2011 (9) TMI 146 - HC - Income Tax

Addition u/s 41(1) - unconfirmed creditors - notice u/s 147/148 - change of opinion or not - reasons to believe - Held that - In the present case the Assessing Officer had asked specific and pointed queries with regard to the sundry creditors of Rs. 1,66,37,402/- asked for confirmations, names, addresses and details of services rendered. An addition of Rs.19,86,551/- was made for failure to furnish confirmation and explain what services were rendered by the creditors. There is no discussion, ground or reason why addition of Rs.32,97,507/- was not made inspite of the failure of the assessee to furnish conformation and details. It will be appropriate in this regard to refer to Explanation 1 to Section 147 of the Act - the contention of the assessee that the present case is of change of opinion has to be rejected. - Decided against the assessee.

Issues Involved
1. Addition under Section 41(1) of the Income Tax Act, 1961.
2. Validity of the reassessment notice under Sections 147/148 of the Income Tax Act.
3. Allegation of change of opinion.
4. Full and true disclosure of material facts by the assessee.
5. Reopening of assessment after four years.

Issue-Wise Detailed Analysis

1. Addition under Section 41(1) of the Income Tax Act, 1961:
The petitioner, a company, filed its return for the assessment year 2003-2004 declaring a loss of Rs. 29,68,536/-. Upon scrutiny, the Assessing Officer (AO) assessed the total income at Rs. 2,19,80,970/-. The AO made an addition of Rs. 19,86,551/- under Section 41(1) concerning seven parties who had not filed confirmations for sundry creditors amounting to Rs. 1,66,37,402/-. The AO doubted the genuineness of these credits and held that the liabilities had ceased to exist, thereby invoking Section 41(1).

2. Validity of the Reassessment Notice under Sections 147/148 of the Income Tax Act:
The AO issued a notice under Sections 147/148 dated 4th September 2009, stating that the petitioner had failed to disclose the cessation of liabilities amounting to Rs. 1,66,33,000/-, which should have been added back to the income. The AO believed that there was an escapement of income chargeable to tax due to the failure of the assessee to disclose fully and truly all material facts.

3. Allegation of Change of Opinion:
The petitioner objected to the reassessment, claiming it was a case of change of opinion. They argued that the predecessor AO had already scrutinized the sundry creditors and made a conscious decision to add only Rs. 19,86,551/- out of Rs. 1,66,37,402/-. The petitioner cited several judgments, including CIT v. Kelvinator India Ltd., to support their claim that the reassessment was based on a mere change of opinion, which is not permissible.

4. Full and True Disclosure of Material Facts by the Assessee:
The petitioner contended that there was no failure on their part to disclose material facts fully and truly, as all details were provided during the original assessment proceedings. They argued that the reassessment notice was void ab-initio and without jurisdiction, as it was based on the same set of facts already considered by the AO.

5. Reopening of Assessment After Four Years:
The petitioner argued that the reassessment notice was issued after four years from the end of the relevant assessment year, invoking the proviso to Section 147, which requires a failure on the part of the assessee to disclose material facts for reopening after four years. They claimed that all necessary details were disclosed, and the AO's reasons for reopening were based on an incorrect understanding of the facts.

Court's Analysis and Judgment

Change of Opinion:
The court examined the original records and noted that the AO had asked specific queries regarding the sundry creditors during the original assessment. The reassessment was initiated based on an audit note revealing that the AO had only added Rs. 19,86,551/- out of unconfirmed creditors amounting to Rs. 52,84,058/-, resulting in an underassessment of Rs. 32,97,507/-. The court held that the present case was not one of change of opinion, as the AO had not formed an opinion on the unconfirmed creditors amounting to Rs. 32,97,507/- during the original assessment.

Full and True Disclosure:
The court referred to the letters issued by the AO during the original assessment, asking for details of sundry creditors. The petitioner failed to furnish complete details and confirmations for all creditors. The court held that there was no full and true disclosure by the petitioner, as required under the law.

Validity of Reassessment Notice:
The court held that the reassessment notice was valid, as the AO had reasons to believe that income chargeable to tax had escaped assessment due to the petitioner's failure to disclose fully and truly all material facts. The court emphasized that the audit note was the starting point, and the AO had independently verified the facts before issuing the reassessment notice.

Reopening After Four Years:
The court held that the reassessment notice was valid despite being issued after four years, as there was a failure on the part of the petitioner to disclose material facts fully and truly. The court cited several judgments to support its conclusion that the duty of disclosing all primary facts lies on the assessee, and mere production of account books does not amount to full disclosure.

Conclusion
The court dismissed the writ petition, holding that the reassessment notice was valid and there was no change of opinion. The court clarified that the observations made were for deciding the present lis regarding the validity of the reassessment notice and would not bind the AO or appellate authorities in the Income Tax proceedings. No order as to costs was made.

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