2019 (6) TMI 998 - HC - Income Tax

Reopening of assessment - difference between the amount of salary payment recorded in the salary register impounded and the amount of salary debited in the P L account - objections raised by the petitioners against notice are rejected - change of opinion - HELD THAT - A bare perusal of the reasons recorded and the justification, explanation and reconciliation provided by the petitioner in the objections would clearly lead to a conclusion that there is no escapement of income, irrespective of the aspect that claim of salary was scrutinised or not scrutinised during the course of original assessment. It appears from the order dated 21.8.2018 disposing the objections raised by the petitioner that the respondent has adopted a pedantic robotic approach ignoring the objections raised by the assessee petitioner in toto with only one object of rejecting the objections. The respondent is duty bound to consider and apply his mind to the objections raised. However, on perusal of the order dated 21.8.2018 whereby the objections raised by the petitioners are rejected, it transpires that reasons given for rejecting the objections are nothing but an eyewash as justification, explanation and reconciliation provided by the petitioner is not even referred to by the respondent. Such an approach of the respondent is required to be deprecated. Reasons recorded by the assessing officer are based on incorrect facts in addition to the fact that the AO during the course of original assessment has scrutinised the details of salary expenditure by issuing notices u/s 142(1) and by calling for information and hence, it is evident that the assessment is sought to be reopened on a mere change of opinion, which is not permissible in law. AO has considered the claim of the petitioner with respect to the salary expenditure and, therefore, when the petitioner filed the objections to the impugned notice which is based only upon the salary register of Navsari unit impounded during the course of survey conducted in the year 2016, the respondent ought to have dropped the reopening proceedings. - Decided in favour of assessee

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Alleged failure of the petitioner to disclose fully and truly all material facts necessary for the assessment.
3. Examination of the objections raised by the petitioner against the reopening notice.
4. Consideration of whether the reopening is based on a mere change of opinion.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 28.03.2018 for reopening the assessment for the assessment year 2011-2012 issued under section 148 of the Income Tax Act, 1961. The notice was issued based on the survey conducted under section 133A of the Act on 14th and 15th September 2016, which found discrepancies in the salary expenses claimed by the petitioner. The petitioner argued that the reopening was based on incorrect facts and was a mere change of opinion, which is not permissible in law.

2. Alleged Failure to Disclose Fully and Truly All Material Facts:
The respondent contended that the petitioner failed to disclose fully and truly all material facts necessary for the assessment, as required by the proviso to section 147 of the Act. The discrepancy was found between the salary expenses recorded in the salary register (?2,78,700) and the amount debited in the profit and loss account (?7,81,100). The petitioner, however, argued that the salary expenses included payments made at two different units (Navsari and Bardoli), and the salary register of only one unit (Navsari) was impounded during the survey.

3. Examination of the Objections Raised by the Petitioner:
The petitioner filed objections against the reopening notice, explaining the reconciliation of salary expenses between the two units. The respondent rejected the objections without adequately considering the justification provided by the petitioner. The court noted that the respondent failed to appreciate the detailed reconciliation and explanation provided by the petitioner, which showed that the salary expenses were accurately reported.

4. Consideration of Whether the Reopening is Based on a Mere Change of Opinion:
The court observed that the Assessing Officer had scrutinized the salary expenses during the original assessment proceedings and had issued notices under section 142(1) of the Act. The reopening was based on the same set of facts that were already considered during the original assessment, indicating a mere change of opinion. The court held that reopening on such grounds is not permissible.

Conclusion:
The court concluded that the reopening of the assessment was based on incorrect facts and amounted to a mere change of opinion. The petitioner had disclosed all material facts fully and truly necessary for the assessment, and there was no suppression of income or willful presentation of incorrect facts. Consequently, the notice issued under section 148 was quashed and set aside. The court emphasized the importance of considering the objections raised by the assessee in true spirit, as laid down by the Supreme Court in GKN Driveshafts India Ltd. v. ITO. The petition was allowed, and the rule was made absolute with no order as to costs.

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