2021 (12) TMI 654 - HC - Income Tax

Reopening of assessment u/s 147 - Notice after expiry of 4 years from the end of the relevant assessment year - transactions of two clients of petitioner Parth and Devki - retraction by Parth and Devki and before passing a block assessment order in the case of petitioner for the period 1st April 1991 to 23rd March 2001 on 26th September 2003 - HELD THAT - In the case of assessment of Parth and Devki, the Assessing Officer has recorded their retraction and dismissed those retractions as after thought because the transactions were recorded by Parth and Devki in their own books of account but they did not book the same into account while computing the profit. Where on consideration of material on record, one view conclusively is taken by the Assessing Officer, it would not be open to re-open the assessment based on very same material with a view to take another view. In our view, this is a case where the assessment is sought to be re-opened on account of change of opinion of the Assessing Officer. There is no new material to which reference is to be found and the entire basis for re-opening the assessment is the material which was available before the Assessing Officer in the course of assessment proceedings of petitioner, Parth and Devki and respondent no.1 is the common Assessing Officer. In this case, it cannot be postulated that the condition precedent to the re-opening of the assessment beyond a period of 4 years has been fulfilled.- Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961 after the expiry of 4 years.
2. Requirement of failure to disclose fully and truly all material facts for assessment.
3. Validity of re-opening based on transactions of other parties.
4. Assessment re-opening due to retraction by other parties and change of opinion.

Analysis:

1. The High Court examined the case where a petitioner received notices seeking to reopen the assessment for a specific assessment year under Section 147 of the Income Tax Act, 1961. The assessment was completed under Section 143(3) more than 4 years ago, raising concerns about the validity of the re-opening. The Court found that there was no failure on the part of the petitioner to disclose material facts necessary for assessment, as required by the proviso under Section 147.

2. The Court considered the requirement of failure to disclose fully and truly all material facts for assessment under Sections 147 and 148 of the Act. Referring to a previous judgment, the Court emphasized that the reasons supplied for re-opening must clearly indicate such failure. If no failure to disclose is evident from the reasons, the assumption of jurisdiction under Sections 147 and 148 would be considered ultra vires.

3. The validity of re-opening based on transactions of other parties, namely Parth Investment Consultants Pvt Ltd. and Devki Finance & Trading Pvt Ltd., was also scrutinized. The Court noted that adding income in the hands of these parties does not automatically imply that income chargeable to tax has escaped assessment for the petitioner. The Assessing Officer's reliance on these transactions as the basis for re-opening was found insufficient.

4. Lastly, the Court addressed the assessment re-opening due to the retraction by Parth and Devki and a change of opinion by the Assessing Officer. It was observed that the re-opening was based on the same material available during the initial assessment proceedings, indicating a change of opinion rather than new material. The Court concluded that the condition precedent for re-opening the assessment beyond 4 years had not been fulfilled in this case, leading to the quashing of the re-opening notices and orders.

In conclusion, the High Court allowed the petition, setting aside the notices seeking to reopen the assessment for the specified year and related orders. The decision highlighted the importance of adhering to the legal requirements for re-opening assessments under the Income Tax Act, ensuring fairness and transparency in the assessment process.