2013 (10) TMI 1034 - HC - Income Tax

Court upholds validity of income tax reassessment under section 147, dismisses writ petition

The court dismissed the writ petition challenging the reopening of assessment under section 147 of the Income-tax Act, 1961. It held that the reasons ... Reasons to believe u/s 148 for the assessment u/s 147 of the Income tax Act – Held that:- Reliance has been placed upon the Rajesh Jhaveri's case [ 2007 (5) TMI 197 - SUPREME Court], wherein it has been held that The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied : firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. In the present case, it is explicitly clear that the reasons given for effecting reassessment were not the matters considered by the assessing authority while passing assessment order and no opinion was formed in this regard. This being the position, the version of the petitioner that no new materials have been brought to light to invoke the power and proceedings under section 147 or that it is proposed by way of 'change of opinion', does not contain any pith or substance – Decided against the Assessee. Issues Involved:1. Legality of reopening the assessment under section 147 of the Income-tax Act, 1961.2. Validity of the reasons provided for reopening the assessment.3. Allegation of 'change of opinion' as the basis for reopening the assessment.4. Compliance with statutory requirements and judicial precedents in the reassessment process.Detailed Analysis:1. Legality of Reopening the Assessment under Section 147:The primary issue revolves around the legality of the reopening of the assessment by the third respondent under section 147 of the Income-tax Act, 1961. The petitioner challenged Exhibit P-12, an order disposing of objections to reopening the assessment. The petitioner argued that the reopening was based on a 'change of opinion,' which is not a valid ground under section 147, as established by the Supreme Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC).2. Validity of the Reasons Provided for Reopening the Assessment:The reasons for reopening the assessment, as provided in Exhibit P-8, included:- Prior period depreciation of Rs. 28,86,370 not disallowed.- Prepayment premium on IDFC term loan of Rs. 15,00,000 not disallowed as capital expenditure.- Excess depreciation on plant and machinery amounting to Rs. 8,75,240.- Excess depreciation on the intangible asset 'brand name' amounting to Rs. 25,41,250.The petitioner contended that these reasons were not new and had been addressed during the original assessment, as reflected in Exhibit P-1. The court, however, found that these aspects were not considered in the original assessment order (Exhibit P-2), and thus, the reasons provided in Exhibit P-8 were valid and germane for reopening the assessment.3. Allegation of 'Change of Opinion':The petitioner argued that the reassessment was based on a 'change of opinion,' which is not permissible under section 147. The court examined whether the reasons for reopening the assessment constituted a mere change of opinion or if they were based on new information. The court concluded that the reasons provided were not previously considered and thus did not constitute a change of opinion. This position aligns with the Supreme Court's ruling in Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC), which clarified that 'reason to believe' does not require established facts of income escapement but rather a justification to know or suppose that income has escaped assessment.4. Compliance with Statutory Requirements and Judicial Precedents:The court assessed whether the reassessment process complied with statutory requirements and judicial precedents. It found that the steps taken by the respondents, including issuing Exhibit P-6 notice under section 148 and providing reasons for reopening in Exhibit P-8, were in conformity with the law as declared by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC). The court also referred to the amended provisions of section 147, which require only the existence of 'reason to believe' that income has escaped assessment, a condition satisfied in this case.Conclusion:The court dismissed the writ petition, affirming the validity of the reassessment proceedings under section 147. It held that the reasons provided in Exhibit P-8 were sufficient and that the reassessment was not based on a 'change of opinion.' The court emphasized that the statutory requirements and judicial precedents were duly followed, and the petitioner's objections were found to be without merit.