was based on the same material previously scrutinized and accepted by the Assessing Officer, thus constituting a change of opinion.

Change of Opinion:
The High Court observed that the reasons for reopening the assessment were essentially a re-evaluation of the same facts and materials already considered in the original assessment. The court cited the Supreme Court's ruling in ITO Vrs. Lakhmani Mewal Das, emphasizing that reasons for reopening must have a rational connection and should not be based on vague or indefinite grounds.

Non-Disclosure of Correspondence with Revenue Audit Department:
The High Court noted that the respondents failed to produce the correspondence with the Revenue Audit Department, which was crucial for the petitioner to contest the reopening notice. The court found that the Assessing Officer did not independently apply his mind and relied on audit objections, which is not permissible.

Conclusion:
The High Court quashed the notice dated 30/03/2021 under Section 148 and the order dated 04/03/2022 rejecting the petitioner's objections, declaring them as without jurisdiction and barred by limitation. The rule was made absolute in favor of the petitioner, with no costs awarded.