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2022 (8) TMI 1340 - HC - Income TaxReopening of assessment u/s 147 - assumption of jurisdiction for reassessment - Period of limitation - Scope of extended period of six years - reassessment even after the expiry of four years from the end of the relevant assessment year, but, within six years from the relevant assessment year - Assessment Year 2011-12 - HELD THAT - In the present case, admittedly the extended period of six years is being invoked not under (a) or (b) set out above but only in view of (c) i.e., failure to disclose fully and truly all material facts necessary for assessment. It is submitted by the learned counsel for the appellant that while furnishing the reasons for reassessment vide its communication dated 05.11.2018, there is no finding that there was failure on the part of the appellant to fully and truly disclose all material facts necessary for assessment. It is submitted that in the absence of any finding on the above jurisdictional fact, the entire proceeding would be void and a nullity. There is merit in the above submission inasmuch as the normal period of limitation for exercising the power of reassessment u/s 147 of the Act is four years. The extended period of six years could be invoked only under three circumstances set-out/ mentioned above. Admittedly, the only circumstance which could have enabled the respondents to invoke the extended period of 6 years in the present case is to bring the proceedings under clause (c). To invoke the extended period of six years for reassessment, the reasons furnished for reassessment ought to contain a finding that the appellant herein had failed to disclose fully and truly all material facts necessary for assessment. We say this since it appears to us that the whole idea of furnishing reasons before embarking on a full fledged exercise of reassessment was to ensure that the powers of reassessment are exercised only in circumstances which the statute permit. The above limitation/restriction on the power of reassessment was intended to ensure transparency in the proceeding and to avoid abuse of power. It is trite law that power of reassessment must be exercised with a degree of caution and an element of circumspection and must be strictly in compliance with the procedure and only in circumstances which warrants exercise of that power. In the present case, though admittedly the power to reassess has been exercised by invoking the extended period of limitation in terms of the proviso to Section 147 there is no recording of the existence of the circumstances, viz., failure to disclose fully and truly all material particulars which would confer jurisdiction to proceed / initiate reassessment proceeding beyond four years and within six years. In this regard, it may be relevant to refer to the following judgments to appreciate the relevance and importance of existence of jurisdictional facts and an application of mind as to its existence by the authority concerned before assuming jurisdiction. While on the question of existence or otherwise of jurisdictional fact which would enable the authority to invoke the extended period of limitation of six years for reassessment, it may also be relevant to note that the question of limitation has been understood to be the one involving jurisdiction even under the Excise Law and in the absence of finding of the existence of the circumstances enabling the invoking of the extended period, it has been held by the Hon'ble Supreme Court that the issuance of Show Cause Notice itself is impermissible. Existence of ''jurisdictional fact'' is sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. It leaves no room for any doubt that to invoke the extended period, the Assessing Officer ought to show/ demonstrate the existence of any of the three circumstances set out in the proviso to Section 147. In this case, failure on the part of the assessee to fully and truly disclose all material particulars in our view would constitute the jurisdictional fact for invoking extended period of limitation and failure to record the existence of the above jurisditional fact while invoking the extended period under the proviso to Section 147 of the Act, would vitiate the entire proceedings. It may be relevant to refer the following judgments, wherein it was held that failure to render a finding as to the existence of the above circumstance warranting invocation of the extended period in terms of the proviso to Section 147 of the Act would vitiate the entire proceedings. Thus the initiation of reassessment proceedings is in excess of jurisdiction. Initiation of reassessment proceeding is without jurisdiction as it is made on the basis of mere change of opinion - Assessment year 2013-14 - It is trite law that reassessment cannot be on the basis of mere change of opinion. However, the above aspect may require investigation into facts namely as to what were the documents furnished before the AO or whether details relevant for assessment and embedded in the books of accounts or other evidence were brought to the notice of the AO while framing the original assessment (or) whether an opinion was formed by the AO while framing the assessment on the issues forming the subject matter of reassessment, for the reassessment to constitute one being made on change of opinion and thus impermissible. There is no room for any doubt that reassessment under Section 147 of the Act, cannot be made on the basis of mere change of opinion but, whether there is change of opinion or otherwise could either be apparent on the face of the record or may require an investigation of facts to arrive at the said conclusion. The present case falls under the latter category and to decide the above issue namely whether the assessment is on the basis of change of opinion, a close scrutiny of documents and books of accounts is necessary. Therefore, it is only appropriate for the appellant to participate in the proceedings before the statutory authorities. In view of the same, while affirming the order of the learned Single Judge, it is open to the appellant to raise the question of the reassessment being bad for change of opinion before the appropriate statutory authorities. In fine, the order of the learned Single Judge with regard to the assessment year 2011-12 is set aside in view of the fact that the initiation of reassessment proceeding invoking the extended period of six years itself is bad in the absence of a finding as to the existence of the jurisdictional fact viz., that the escapement had occurred by reason of failure on the part of the assessee to disclose fully and truly all the material facts necessary. For the assessment year 2013-14, we are not inclined to interfere with the order of the learned Single Judge relegating the matter to the assessing authority. It is open to the appellant to make his submission before the appropriate authority on all aspects.
Issues Involved:
1. Legality of reassessment proceedings for the assessment year 2011-12. 2. Legality of reassessment proceedings for the assessment year 2013-14. Issue-wise Detailed Analysis: Assessment Year 2011-12: The appellant, a Private Limited Company engaged in providing Paint Finishing Systems, filed its Income Tax return for the assessment year 2011-12, which was assessed under Section 143(3) read with Section 144C of the Income Tax Act, 1961, determining the total income at Rs.79.44 Crores. Subsequently, the 1st Respondent issued a notice under Section 148 of the Act on 28.03.2018, proposing reassessment proceedings. The appellant objected, arguing that the notice was barred by limitation and that the reassessment was based on a mere change of opinion. The appellant contended that the notice was issued beyond the four-year limitation period without any finding of "failure on the part of the assessee to disclose fully and truly all material facts," which is a jurisdictional fact necessary to invoke the extended six-year period under the proviso to Section 147 of the Act. The objections were rejected by the Respondent, who argued that there was an under-assessment of income due to a mistake in the method of computation and that the reassessment was not based on a mere change of opinion. The learned Single Judge dismissed the writ petition, directing the respondents to complete the reassessment after examining the documents produced by the appellant. The appellant challenged this order, arguing that the notice was contrary to Sections 147 and 148 of the Act, barred by limitation, and based on a change of opinion. The Court examined Sections 147 and 148 of the Act, emphasizing that the extended period of six years could only be invoked if there was a failure to disclose fully and truly all material facts necessary for assessment. The Court found merit in the appellant's submission that the reasons for reassessment did not contain a finding of such failure, rendering the reassessment proceedings void and a nullity. The Court cited various judgments to support the necessity of recording the existence of jurisdictional facts before assuming jurisdiction for reassessment. Consequently, the Court set aside the order of the learned Single Judge for the assessment year 2011-12, holding that the initiation of reassessment proceedings invoking the extended period of six years was bad in the absence of a finding of failure to disclose fully and truly all material facts necessary for assessment. Assessment Year 2013-14:For the assessment year 2013-14, the appellant challenged the reassessment proceedings on the premise that they were based on a mere change of opinion. The original assessment under Section 143(3) of the Act had been completed without reference to any issues. The reasons for reopening were based on the same financial statements submitted during the original assessment proceedings. The appellant's objections were rejected by the Respondent, who argued that there were no discussions or findings in the original assessment order regarding the issues for reassessment. The Respondent contended that mere production of books of accounts did not lead to a presumption that all documents were perused and examined, and that there was a duty on the assessee to show relevant particulars in the books of accounts. The Court acknowledged that reassessment cannot be based on a mere change of opinion but noted that determining whether there was a change of opinion required a close scrutiny of documents and books of accounts. The Court affirmed the order of the learned Single Judge, relegating the matter to the assessing authority, allowing the appellant to raise the issue of reassessment being bad for change of opinion before the appropriate statutory authorities. Conclusion:The Writ Appeal for the assessment year 2011-12 (W.A.No.1081 of 2021) was allowed, setting aside the reassessment proceedings. The Writ Appeal for the assessment year 2013-14 (W.A.No.1083 of 2021) was disposed of, affirming the order of the learned Single Judge and allowing the appellant to raise the issue before the appropriate authority.
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