2022 (12) TMI 1460 - HC - Income Tax

Reopening of assessment - petitioner was a beneficiary of accommodation entries - HELD THAT - On facts, the case on hand is not the case where the assessee willfully made any false or untrue statement at the time of original assessment or that falsity has come to the notice, which may justify the assessing officer to exercise the powers. The case is not only of reopening the completed assessment on the same facts without availability of fresh and tangible material, it was reopening acted upon beyond period of four years from the end of the relevant assessment year. The law requires, in such cases, that the reopening is permitted only if the assessee had not disclosed fully and truly all the material facts. There was no failure on the part of the petitioner (i) to make return under section 139 or in respect to notice u/s 142(2) or u/s 148 or that (ii) he had not disclosed fully and truly all material facts necessary for the assessment concerned. The assessee in the present case furnished complete details in his letter dated 08.10.2014 during the assessment with respect to the transaction occured with Shubh Dristi Complex Pvt. Ltd. alleged accomodation entry provider - There was no omission on the part of the petitioner as to full and true disclosure for the year under consideration which were necessary for the assessment concerned. Thus it has to be held that the action of reopening by the AO was bad in law, mainly for the reason that it was passed on a mere change of opinion on the same set of facts, which was disclosed and considered by the assessing officer during the assessment year 2012-13. Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Validity of reopening based on the statement of Praveen Agarwal.
3. Assessment of whether there was a failure to disclose material facts fully and truly by the assessee.
4. Applicability of the doctrine of change of opinion.
5. Consideration of the doctrine of merger.

Detailed Analysis:

1. Legality of the Notice Issued Under Section 148:
The petition challenges the notice dated 29.03.2016 issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2012-13, seeking to reopen the assessment. The assessing officer believed that the income chargeable to tax had escaped assessment within the meaning of Section 147 of the Act. The petitioner argued that the information regarding the shares sold for Rs. 40 lakhs was already available during the original assessment, and no new material was detected to justify the reopening.

2. Validity of Reopening Based on the Statement of Praveen Agarwal:
The reopening was based on the statement of Praveen Agarwal recorded under Section 132 of the Act, where he admitted to providing accommodation entries through bogus companies. The assessing officer concluded that the transaction of Rs. 40 lakhs with Shubhdristi Complex Pvt. Ltd. was an accommodation entry, leading to the escapement of income. The petitioner contended that the statement did not specifically implicate the assessee company and that the transactions were genuine and duly reflected in the ledger account.

3. Assessment of Failure to Disclose Material Facts Fully and Truly:
The petitioner argued that there was no failure to disclose material facts as all necessary details were provided during the original assessment. The department had the information about the shares sold to Shubhdristi Complex Pvt. Ltd. and could have made any necessary additions at that time. The reopening was therefore based on a change of opinion rather than any new tangible material.

4. Applicability of the Doctrine of Change of Opinion:
The court held that the action of reopening was based on a mere change of opinion on the same set of facts already considered during the original assessment. The Supreme Court in Commissioner of Income Tax vs. Kelvinator of India Ltd. emphasized that the concept of change of opinion is an inbuilt test to prevent abuse of power by the assessing officer. The reopening was not justified as it was based on the same material considered earlier without any new tangible evidence.

5. Consideration of the Doctrine of Merger:
The petitioner argued that the assessment order had merged with the appellate order, and thus, the reopening was not permissible. However, the court did not delve into the merits of this argument as the primary ground for quashing the notice was the change of opinion.

Conclusion:
The court concluded that the reopening of the assessment was bad in law as it was based on a mere change of opinion without any new tangible material. The impugned notice dated 29.03.2019 issued under Section 148 of the Income Tax Act, 1961, was quashed and set aside, along with all consequential actions and decisions. The rule was made absolute accordingly.