2022 (2) TMI 496 - HC - Income Tax

Reopening assessment under s.147 invalid where reasons show mere change of opinion without fresh tangible material

Tata Sons Limited Versus Dy. Commissioner of Income Tax Range 2 (3), Mumbai and Others

Bombay HC held the proposed reopening under s.147 invalid, finding the reasons reflected a mere change of opinion rather than fresh tangible material ... Reopening of assessment u/s 147 - determination of Correct head of income - sale of shares of TCS Division by Petitioner was nothing but ‘business income’ and therefore the profits arising out of the sale of shares held by Petitioner in the group companies would be treated as Petitioner’s income from business, and not profits arising out of sale of investment - HELD THAT:- If according to Respondent No. 1 only the sale of shares of TCS was ‘business income’ and not ‘profits arising of sale of investment’ to say that the amount has escaped assessment, also indicates non- application of mind. We would also go a step ahead and observe that if only the approving authority under section 151 of the Act had considered the reasons properly, either he would have directed Respondent No. 1 to re-work on the reasons or would not have granted the approval. This is a case where the scrutiny assessment was completed and order under section 143(3) of the Act has been passed followed by a rectification order under section 154 of the Act. Therefore Petitioner’s case has been considered at two stages, (i) When the assessment order was passed after scrutiny under section 143(3) of the Act and (ii) When an order under section 154 of the Act was passed. The reasons for proposed re-opening clearly indicates that Respondent No. 1 wants to re-open only on the basis of change of opinion which, as held time and again by various Courts, can not be a ground for reopening. This is because in the assessment order dated 31st December, 2007 passed under section 143(3), the same point raised in the reasons for re-opening has been discussed and considered. Where the assessment is sought to be reopened within a period of 4 years, of end of relevant assessment year, this Court in Jainam Investments [2021 (9) TMI 517 - BOMBAY HIGH COURT] AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain precondition and if the concept of 'change of opinion' is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an inbuilt test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. It is settled law that review in the garb of reassessment is absolutely prohibited and the Courts have consistently held that reassessment cannot be allowed in such situation of change of opinion and presence of fresh tangible material is a sine qua non for a valid re-assessment - Decided in favour of assessee. Issues:1. Validity of notice for re-opening assessment after four years.2. Classification of income from sale of shares as business income or investment income.3. Application of the principle of change of opinion in reassessment.Issue 1: Validity of notice for re-opening assessment after four yearsThe Petitioner filed its income tax return for A.Y. 2005-06, which was subsequently processed and assessed under section 143(1) of the Income Tax Act, 1961. An order under section 143(3) was passed assessing the income at a certain amount. Later, a rectification order was issued under section 154 of the Act, followed by the reopening of assessment under section 147. The Petitioner challenged the notice for reopening, arguing that it was issued more than four years after the relevant assessment year, which should render it invalid. The Court considered the reasons for reopening and held in favor of the Petitioner, setting aside the notice and the order rejecting the objections.Issue 2: Classification of income from sale of sharesThe core issue revolved around the classification of income arising from the sale of shares of Tata Consultancy Services Ltd. as either 'business income' or 'profits from the sale of investment.' The Respondent alleged that the profits from these sales should be considered as business income, leading to an alleged escapement of assessment amounting to a specific sum. However, upon detailed examination, the Court found that the only item that could be considered as escaped assessment was the Long Term Capital gains from the sale of TCS Ltd. shares, amounting to a lesser figure than claimed by the Respondent. The Court emphasized the importance of correct facts and conclusions in forming the basis for reopening an assessment.Issue 3: Application of the principle of change of opinion in reassessmentThe Court analyzed the reasons for the proposed reopening of assessment and found that they were based on a change of opinion, which is not a valid ground for reassessment. It was noted that the same point raised in the reasons for reopening had already been discussed and considered in the previous assessment order under section 143(3) of the Act. The Court cited established legal principles that reassessment cannot be allowed solely on the basis of a change of opinion and emphasized the requirement of fresh tangible material for a valid reassessment. The judgment highlighted the need for a live link between the reasons and the formation of belief for reopening an assessment.In conclusion, the Court allowed the Petition, quashing the notice for reopening assessment and the order rejecting objections, emphasizing the importance of adhering to legal principles and ensuring the presence of tangible material for valid reassessment.