2016 (12) TMI 1004 - HC - Income Tax

Validity of reopening of assessment - Held that - There is no allegation that there was any failure on the part of the assessee in not disclosing true and correct facts necessary for the purpose of assessment. Identical question came to be considered by the Division Bench of this Court in the case of Kanak Fabrics Vs. Income Tax Officer (2011 (3) TMI 1497 - GUJARAT HIGH COURT ) and it is held that if the condition precedent to reopen the assessment beyond four years are not satisfied i.e. in the reason recorded there is no whisper to the effect that the income had escaped assessment on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment reopening of the assessment cannot be sustained. Under the circumstances, as the condition precedent to invoke the powers under Section 147 of the Income Tax Act to reopen the assessment beyond four years are not satisfied, the impugned notice to reopen the assessment for the Assessment Year 2010-11 cannot be sustained. - Decided in favour of assessee

Summary

Issues:
1. Reopening of assessment for the Assessment Year 2010-11 beyond four years under Section 147 of the Income Tax Act.
2. Conditions precedent for reopening the assessment.
3. Allegation of failure to disclose fully and truly all material facts necessary for assessment.
4. Validity of the impugned notice dated 10/03/2016.
5. Reopening based on a mere change of opinion by the Assessing Officer.

Analysis:

1. The petitioner filed a petition under Article 226 of the Constitution of India to challenge the impugned notice dated 10/03/2016, seeking to reopen the assessment for the Assessment Year 2010-11 beyond the four-year period under Section 147 of the Income Tax Act.

2. The conditions precedent for reopening the assessment beyond four years, as mandated by Section 147 of the Income Tax Act, require that any income chargeable to tax must have escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for assessment. The first proviso of Section 147 imposes a time limit of four years from the end of the relevant assessment year for such actions.

3. The reasons recorded for reopening the assessment for the Assessment Year 2010-11 were communicated to the petitioner. However, it was noted that there was no allegation of failure on the part of the assessee to disclose true and correct facts necessary for assessment, as required by law.

4. The court referred to a previous judgment where it was held that if the conditions for reopening the assessment beyond four years are not met, specifically the failure of the assessee to disclose all material facts, then the reopening of the assessment cannot be sustained.

5. The court further observed that the reasons for reopening the assessment seemed to be based on a mere change of opinion by the Assessing Officer regarding the disallowance of depreciation on the car. This change of opinion was not a valid ground for reopening the assessment under Section 147 of the Income Tax Act.

6. Consequently, the court ruled in favor of the petitioner, quashing and setting aside the impugned notice to reopen the assessment for the Assessment Year 2010-11. The court held that the conditions precedent for invoking the powers under Section 147 were not satisfied, and the reopening appeared to be based on a change of opinion, which was not legally permissible.