2019 (5) TMI 1447 - HC - Income Tax

Reopening of assessment u/s 147 - original assessment u/s 143(3) and the re-opening beyond four years - non-application of mind by the AO - HELD THAT - The assessment order does not itself discuss the details furnished by the Assessee the fact remains that all the relevant materials were indeed disclosed by the Assessee before the AO. Also the details of how the sum of 40 crores was disbursed appears to have been disclosed by the Assessee in a letter dated 2nd February 2013 written by it to the AO in response to the questionnaire issued to it on 27th November 2012. In the present case all the material that was necessary for the AO to form an opinion regarding the transaction involving the Assessee and PACL was already available with the AO. There was no fresh tangible material on the basis of which the AO could have formed an opinion about any taxable having escaped assessment during the AY in question - the reasons recorded by the AO for re-opening the assessment do not refer to the above facts. It merely repeats the language of Section 147 that there was a failure by the Assessee to disclose fully and truly all material facts necessary for the assessment. The Court is therefore satisfied that the jurisdictional requirement of the first proviso to Section 147 proviso has not been satisfied in the present case. Assessee is right in his submission about the mistakes committed even in the proforma accompanying the reasons recorded which notes that the exercise was being undertaken in terms of clause (b) to Explanation 2 to Section 147 which would mean that the original assessment was under Section 143 (1) of the Act. The fact is that the original assessment was under Section 143 (3) of the Act. This perhaps explains why the reasons recorded for re-opening the assessment does not advert to what transpired during the original assessment and in particular the questionnaires issued to the Assessee by the AO specifically on the issue of the loan from PACL. The learned counsel for the Assessee is justified in his submission that this also reflects non-application of mind by the AO and the superior officer who approved the re-opening to the relevant materials. Notice for reopening quashed - Decided in favour of assessee.

Issues Involved:
1. Legality of the notice issued under Section 147 read with Section 148 of the Income Tax Act, 1961 for re-opening the assessment for AY 2011-2012.
2. Validity of the order rejecting the Petitioner’s objections to the re-opening of the assessment.
3. Compliance with the jurisdictional requirements under Section 147 of the Act.

Issue-wise Detailed Analysis:
1. Legality of the notice issued under Section 147 read with Section 148 of the Income Tax Act, 1961 for re-opening the assessment for AY 2011-2012:
The Petitioner challenged the notice dated 29th March 2018 issued by the Income Tax Officer under Section 147 read with Section 148 of the Income Tax Act, 1961, seeking to re-open the assessment for AY 2011-2012. The original assessment was completed under Section 143(3) on 28th March 2013, where the AO accepted the Petitioner’s return as filed. The re-opening notice was based on information obtained during the assessment of a sister concern, indicating that ?40 crores had been transferred from PACL to the Petitioner. The AO suspected the creditworthiness and genuineness of the transaction, stating that PACL was known for giving and taking accommodating entries. However, the Court found that all relevant details regarding the transaction were already disclosed during the original assessment proceedings, and there was no fresh tangible material to justify the re-opening. The reasons recorded for re-opening did not refer to the facts disclosed earlier and merely repeated the language of Section 147, indicating a failure by the Assessee to disclose material facts. The Court concluded that the jurisdictional requirement for re-opening under the first proviso to Section 147 was not satisfied.

2. Validity of the order rejecting the Petitioner’s objections to the re-opening of the assessment:
The Petitioner filed objections to the re-opening of the assessment on 24th October 2018, which were rejected by the AO on 26th October 2018. The Court noted that the detailed questionnaire issued during the original assessment proceedings and the responses provided by the Petitioner disclosed all relevant materials regarding the loan from PACL. The AO’s rejection of the objections did not address the fact that the original assessment already considered these details. The Court highlighted that the reasons for re-opening must themselves contain the elements of tangible material and satisfaction of the AO about the failure to disclose material facts. The deficiency in the reasons could not be made up by the counter affidavit filed in response to the petition. The Court found that the AO and the superior officer did not apply their minds to the relevant materials, leading to an invalid rejection of the Petitioner’s objections.

3. Compliance with the jurisdictional requirements under Section 147 of the Act:
The Court reiterated the legal requirements for re-opening an assessment under Section 147, especially when the original assessment was under Section 143(3) and the re-opening was beyond four years. It emphasized that there must be tangible material leading the AO to believe that income had escaped assessment, and the reasons must not be based on a mere change of opinion. The reasons must explicitly state the failure to disclose fully and truly all material facts necessary for the assessment. In this case, the Court found that the AO’s reasons did not meet these requirements, as all relevant details were already disclosed during the original assessment. The Court also noted errors in the proforma accompanying the reasons recorded, indicating non-application of mind by the AO and the superior officer.

Conclusion:
The Court quashed the notice dated 29th March 2018 issued under Section 147 read with Section 148 of the Act and set aside the order dated 26th October 2018 rejecting the Petitioner’s objections. The writ petition was allowed, and the Court emphasized the importance of adhering to the jurisdictional requirements for re-opening assessments.

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