2021 (8) TMI 725 - HC - Income Tax

Validity of Income Tax Notice Upheld Under Section 148

The court upheld the legal validity of the notice issued under Section 148 of the Income Tax Act, 1961, finding sufficient reasons to establish a 'reason ... Reason to believe - income escaping assessment - initiation of reassessment under Section 147/148 - reopening of assessment - change of opinion - audit objection as information - four-year limitation under proviso to Section 147Reason to believe - income escaping assessment - reopening of assessment - audit objection as information - change of opinion - Validity of the notice issued under Section 148 and the order disposing objections - whether the Assessing Officer had 'reason to believe' that income chargeable to tax had escaped assessment and whether the reopening amounted to impermissible change of opinion or mere verbatim reliance on audit objections. - HELD THAT: - The Court examined the reasons recorded (quoted at length in the order) and the disposal of objections. The reopening was initiated within four years so the proviso to Section 147 did not apply and the statutory test is whether the Assessing Officer had a 'reason to believe' that income had escaped assessment. The reasons recorded identify (a) information from records about treatment of SEZ units under Section 115JB(6) and Section 10AA, (b) an independent finding that expenses and revenue of nine SEZ units were not given similar treatment, and (c) the consequence that adding back those items would increase income chargeable to tax. The Court found these three components present in the reasons furnished and held that the Assessing Officer formed an independent opinion based on information (including audit observations treated as information) rather than merely reviewing or revising the earlier assessment. The Court reviewed the authorities on change of opinion and on audit objections being a source of information, and concluded that where the assessing authority records factual information and forms a reasoned view that income has escaped assessment, reopening is permissible. The High Court emphasised that sufficiency of reasons and merits of the claim are to be tested by the assessing authority in reassessment proceedings and not by a writ court except where a jurisdictional error is shown. The petitioner's assertions that the reasons were verbatim audit objections or amounted to mere change of opinion were held to be unsubstantiated on the material placed before the Court, and the objections were found to have been considered and rejected in the order disposing of objections. [Paras 25, 26, 31, 32, 33]The notice under Section 148 and the order disposing of objections are valid; the Assessing Officer had 'reason to believe' that income had escaped assessment and the reopening may continue.Final Conclusion: Writ petition dismissed; reopening under Section 147/148 for AY 2011-12 held valid on the recorded reasons and reassessment proceedings are permitted to continue, with merits to be adjudicated by the assessing authority. Issues Involved:1. Legal validity of the notice issued under Section 148 of the Income Tax Act, 1961.2. Application of mind by the Assessing Authority in initiating reopening proceedings under Section 147.3. Whether the reopening of assessment was based on a change of opinion.4. The role of audit objections in the reopening of assessment.5. Compliance with the mandatory requirements under Section 147 of the Act.Detailed Analysis:1. Legal Validity of the Notice under Section 148 of the Income Tax Act, 1961:The petitioner challenged the notice issued under Section 148 and the subsequent order disposing of the objections. The court examined the reasons provided for reopening the assessment, which included discrepancies related to deductions under Section 10AA and the treatment of SEZ unit expenses and revenues. The court found that the reasons furnished were sufficient to establish a 'reason to believe' that income had escaped assessment, thus upholding the legal validity of the notice.2. Application of Mind by the Assessing Authority:The petitioner argued that there was no application of mind by the Assessing Authority, as the reopening was based on audit objections verbatim. The court, however, observed that the Assessing Officer had independently considered the information and formed a belief that income had escaped assessment. The court noted that the reasons for reopening included independent findings and the effect and consequences of the income escaping assessment, which demonstrated the application of mind.3. Change of Opinion:The petitioner contended that the reopening was based on a change of opinion, which is impermissible. The court referred to previous judgments, including the Supreme Court's decision in Techspan India Private Limited, which clarified that reassessment is not permissible merely due to a change of opinion. The court found that the original assessment did not form any opinion on the issue leading to reassessment, and thus, it was not a case of change of opinion.4. Role of Audit Objections in Reopening of Assessment:The petitioner argued that audit objections alone cannot be the basis for reopening an assessment. The court acknowledged that while audit objections can be a source of information, the Assessing Officer must independently form a 'reason to believe.' The court cited the Supreme Court's decision in PVS Beedies P Ltd, which allowed reopening based on factual errors pointed out by the audit party. The court concluded that the reopening in this case was based on factual information and independent assessment by the Assessing Officer.5. Compliance with Mandatory Requirements under Section 147:The court examined whether the mandatory requirements under Section 147 were met. It found that the reasons for reopening were duly recorded and communicated to the petitioner. The court emphasized that the sufficiency of reasons need not be scrutinized at the reopening stage, as long as there is a prima facie 'reason to believe' that income has escaped assessment. The court held that the reopening was in consonance with the provisions of Section 147 and dismissed the petition.Conclusion:The court dismissed the writ petition, finding that the reopening of assessment was valid, based on independent reasons and not merely on audit objections, and that the mandatory requirements under Section 147 were met. The reassessment proceedings were allowed to continue, and the court emphasized the need for the petitioner to cooperate with the reassessment process.