2019 (5) TMI 1061 - HC - Income Tax

Reassessment notice u/s 148 - original assessment u/s 143(3) - period of limitation - assessee on receipt of the notices filed returns and requested for the reasons which was rejected by AO - reason to believe - quoting of reasons with notice - HELD THAT -The Court cannot come to the conclusion that non quoting of the reasons by the Assessing Officer in the impugned notice will vitiate the entire proceedings. If such a proposition is adopted, then it would be certainly difficult for the executives to reopen the cases as per the provisions of the Act. The procedures are contemplated under the Act, enabling the assessee to avail the opportunity and defend their respective cases in accordance with the provisions contemplated. The exercise of judicial review in such matters regarding the initiation of the proceedings are to be exercised cautiously and in order to ensure that the taxations are done properly and the assessees are made to pay the income tax in accordance with the provisions of the Income Tax Act. The amended phraseology of reason to believe must be interpreted that the Assessing Officer on receipt of any such new material or materials in relation to the non furnishing of fact by the assessee has made out a prima facie opinion that it is the case for reopening of the assessment, then he can issue notice u/s 148 and thereafter, the procedure of furnishing the reasons, receiving objections and conducting scrutiny and all other procedures contemplated under the provisions of the Act will suit as follow. As the present case falls u/s 149(1)(b), the period of limitation prescribed is six years. In view of the fact that the notice has been issued within a period of six years, the ground of limitation raised on behalf of the writ petitioners, fails. As far as the ground in relation to the change of opinion, it is premature on the part of the writ petitioners to come to such a conclusion whether it is a change of opinion or the reopening is made based on the new or additional material available with the Income Tax Department, the same can be ascertained only after furnishing objections to the Income Tax Department by the assessee. In the absence of having knowledge about the reasons, the writ petitioners cannot come to the conclusion that there is no new material or reason to reopen the assessment already closed. Such a ground raised is not only presumptive but premature. The Income Tax Department has to furnish the reasons to the writ petitioners and on receipt of the reasons, if the writ petitioners are of the opinion and there are no additional material or new materials are available then they can submit their objections in respect of the change of opinion or reason to believe. The objections to be submitted in this regard may contain all such explanations or grounds raised in the present writ petitions before the Assessing Officers. This being the legal principles settled by the Hon'ble Supreme Court 2002 (11) TMI 7 - SUPREME COURT as well as by this Court 2018 (11) TMI 1617 - MADRAS HIGH COURT 2018 (10) TMI 811 - MADRAS HIGH COURT , as per the judgment cited supra, this Court has no hesitation in holding that the writ petitioners are not substituted any acceptable legal ground for the purpose of interfering with the notices issued u/s 148. Thus, the writ petitioners are bound to face the reopening proceedings by availing the opportunities to be provided by the Income Tax Department. Income Tax Department is directed to furnish the reasons for reopening of the assessment for the years referred in the impugned notices to the writ petitioners, within a period of four weeks from the date of receipt of a copy of this order. On receipt of the reasons from the Income Tax Department, the writ petitioners are directed to submit their objections/explanations and the documents if any, within a period of four weeks from the date of receipt of the reasons from the Income Tax Department. The Assessing Officer shall adjudicate the matter by providing opportunity to all the parties concerned and take a decision and pass assessment orders on merits

Issues Involved:
1. Jurisdiction and authority to issue notice under Section 148 of the Income Tax Act, 1961.
2. Issuance of notice beyond the statutory time limit.
3. Requirement of "reason to believe" for reassessment.
4. Change of opinion as a basis for reassessment.
5. Obligation to disclose reasons for reopening assessments.
6. Validity of reopening assessments based on new materials or information.

Detailed Analysis:

1. Jurisdiction and Authority to Issue Notice:
The petitioner contended that the notices issued under Section 148 were without jurisdiction and authority. The notices were issued after the expiry of the statutory time limit, making them invalid. The petitioner argued that the assessment orders for the years 1995-1996, 1996-1997, and 1997-1998 were properly assessed under Section 143(3) and scrutinized by the Income Tax Department. The block assessments were quashed by the ITAT, indicating no "reason to believe" for reassessment under Sections 147 to 153. The court emphasized that the authorities must have valid jurisdiction and authority to issue such notices.

2. Issuance of Notice Beyond the Statutory Time Limit:
The petitioner argued that the notices were issued beyond the statutory time limit prescribed under the Income Tax Act. The court cited various judgments, including Commissioner of Income Tax Versus ELGI Finance Limited and Fenner (India) Limited Vs. Deputy CIT, which clarified that the Assessing Officer must record a reasonable belief that income has escaped assessment within the statutory period. Failure to do so would vitiate the notice and the entire proceedings.

3. Requirement of "Reason to Believe" for Reassessment:
The court reiterated that for initiating reassessment proceedings under Sections 147 to 153, there must be a "reason to believe" that income has escaped assessment. The petitioner cited several judgments, including Assistant Commissioner of Income Tax Mumbai and others Versus ICICI Securities Primary Dealership Limited, emphasizing that mere change of opinion does not constitute a valid reason for reassessment. The court highlighted that the reasons for reopening must be based on new materials or information not previously disclosed by the assessee.

4. Change of Opinion as a Basis for Reassessment:
The petitioner argued that the notices were issued based on a change of opinion, which is not a valid ground for reassessment. The court referred to the judgments in Foramer Versus Commissioner of Income Tax and others and Madras Suspensions Limited Versus Deputy Commissioner of Income Tax, which held that reassessment based on a change of opinion is invalid. The court emphasized that reassessment must be based on new or additional material facts not previously considered.

5. Obligation to Disclose Reasons for Reopening Assessments:
The petitioner contended that the reasons for reopening the assessments were not disclosed, violating the principles laid down in GKN Driveshafts (India) Ltd. Versus Income Tax Officer and others. The court acknowledged that the reasons for reopening must be communicated to the assessee to enable them to file objections. The court directed the Income Tax Department to provide the reasons for reopening the assessments within a specified period.

6. Validity of Reopening Assessments Based on New Materials or Information:
The court discussed the necessity of new materials or information for reopening assessments. The court referred to the judgment in M/S. Phool Chand Bajrang Lal vs Income-Tax Officer And Another, which stated that reassessment is justified if new materials or information are discovered. The court concluded that the reassessment proceedings in the present case must be based on new materials or information, and the reasons for reopening must be communicated to the assessee.

Conclusion:
The court dismissed the writ petitions, directing the Income Tax Department to furnish the reasons for reopening the assessments to the petitioners within four weeks. The petitioners were instructed to submit their objections and documents within four weeks of receiving the reasons. The Assessing Officer was directed to adjudicate the matter, providing an opportunity to all parties and passing assessment orders on merits and in accordance with law.

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