The Gujarat High Court on 19 August said that an assessing officer cannot reopen an assessment on the concern already analysed in the original scrutiny only on a change of opinion, unless fresh tangible material exhibits that income does not undergo assessment due to suppression of material facts.
A Division Bench of Justices A.S. Supehia and Vaibhavi D. Nanavati permitted a writ petition of Loonchand Dhanraj HUF and set aside the reassessment proceedings initiated through a notice dated 29 March 2019 under section 148 of the Income Tax Act, along with the subsequent order rejecting its objections. The judges said that:
“Thus, for the self-same reasons, which were already examined in the scrutiny assessment proceedings, the reopening of the assessment is resorted to by the Assessing Officer, which is nothing but a mere change of opinion.”
Loonchand Dhanraj HUF had reported its investment in and sale of 3.10 lakh equity shares of Prissm Remedies Pvt. Ltd. in its return and audit report for AY 2012-13.
In the original scrutiny assessment u/s 143(3) of the Income Tax Act, the AO asked for the information of the purchase and sale transactions, including broker invoices, Demat entries, share prices, valuation and the circumstances in which the shares were sold at a lower price.
Loonchand Dhanraj HUF provided its bank statement, share certificates, Form No. 2 for allotment of shares, Board resolutions, valuation reports and calculations based on book value and net worth. On acknowledging the documents and explanations, the AO finished the scrutiny assessment on 9 March 2015.
Afterwards, the revenue issued a notice u/s 148 of the Income Tax Act (which allows reassessment where income leviable to tax is assumed to have escaped assessment) and questioned the same share transaction. From the information obtained from the Deputy Director of Income Tax (Investigation), it was alleged that the shares purchased for Rs 3.41 crore were sold for Rs 34.10 lakh after a 1:10 share split, resulting in an alleged bogus capital loss of Rs 3.06 crore.
The HC observed that the Assessing Officer (AO) had earlier analysed the lower sale price, valuation of the shares, and the resulting capital loss during the original scrutiny assessment and that Loonchand Dhanraj HUF had provided supporting proof. It said that the department could not reopen the assessment because it holds a distinct view of the same material. It said that-
“…As per settled legal precedent, such an exercise of reopening assessment is impermissible unless it is shown that the revenue owns fresh tangible material showing that the income chargeable to tax has escaped assessment and there has been suppression of material facts by the petitioner.”
Subsequently, the HC permitted the writ petition of Loonchand Dhanraj HUF and set aside the notice dated 29 March 2019 and the order dated 4 October 2019, quashing its objections to the reassessment proceedings.
| Case Title | Loonchand Dhanraj HUF Vs ACIT |
| Case No. | R/Special Civil Application No. 18101 of 2019 |
| For Petitioner | Mr Sudhir M Mehta, Ms Shailee S Mehta |
| For Respondent | Dev D Patel |
| Gujarat High Court | Read Order |
