2018 (2) TMI 1379 - HC - Income Tax

Reopening of assessment - notice issued beyond the period of four years - reasons to believe - Held that - The question of the assessee failing to disclose truly and fully all material facts necessary for assessment therefore becomes important. Nothing stated in the reasons recorded or from the materials on record suggest that the assessee failed to disclose truly and fully all material facts. AO has examined the materials on record during the original assessment proceedings, now to form a belief that assessee s treatment of capital gain tax was erroneous. Being a notice which was issued beyond a period of four years, this aspect therefore becomes important. As correctly pointed out by the counsel for the petitioner, there was no additional or extraneous material at the command of AO now to believe that income chargeable to tax has escaped assessment. Only on this ground, the notice of reopening needs to be quashed. This Court in case of Adani Exports vs Deputy Commissioner Of Income Tax (1998 (12) TMI 51 - GUJARAT High Court) and several times repeated by the Supreme Court later, reopening cannot be resorted to under the insistence of the audit party, particularly when the Assessing Officer holds a contrary belief. From this angle, we have perused the original files and do not find that the Assessing Officer independently believed that the audit note or the audit objection was otherwise valid. - Decided in favour of assessee.

Summary

Issues:
Challenging a notice for reopening assessment for the assessment year 2010-11 based on failure to disclose all material facts and audit objections.

Analysis:
1. The Assessing Officer issued a notice dated 30.03.2017 to reopen the assessment for the year 2010-11, alleging that income had escaped assessment due to the petitioner's failure to disclose all material facts. The petitioner objected to the notice, arguing that the original assessment was done after scrutiny and the notice was issued beyond the prescribed time limit of four years. The petitioner contended that there was no failure on their part to disclose material facts and that the reasons for reopening lacked validity. The Assessing Officer's reasons for reopening were based on the treatment of capital gains, which the petitioner claimed to be legally correct.

2. The petitioner further argued that the Assessing Officer was influenced by audit objections in issuing the notice. However, the court found that there was no additional material available to suggest that income had escaped assessment. The court noted that the Assessing Officer had already scrutinized the materials during the original assessment and found no grounds to believe that the treatment of capital gains was incorrect. The court emphasized that the notice was issued beyond the four-year limit, making the disclosure of all material facts crucial.

3. Additionally, the court observed that the Assessing Officer's reliance on audit objections alone was not sufficient to justify the reopening of the assessment. Referring to legal precedents, the court highlighted that reopening cannot be solely based on audit party insistence if the Assessing Officer holds a different belief. After reviewing the original files, the court found no independent belief by the Assessing Officer regarding the validity of the audit note or objection. Consequently, the court set aside the notice for reopening the assessment, stating that there were no grounds to support the reopening based on failure to disclose material facts or audit objections.

4. In conclusion, the court allowed the petition and disposed of the case, emphasizing the importance of the Assessing Officer forming an independent belief for reopening assessments beyond the prescribed time limit and not solely relying on audit objections without proper justification.