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2020 (1) TMI 1318 - HC - Income TaxValidity of reopening the assessment based on audit objections - notice after four years after acceptance of assessment for the financial year 2012-13 - Full and True Disclosure - Income u/s 56(2)(viia) was not routed through P L Account and the said income was not considered either in the returned income or in the assessed income for the purpose of computing book-profits or for arriving at income under normal provisions of the Act - HELD THAT - As stated earlier, objection was raised by the audit party for which a reply was given by the assessing authority to the audit authorities to drop the proceedings with regard to Half Margin Audit. Therefore, the contingency for reopening/ reassessing in case of an audit objection came to be rejected by the Assessing Officer himself by giving an appropriate reply in the month of October itself. In-fact, in paragraph 16 of the counter it is stated that, in the interests of revenue, the Assessing Officer is left with no option except to initiate a suitable remedial action on the findings of the Audit Team which in our view cannot be a ground for reopening the assessment. Reassessment proceedings after expiry of four years - A notice under Section 148 was issued in the month of March 2019 pertaining to the assessment year 2012-13, therefore, it is clearly beyond the period of four years and against the proviso to Section 147 of the Act. Full and True Disclosure - In the instant case the Notice refers to a failure on the part of the Petitioner to disclose fully and truly all material facts, but, the same does not indicate the exact nature of non-disclosure on the part of the Petitioner. Such a notice is erroneous in law. The contents of the notice if tested with the contents of the counter would show that all the particulars were in-fact disclosed at the time of assessment proceedings and the same was also accepted, which is evident not only from the order of assessment, but, also from the reply given to the audit party. Therefore, it cannot be said that, there was any failure on the part of the Petitioner in disclosing fully and truly all material facts Reassessment based on mere change of opinion being invalid - If the Income Tax Officer draws an inference, which was subsequently found to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening the assessment - mere change in opinion cannot lead to reassessment. Reassessment based on audit objections invalid - As decided in CORPORATION BANK LIMITED 1999 (2) TMI 16 - SUPREME COURT When there is no failure on the part of the assessee in disclosing fully and truly the material facts necessary for the assessment years for the respective years, Section 147(a) has no manner of application. Even when the required facts were disclosed in the balance sheet, the same does not amount to incorrect disclosure before the Assessing Officer. As referred by us earlier, in the instant case, these facts were disclosed in cash flow statement, balance-sheet, notes to the financial statements for the year ending 31.03.2012 and the profit and loss accounts/balance sheet. Therefore, it cannot be said that, there was no disclosure of income and that the provisions of Section 147(b) get attracted. Since there is alternative remedy, the Petitioner ought not have invoked the jurisdiction of this Court - In Jeans Knit (P.) Ltd 2016 (12) TMI 878 - SUPREME COURT dealt with the said issue where the High Court dismissed the Writ Petitions preferred by assessee challenging issuance of notice under Section 148 as the same is contrary to law laid down in Calcutta Discount Co. Ltd. v. Income-tax Officer 1960 (11) TMI 8 - SUPREME COURT While setting aside Orders of the High Court, the matters were remitted to the respective High Courts to decide the Writ Petitions on merits - since the proceeding initiated by the authorities is found to be illegal and incorrect on various aspects as discussed supra, there is no justification to direct the Writ Petitioner to avail the alternative remedy of appeal. - Decided in favour of assessee.
Issues Involved:
1. Justification for reopening the assessment under Section 147 of the Income Tax Act. 2. Procedure followed in reassessment cases. 3. Validity of reassessment after four years. 4. Full and true disclosure by the assessee. 5. Reassessment based on change of opinion. 6. Reassessment based on audit objections. 7. Alternative remedy and jurisdiction of the court. Issue-wise Detailed Analysis: 1. Justification for Reopening the Assessment: The primary question was whether the authorities were justified in reopening the assessment for the assessment year 2012-2013 under Section 147 of the Income Tax Act, based on the claim that certain items had escaped assessment. The Petitioner had filed income tax returns and the assessment was initially processed under Section 143(1) and later under Section 143(3) with a "Nil" tax payable order. The reopening notice under Section 148 was issued without new tangible material, and the reasons given did not allege non-disclosure of any information by the Petitioner. 2. Procedure Followed in Reassessment Cases: The court referred to the Supreme Court's decision in GKN Driveshafts (India) Limited v. Income Tax Officer, which mandates that the assessing officer must provide reasons for reopening the assessment and dispose of any objections by passing a speaking order. In this case, the reasons for reopening were based on the same material previously reviewed, and the audit objections had already been addressed and dismissed by the assessing officer. 3. Validity of Reassessment After Four Years: The court examined whether the reassessment was permissible after four years from the end of the relevant assessment year. According to Section 147, reassessment after four years is only permissible if there was a failure on the part of the assessee to disclose fully and truly all material facts. The court found that all material facts were disclosed by the Petitioner, and there was no new material justifying the reassessment. 4. Full and True Disclosure by the Assessee: The court noted that the Petitioner had disclosed all relevant facts during the original assessment, including details of shares bought back and the consideration paid, which were part of the financial statements and cash flow statements. The court concluded that there was no failure on the part of the Petitioner to disclose fully and truly all material facts. 5. Reassessment Based on Change of Opinion: The court held that reassessment based on a mere change of opinion is invalid. The original assessment had already considered the disclosed facts, and the reopening was based on the same material without any new information. The court cited previous judgments, including S.Sreeramachandra Murthy and ors. v. Deputy Commissioner of Income Tax, which established that mere change of opinion does not justify reassessment. 6. Reassessment Based on Audit Objections: The court addressed whether reassessment based on audit objections is valid. It referred to the Supreme Court's decision in Indian & Eastern Newspaper Society v. Commissioner of Income-tax, which held that the opinion of an internal audit party on a point of law cannot be regarded as "information" for the purpose of Section 147(b). The court found that the audit objections had already been addressed and dismissed by the assessing officer, and reopening the assessment based on these objections was not justified. 7. Alternative Remedy and Jurisdiction of the Court: The court considered the argument that the Petitioner should have availed the alternative remedy of appeal. However, it concluded that since the reassessment proceedings were found to be illegal and incorrect, there was no justification to direct the Petitioner to avail the alternative remedy. Conclusion: The court allowed the Writ Petition, setting aside the Impugned Order dated 17.09.2019, and concluded that the reassessment proceedings were invalid. The court emphasized that all material facts were disclosed by the Petitioner, there was no new material justifying the reassessment, and the reassessment was based on a mere change of opinion and invalid audit objections.
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