The Delhi High Court had held that once the Principal Commissioner Of Income Tax (PCIT) has decided in favour of the assessee after having considered its reply, AO had no authority to reassess and reopen the assessment under Section 148 of the Income Tax Act.
The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed the reassessment proceedings are in the nature of review of the previous assessment. Grant of approval by the senior authority i.e. PCCIT would not confer legitimacy to the initiation of the reassessment action as the point on which the reassessment was initiated had already been considered in the previous proceedings. The higher authority cannot grant approval which is in violation of the settled principles on the basis of which reassessment action can be initiated.
Background
During the course of assessment proceedings, petitioner/assessee was asked about the share holding pattern of M/s Centrodorstory (India) Pvt. Ltd., in whose shares an investment of Rs. 2 crores was made. Petitioner submitted its reply. After considering the submissions of the petitioner, and after being fully satisfied, the Assessment Order was passed, by assessing the income of the petitioner as ‘Nil’.
After completion of assessment proceedings, notice under Section 263 of the Income Tax Act was issued to the petitioner by the Principal Commissioner of Income Tax (PCIT).
Petitioner submitted a reply to the notice under Section 263, stating that he was already an existing subscriber and had received the shares as “Right Issue”, and therefore, provisions of Section 56(2)(viia) does not have any application. After considering submissions of the petitioner, PCIT dropped the proceedings initiated vide Show Cause Notice under Section 263 of the Income Tax Act.
After more than two years, a notice dated 28.06.2021 under Section 148 of the Income Tax Act was issued to the petitioner for the AY 2014-15.
Petitioner filed reply to the said notice where after an order under Section 148A(d) and the consequential notice under Section 148 of the Act, both dated 30.07.2022 came to be issued, which are subject matter of challenge in the present writ petition.
Arguments
The petitioner contended that the case is a clear case of “change of opinion”. The issue which is sought to be reopened now, has already been inquired at the time of original assessment proceedings and the Assessing Officer after applying its mind to the transaction, had passed assessment order in favor of the petitioner. On the same very issue i.e. alleged purchase of shares at less than fair market value of M/s Centrodorstory (India) Pvt. Ltd., the PCIT has invoked its jurisdiction under Section 263 of the Income Tax Act and upon consideration of entire facts and circumstances, the PCIT had dropped the proceedings under Section 263. Once the PCIT being satisfied had chosen not to take any adverse view, the AO has now chosen to invoke the reassessment proceedings and thus it is a clear case of “change of opinion”, which is not permissible.
The department contended that the assessee made investment in M/s. Centrodorstory (India) Pvt. Ltd. by purchasing 20 lakh equity shares. The fair market value for each share was Rs. 39.53/- or Rs. 40/- (each) approximately, as evident from the balance sheet of M/s. Centrodorstory (India) Pvt. Ltd. as on 31.03.2013, as against the assessee company allegedly purchasing the same at Rs. 10/- each and therefore, it is a clear case of escapement of income. The proceedings under Section 263 of the Act were dropped by the PCIT but fresh proceedings for reassessment have been initiated with due permission from PCCIT, which is a higher authority than the PCIT and therefore the present proceedings are not barred.
Relevant Provisions
Section 147 certainly empowers the AO to initiate action for reassessment of escaped income subject to Section 148 to 153 of the Act. However, power is subject to the condition that the AO has reasons to believe that income has escaped assessment.
The use of words “reasons to believe” in Section 147 has to be interpreted schematically as any other interpretation would lead to the consequence of conferring arbitrary powers on the AO, who may even initiate such reassessment proceedings merely on a change of opinion on the basis of same facts and circumstances already considered during the original assessment proceedings.
The provision for reassessment was brought into the statute book to empower the AO to reassess any income only on the ground which was not brought on record during the original proceedings and escaped its knowledge.
Conclusion
The court while quashing the reassessment order held that the notice under Section 148A(b), order passed under Section 148A(d) and notice under Section 148 of the Income Tax Act, both as also the consequential proceedings emanating are set aside.
Case Title: CHANDRA GLOBAL FINANCE LTD V/S ITO WARD 6(1) NEW DELHI & ANR
Citation: W.P.(C) 359/2023
Counsel for the Petitioner: Ruchesh Sinha
Counsel for the Respondent: Debesh Panda, Sr. Standing Counsel
Date of Decision: 26 September 2024
