The Bombay High Court has quashed the reassessment notice issued under the Income Tax Act, 1961 as there was no change in the opening and closing stock of the non-convertible debts ( NCDs ). It was found that the reopening of the assessment is merely based on a change of opinion of the AO from that held earlier during assessment proceedings.
Upesi Ventures Ltd, the petitioner/assessee is a company incorporated under the laws of Cyprus. The petitioner is a tax resident of Cyprus and is an investment holding company. The petitioner company was also registered as a foreign portfolio investor ( FPI ) with the Securities and Exchange Board of India ( SEBI ). The Jurisdictional Assessing Officer (JAO) and Commissioner of Income Tax ( International Taxation ), are required to approve.
The Assessment of Petitioner was completed under Section 143(3) of Income Tax Act, accepting the return of income as ‘Nil’. Later on, Petitioner received a notice under Section 148 alleging that there were reasons to believe that Petitioner’s income chargeable to tax has escaped assessment within the meaning of Section 147 of the Act.
The petitioner submitted that under Article 11 of the DTAA, interest income can be taxed only when it is received by the payee, and since the petitioner had not received any interest income on the NCD during the AY 2015–2016, no tax was payable.
It was contended by the department that the queries raised during the assessment proceedings were not exactly on the issue of non-disclosure of interest on the NCDs, and therefore there was no change of opinion.
The Bench of Justice K. R. Shriram and Justice Neela Gokhale has observed that the reopening of assessment by the notice was merely based on a change of opinion of the AO which does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.
The court held that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration for the AO while completing the assessment. It is also not necessary that an assessment order contain references and/or discussions to disclose its satisfaction concerning the query raised.
It was found that the reopening of the assessment is merely based on a change of opinion of the AO from that held earlier during assessment proceedings, and this change of opinion does not constitute justification and/or reason to believe that income chargeable to tax has escaped assessment.
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