2019 (8) TMI 1336 - HC - Income Tax

Reopening of assessment u/s 147 - original assessment u/s 143(3) - change of opinion - HELD THAT - There was no failure by the Petitioner to fully and disclose all the material facts for assessment as regards the reasons supplied under notice for reassessment. The power to reopen the assessment is not a power to review, and this power cannot be used to review because there is a change of opinion by the AO. On both counts, there is no application of mind by the AO to the jurisdictional requirements. First, to the existence of failure of the assessee to disclose all material facts for assessment since the assessment was sought to be reopened after four years as it is not so mentioned in the reasons supporting the notice for reassessment. Second, factually, there has been no failure by the Petitioner to fully and truly disclose the material facts. The reasons in support of the notice of reassessment mention the areas in which reassessment needs to be carried out, and the record shows that material regarding these topics was called for over two occasions from the Petitioner and was supplied. Although the Petitioner had a remedy of statutory appeal since the order is without jurisdiction and contrary to the settled position of law, it requires to be quashed and set aside. We hold and declare that the Respondents had no jurisdiction to issue the impugned notice, consequently, the impugned order rejecting the objections is also without jurisdiction.

Summary

Issues Involved:
1. Validity of the notice dated 24 March 2019 issued under Section 148 of the Income Tax Act for reopening the assessment.
2. Validity of the order dated 25 June 2019 rejecting the objections raised by the Petitioner against the reopening notice.

Issue-wise Detailed Analysis:

1. Validity of the Notice Dated 24 March 2019 Issued Under Section 148 of the Income Tax Act for Reopening the Assessment:

The Petitioner, a private limited company engaged in the redevelopment of residential premises, challenged the notice dated 24 March 2019 issued by the Assessing Officer for reopening the assessment for the assessment year 2012-13. The initial assessment was completed on 13 March 2015, accepting the return filed by the Petitioner. The reopening notice was issued after four years from the end of the assessment year, which is critical due to the language of Section 147 of the Act. Under Section 147, the Assessing Officer can reopen the assessment if there is a reason to believe that income chargeable to tax has escaped assessment. However, if the reopening is after four years, there must be a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment.

The court examined whether the Assessing Officer satisfied the condition of failure by the assessee to disclose all material facts. The reasons given for reopening the assessment must reflect an application of mind to this critical facet of Section 147. The reasons provided by the Assessing Officer included the issuance of shares at a high premium despite continuous business losses and the improper accounting of legal and professional fees. The Petitioner argued that there was no averment in the reasons that the assessee failed to disclose all material facts, and factually, there was no such failure. The court found that the Assessing Officer did not meet the jurisdictional requirement as the reasons did not reflect an application of mind to the additional requirement under Section 147 for reopening after four years.

2. Validity of the Order Dated 25 June 2019 Rejecting the Objections Raised by the Petitioner Against the Reopening Notice:

The Petitioner had submitted detailed responses to the Assessing Officer's queries during the original assessment proceedings, including information on shareholding patterns, share premium, and other financial details. The court noted that the Petitioner had provided all necessary details and documents, including a note on the valuation of shares at a premium. The Assessing Officer's reasons for reopening the assessment did not demonstrate any failure by the Petitioner to disclose material facts. The court emphasized that the power to reopen an assessment is not a power to review and cannot be used merely because there is a change of opinion by the Assessing Officer.

The court concluded that there was no failure by the Petitioner to fully and truly disclose all material facts necessary for the assessment. The reasons for reopening the assessment did not satisfy the jurisdictional requirements, and the order rejecting the objections was without jurisdiction and contrary to the settled position of law.

Conclusion:

The court held that the Respondents had no jurisdiction to issue the impugned notice, and consequently, the impugned order rejecting the objections was also without jurisdiction. The Rule was made absolute in terms of prayer clause (a), and no costs were awarded.