2017 (7) TMI 1010 - HC - Income Tax

Validity of reopening of assessment - addition of dividend income - Held that - A perusal of the reply submitted by the Petitioner to the questionnaire, which was issued on 29th October, 2009 by the AO as part of the proceedings under Section 143 (3) of the Act, clearly reveals that the dividend income was fully disclosed in the reply dated 17th November, 2009. The questionnaire having been duly replied to and the assessment order having been passed under Section 143 (3) of the Act on 30th December 2009, it cannot be said that AO did not form an opinion on the issue. The questionnaire specifically sought details of several incomes, which were submitted by the Assessee. Even the proceedings under Section 263 did not raise the issue of disallowance of expenditure incurred for earning exempt income under Section 14-A of the Act. Under Section 263 of the Act, the Revenue had an opportunity to revisit the assessment order insofar if it was incorrect and prejudicial to the interests of the Revenue. However, even in the Section 263 proceedings this issue was not raised. In view of the fact, that there was a full disclosure by the Assessee of all the material facts relating to the exempt income it cannot be said that the condition for reopening of the assessment is satisfied on this count. Even the second reason is a mere reproduction of the earlier notice dated 28th March, 2013. The nature of business of the Petitioner has always been known to the Revenue year after year. Even in this reason there is not even a whisper of the failure by the Petitioner to make a full and true disclosure of all the material facts necessary for the assessment. Thus, the impugned notice does not satisfy the rigors of Sections 147/148 of the Act as there has been no non-disclosure of the material facts by the Petitioner. In fact, even the reasons accompanying the impugned notice do not even say that there is any failure by the Petitioner to disclose fully and truly all the material facts. - Decided in favour of assessee.

Issues Involved:
1. Legality of the issuance of notice under Section 148 of the Income Tax Act, 1961.
2. Compliance with the first proviso to Section 147 of the Income Tax Act, 1961.
3. Alleged failure to disclose fully and truly all material facts necessary for assessment.
4. Allegation of the same material being used for reopening the assessment, constituting a change of opinion.

Detailed Analysis:

1. Legality of the Issuance of Notice under Section 148 of the Income Tax Act, 1961:
The Petitioner challenged the issuance of notice under Section 148 for the Assessment Year (AY) 2008-09, initially issued on 31st May 2012 and 28th March 2013, which were quashed by the Court on 3rd September 2014. The Court allowed the Assessing Officer (AO) to issue a fresh notice under Section 148 if there was a reason to believe that income chargeable to tax had escaped assessment, considering the first proviso to Section 147 and other applicable provisions. A fresh notice was issued on 16th July 2015, which the Petitioner again challenged, arguing that the reasons recorded by the AO did not satisfy the legal requirements under Sections 147/148.

2. Compliance with the First Proviso to Section 147 of the Income Tax Act, 1961:
The Court emphasized that for reopening assessments after four years, the AO must record that there was a failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment. The reasons stated by the AO in the impugned notice did not meet this mandatory legal requirement. The Court noted that the reasons for reopening were a verbatim reproduction of the earlier quashed notice, indicating non-compliance with the first proviso to Section 147.

3. Alleged Failure to Disclose Fully and Truly All Material Facts Necessary for Assessment:
The Court observed that the Petitioner had fully disclosed all material facts necessary for the assessment. The Petitioner’s return had undergone scrutiny under Section 143(3), Section 263, and Sections 147/148, and the Revenue had ample opportunity to scrutinize the returns. The reasons accompanying the impugned notice did not indicate any failure by the Petitioner to disclose material facts. The Court concluded that the condition for reopening the assessment was not satisfied on this count.

4. Allegation of the Same Material Being Used for Reopening the Assessment, Constituting a Change of Opinion:
The Petitioner argued that the reopening of the assessment was based on the same material, constituting a change of opinion, which is impermissible in law. The Court referred to the Supreme Court’s decision in Commissioner of Income Tax, Delhi v. Kelvinator of India Limited, which held that reopening assessments based on a mere change of opinion is not permissible. The Court found that the reasons recorded by the AO did not present any new material and were merely a repetition of the earlier quashed notice, thus constituting a change of opinion.

Conclusion:
The Court allowed the writ petition, quashing the impugned notice dated 4th March 2015 and the order dated 9th November 2015. The Court held that the reopening of the assessment did not satisfy the requirements under Sections 147/148 of the Income Tax Act, 1961, as there was no failure by the Petitioner to disclose fully and truly all material facts necessary for the assessment. The Court reiterated that reopening based on a mere change of opinion is impermissible.

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