2021 (5) TMI 122 - HC - Income Tax

Reopening of assessment u/s 147 - Sham transaction of gift - whether the revenue is justified in reopening the assessment for the year under consideration ? - HELD THAT - We are of the view that, when specific query with regard to transaction of gift was raised by the AO and the same was answered by the assessee, the AO thought fit not to make any addition, which clearly proves that, he consciously formed the opinion and framed the assessment. We have examined the objections raised by the audit party and subsequent enquiries made by the AO before reopening of the assessment. Except the audit objections, no any new material came in the hands of the assessing officer while initiating the proceedings of reopening of the assessment for the year under consideration. The audit objections do not constitute a tangible material to reopen the assessment. Reliance may be placed on the decision of this Court in the case of Adani Exports 1998 (12) TMI 51 - GUJARAT HIGH COURT wherein, this Court has held that, reassessment was not valid as the AO held no belief on his own at any point of time that, income of assessee had escaped assessment on account of erroneous computation of benefit u/s 80HHC and was constrained to issue notice only on the basis of audit objections. The same view was taken in the case of Indian Eastern Newspaper Society Vs. CIT 1979 (8) TMI 1 - SUPREME COURT , that the audit objections cannot be basis for reopening of the assessment. No new material surfaced during the reassessment proceedings on which the AO could have formed a requisite belief with regard to escapement of assessment and the assessee had disclosed all the materials fully and truly during the previous assessment proceedings. Under the circumstances, the impugned Notice under Section 148 of the Act dated 26.02.2019 assuming jurisdiction under Section 147 of the Act after the expiry of four years from the end of the relevant assessment year is clearly without jurisdiction of law and cannot be sustained in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Alleged failure to disclose material facts fully and truly by the assessee.
3. Whether the reassessment constitutes a change of opinion by the Assessing Officer (AO).

Detailed Analysis:

1. Validity of the reopening of assessment under Section 148 of the Income Tax Act, 1961:
- The writ applicant challenged the notice dated 26.02.2019 issued under Section 148 for reopening the assessment for A.Y. 2013-14, contending it was beyond the four-year limit.
- The AO issued the notice based on an audit objection, claiming the assessee had credited ?15,00,000/- as a gift from his brother-in-law, which was allegedly his own money deposited and withdrawn on the same day.
- The Court noted that the original assessment was completed under Section 143(3) on 19.02.2016 without disallowing the ?15,00,000/- gift, indicating the AO had accepted the assessee's explanation and supporting documents at that time.

2. Alleged failure to disclose material facts fully and truly by the assessee:
- The assessee had disclosed all relevant details, including the capital account, bank statements, and gift declaration during the original assessment.
- The Court found no failure on the part of the assessee to disclose material facts necessary for assessment, as all primary facts were duly disclosed during the original proceedings.

3. Whether the reassessment constitutes a change of opinion by the Assessing Officer (AO):
- The Court emphasized that the AO had previously scrutinized the transaction and decided not to add the ?15,00,000/- to the taxable income, forming an opinion based on the disclosed facts.
- The reassessment was initiated solely based on audit objections without any new tangible material, which the Court ruled as insufficient for reopening the assessment.
- The Court referred to the Full Bench of the Delhi High Court in CIT Vs. Usha International Ltd., which held that reassessment is invalid if it is based on an issue previously examined and accepted by the AO.

Conclusion:
- The Court concluded that the reassessment proceedings were invalid as they were initiated beyond the four-year period without any new material and were based on a change of opinion.
- The impugned notice dated 26.02.2019 and all subsequent proceedings were quashed and set aside, allowing the writ application.

This detailed analysis preserves the legal terminology and significant phrases from the original text, ensuring a comprehensive understanding of the judgment.