2018 (3) TMI 1359 - HC - Income Tax

Reassessment u/s 147 where scrutiny assessment was made u/s 143(3) - validity of notice u/s 148 - change of opinion - AO rejected the objection furnished in response to reasons for reopening the case - re-appreciation of evidences already on record - Held that - he Assessing Officer is not permitted to improve upon the reasons so furnished to the assessee. The validity of the initiation of the assessment proceedings will be determined only by the reasons furnished by the Assessing Officer to the assessee. If the reassessment proceedings are to be initiated after a period of four years on the ground that the assessee failed to make full and true disclosure of all necessary facts, then the Assessing Officer must state so in the reasons and the action must be founded on such reasons. When the case was taken up for scrutiny, the Petitioner was confronted with the query as regards the agricultural income from the mushroom farming and the Petitioner had relied upon certain certificates. The legal position is settled that even if such a statement is made, it is only a reproduction of the section and does not necessarily show the existence of this fact. But in the present case, even that statement is missing. Therefore, the Petitioner was not put to notice as to which information the Petitioner had failed to disclose which led to invocation of Sections 147, 148 of the Act. Thereafter, when the order was passed on 3 October 2017, it only refers to the decision which treated the mushroom farming as not an agricultural income. That, however, is on the merits of the reassessment proceedings. The Respondents will have to first show whether the Respondent is entitled to invoke jurisdiction under Sections 147, 148 of the Act. It is case of mere change of opinion - Assessment u/s 147 is not valid - Decided in favor of assessee.

Summary

Issues:
Challenging notice under Section 148 of the Income Tax Act, 1961 and order disposing of objections raised by the petitioner.

Analysis:
The petitioner, an assessee, challenged a notice under Section 148 of the Income Tax Act, 1961, issued by the Assistant Commissioner of Income-tax, along with the order passed on 3 October 2017, disposing of the objections raised by the petitioner. The petitioner had filed its return of income for the Assessment Year 2011-12, declaring total income as Nil after claiming exemption under Section 10(1) of the Act. The scrutiny assessment proceedings were initiated, and the petitioner's response was accepted, resulting in the closure of the proceedings by an order dated 30 December 2013. However, a notice under Section 148(1) was issued on 17 October 2016, leading to the petitioner challenging the reassessment proceedings.

In a series of decisions, the court explained the jurisdictional requirements under Sections 147 and 148 of the Act. The law mandates strict satisfaction of jurisdictional requirements for reopening an assessment, including recording reasons for reopening, establishing a reason to believe income has escaped assessment, and ensuring a live link between tangible material and the reason to believe. The court emphasized that the reasons recorded at the time of issuing the notice are crucial, and any failure to meet jurisdictional requirements renders the reassessment invalid.

The court referred to the case law to highlight that failure to fully and truly disclose all material facts is a jurisdictional requirement for reassessment after four years. The Assessing Officer must disclose reasons for initiating reassessment proceedings, and the validity of such proceedings hinges on the reasons furnished to the assessee. In the present case, the petitioner had provided all necessary information during the scrutiny assessment, and the reassessment was based on a change of opinion rather than new material facts. Consequently, the court held that the jurisdictional requirements under Sections 147 and 148 were not met, and the reassessment proceedings were deemed invalid.

The court allowed the petitioner's challenge, holding that the authority had no jurisdiction to proceed under Sections 147 and 148 of the Act. The petition was allowed, and the court emphasized the importance of adhering to settled legal principles in reassessment proceedings. Additionally, the court noted discrepancies in the Assistant Commissioner's actions in other cases and requested the Standing Counsel to provide relevant judgments to the concerned Commissioner for guidance.