2017 (3) TMI 1524 - HC - Income Tax

Reopening of assessment - genuineness of the foreign creditors - Held that - Assessing Officer while framing the scrutiny assessment under Section 143(3) of the Act, as such, seems to be satisfied, and therefore, did not doubt the genuineness of the transactions and/or with respect to the foreign creditors from whom the petitioner assessee purchased the goods. Under the circumstances and in the facts and circumstances of the case, it cannot be said that there was any failure on the part of the petitioner assessee in not disclosing true and correct facts. Under the circumstances, considering the proviso to Section 147 of the Act and as observed hereinabove, there does not appear to be any failure on the part of the petitioner assessee in not disclosing true and correct facts necessary for the purpose of assessment, and therefore, the Assessing Officer is not justified in reopening the assessment beyond a period of four years. On the aforesaid ground alone, the present petition deserves to be allowed and the impugned reassessment proceedings deserves to be quashed and set aside. - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of reopening the assessment under Section 148 of the Income Tax Act for the Assessment Year 2009-10.
2. Compliance with the proviso to Section 147 of the Income Tax Act.
3. Validity of the reasons recorded for reopening the assessment.
4. Subjective satisfaction of the Assessing Officer in reopening the assessment.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 148:
The petitioner challenged the notice dated 21/03/2016 under Section 148 of the Income Tax Act, which sought to reopen the assessment for the Assessment Year 2009-10. The reopening was based on the allegation that the income chargeable to tax had escaped assessment within the meaning of Section 147 of the Act. The petitioner argued that the reopening was beyond the period of four years from the relevant Assessment Year and thus required compliance with the proviso to Section 147.

2. Compliance with the Proviso to Section 147:
The petitioner contended that the reopening of the assessment was not justified as there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. It was argued that during the original scrutiny assessment, all relevant materials, including books of accounts, purchase orders, and invoices, were produced to prove the genuineness of the creditors. The court noted that the assessment for the Assessment Year 2009-10 was sought to be reopened beyond four years, and as per the proviso to Section 147, unless there was a failure to disclose true and correct facts, the reopening was not justified.

3. Validity of the Reasons Recorded for Reopening the Assessment:
The reasons for reopening the assessment were based on the scrutiny assessment for the Assessment Year 2012-13, where the genuineness of certain foreign creditors was doubted. The Assessing Officer had issued a notice under Section 148, stating that the outstanding liability to two foreign entities, AL-Rahim Closeout Inc. and AL-Mahaseel Scrap Trading Co. L.L.C., was deemed to have ceased and thus should be treated as profits and gains of the business. However, the court observed that during the original assessment for the Assessment Year 2009-10, the petitioner had provided all necessary documents to prove the genuineness of these transactions, and the Assessing Officer had not doubted them at that time.

4. Subjective Satisfaction of the Assessing Officer:
The petitioner argued that the reopening of the assessment was based on the opinion of a superior officer and lacked the subjective satisfaction of the Assessing Officer. The court found that the reasons recorded for reopening were primarily based on the proceedings of a different assessment year and not on any new material or failure to disclose facts by the petitioner for the Assessment Year 2009-10.

Judgment:
The court held that the reopening of the assessment beyond the period of four years was not justified as there was no failure on the part of the petitioner to disclose true and correct facts necessary for the assessment. The court quashed and set aside the impugned notice under Section 148 and the reassessment proceedings. The petition was allowed, and no order as to costs was made.

Conclusion:
The court concluded that the reopening of the assessment under Section 148 for the Assessment Year 2009-10 was not justified as it did not comply with the proviso to Section 147. The Assessing Officer's reasons for reopening were based on the scrutiny assessment of a different year and did not indicate any failure by the petitioner to disclose material facts. The impugned notice and reassessment proceedings were quashed.