2020 (12) TMI 565 - HC - Income Tax

Validity of reopening of assessment - original proceedings for assessment were by way of an intimation under Section 143(1)(a)/143(1) - HELD THAT - Intimation under Section 143(1) dated 15.12.2016 was issued after the return was electronically processed by the Central Processing Centre (CPC), Bangalore. No notice under Section 143(2) was issued. This was followed by a notice under Section 148 dated 12.02.2018 issued on the basis that there was escapement of income. As required statutorily, the petitioner filed a return of income on 01.03.2018 and sought the reasons on the basis of which the proceedings for re-assessment had been initiated. The return of income filed by Indian Syntans was accompanied by financials that contained a note explaining the lease transaction and a perusal of the reasons for re-assessment make it clear that the reasons are based entirely upon the documentation accompanying the return and no material extraneous to that already on record or anew, has been discovered by the respondent indicating income that had escaped taxation. This is the position both as regards the lease income as well as the claim of administrative expenses. In such circumstances, the escapement of income, if any, cannot be attributed to the assessee. A full and true disclosure has been made in so far as all material germane to the computation of income forms part of the return of income. AY 2015-16 - The mere fact that the respondent had not originally taken the return up for scrutiny by issuing notice under Section 143(2) would not debar the Department from initiating proceedings for re-assessment. The impugned proceedings for re-assessment are, according to the reasons for re-assessment as well as the counter filed by the respondent, based upon certain discrepancies noted in the figure of bad and doubtful debts in the statement of computation of income and the financials. Thus, find no legal infirmity in the initiation of proceedings for re-assessment in this case. Re-assessment, be it within or beyond four years, has to be based on tangible material dehors that which is available on record, that has come to the notice of the AO. Once an intimation has been issued, be it manually by the AO or electronically by CPC, the mechanism for selection of returns for assessment must be robust, ensuring that issues requiring scrutiny are picked up promptly and addressed in time. If the Department lets sail this ship, recourse to proceedings for re-assessment is available only if the department comes into possession of material apart from that already available as part of its records or if the primary particulars reveal discrepancies that are not explained or resolved by the accompanying documentation. This is subject, therefore, to the assessee having placed on record all material necessary for the appreciation of the issues arising for assessment including financials and annexures along with its return of income, at the first instance. The impugned proceedings for re-assessment, in this case are held to be valid and will continue by issue of notice. After hearing the petitioner either over video conference or physically as per mutual convenience of the parties, let an order of re-assessment be passed in accordance with law, within a period of eight (8) weeks from date of uploading of this order

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Requirement of new material for initiating reassessment.
3. Applicability of the proviso to Section 147 for reassessment beyond four years.
4. Full and true disclosure by the assessee.
5. Interpretation of Section 36(1)(viia) regarding deduction for bad and doubtful debts.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The judgment addresses the validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961. The court considered whether the reassessment was justified in cases where the original assessment was completed by way of an intimation under Section 143(1). It was held that an intimation under Section 143(1) is not an assessment and does not involve the application of mind by the Assessing Officer, as established in the Supreme Court cases of ACIT V. Rajesh Jhaveri Stock Brokers (291 ITR 500) and Deputy Commissioner of Income Tax V. Zuari Estates Development and Investment Co. Ltd. (373 ITR 661).

2. Requirement of New Material for Initiating Reassessment:
The court emphasized that for reassessment to be valid, there must be "tangible material" beyond what was available on record, as per the Supreme Court's ruling in Kelvinator India Ltd. Vs. Income Tax Officer (320 ITR 561). In the cases of Indian Syntans, the reassessment was based entirely on the documentation accompanying the original return, with no new material discovered. Thus, the reassessment was deemed invalid as it amounted to a mere review, which is impermissible.

3. Applicability of the Proviso to Section 147 for Reassessment Beyond Four Years:
For Indian Syntans, the reassessment notice for AY 2000-01 was issued beyond four years, invoking the proviso to Section 147. The proviso allows reassessment within six years if the assessee fails to make a full and true disclosure of all material facts. The court found that Indian Syntans had made a full and true disclosure in its returns, and no new material was found to justify the reassessment beyond the four-year period.

4. Full and True Disclosure by the Assessee:
The court noted that Indian Syntans had included a note in its financials explaining the lease transaction, which formed part of the return of income. Since the reassessment was based on this existing documentation, it was concluded that the assessee had made a full and true disclosure. Therefore, the reassessment notice was invalid.

5. Interpretation of Section 36(1)(viia) Regarding Deduction for Bad and Doubtful Debts:
In the case of the co-operative society (W.P.No.9353 of 2018), the reassessment related to the deduction claimed under Section 36(1)(viia) for bad and doubtful debts. The issue was whether the deduction should be based on the entire advances made by rural branches or only the outstanding advances. The court noted that this issue was pending resolution before the Appellate Authority for previous years. However, since the reassessment notice was issued within four years and discrepancies were noted in the figures, the court found no legal infirmity in the reassessment proceedings.

Conclusion:
The court allowed W.P.Nos.12300 of 2007 and 27987 of 2006, invalidating the reassessment proceedings for Indian Syntans due to the lack of new material and full disclosure by the assessee. Conversely, W.P.No.9353 of 2018 was dismissed, upholding the reassessment proceedings for the co-operative society, as the discrepancies justified the reassessment within the four-year period. The court directed that the reassessment be completed within eight weeks, ensuring compliance with legal procedures. No costs were awarded, and connected miscellaneous petitions were closed.

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