2021 (12) TMI 1215 - HC - Income Tax

Reopening of assessment u/s 147 - assessment as reopened beyond a period of four years - Availability of tangible material to initiate reopening - HELD THAT - Mere availability of tangible material would be sufficient for the purpose of invoking the powers under Section 147 of the Act. This failure on the part of the petitioner was considered for reopening of assessment and the finding is given that the assessee company has misleading the assessing authorities by furnishing incorrect particulars. However, this Court cannot arrive a finding in this regard. It is for the assessee to establish his case during the course of reassessment proceedings. The writ petition is filed, challenging the reopening proceedings. Objective satisfaction would be sufficient for the purpose of allowing the Assessing authority to proceed with the reopening proceedings. Once, the materials are available and such materials were not taken into consideration by the original assessing authority, or any findings are given in the assessment order, which would be sufficient for the purpose of reopening of assessment and once such reopening is made based on tangible materials, then the assessee has to defend his case by furnishing further particulars or explanations or documents during the course of reopening proceedings. High Court cannot form any opinion in respect of such findings to be made. Only endeavour of the High Court is to ensure that, whether the conditions stipulated and the process adopted for the purpose of reopening of assessment in consonance with the provisions of the Act and in accordance with the Directives of the Hon ble Supreme Court of India in the case of GKN Driveshafts 2002 (11) TMI 7 - SUPREME COURT are not. If the conditions are fulfilled, then it is for the assessee to defend their case in the manner known to law. The reasons furnished in the case of the petitioner would be sufficient for the purpose of reopening of assessment as the case of the petitioner is initiated beyond a period of four years and therefore, the petitioner is bound to participate in the reopening proceedings for the purpose of defending their case by availing the opportunities to be provided by the authorities in accordance with law.

Issues Involved:

1. Legal validity of the initiation of reopening proceedings under Section 147 of the Income Tax Act.
2. Adequacy and correctness of the reasons to believe that income chargeable to tax has escaped assessment.
3. Compliance with the conditions stipulated under the Proviso clause to Section 147 of the Income Tax Act.
4. Whether the reopening proceedings amount to a mere change of opinion.
5. The requirement of sanction under Section 151(1) of the Income Tax Act.
6. The role of tangible material in reopening proceedings.
7. The necessity for the petitioner to fully and truly disclose all material facts.

Detailed Analysis:

1. Legal Validity of the Initiation of Reopening Proceedings:

The petitioner challenged the reopening proceedings initiated by the respondent, arguing that there was no failure on their part to disclose material facts fully and truly. The petitioner cited several judgments, including Asoke Kumar Sen Vs. ITO, to assert that the "reasons to believe" must be based on reasonable grounds and not on mere suspicion. The petitioner contended that the reopening was a mere change of opinion and thus invalid.

2. Adequacy and Correctness of the Reasons to Believe:

The petitioner argued that the reasons recorded for reopening were not sufficient to induce a reasonable belief that income had escaped assessment. They emphasized that there was no fresh material that surfaced post the original assessment to justify the reopening. The petitioner cited the Supreme Court's judgment in ACIT Vs. ICICI Securities Primary Dealership Ltd., asserting that the reasons must have a live link with the formation of the belief.

3. Compliance with the Conditions Stipulated Under the Proviso Clause to Section 147:

The petitioner emphasized that both conditions under Section 147 must be satisfied for the reopening to be valid: (i) omission or failure to disclose fully and truly all material facts, and (ii) the AO having a reason to believe. They argued that neither condition was met in their case, as all material facts were disclosed during the original assessment.

4. Whether the Reopening Proceedings Amount to a Mere Change of Opinion:

The petitioner contended that the reopening was based on a mere change of opinion, which is not permissible under the law. They cited several judgments, including Indian and Eastern Newspaper Society Vs. Commissioner of Income-Tax, to support their argument that a reassessment based on a reappraisal of the same material is invalid.

5. The Requirement of Sanction Under Section 151(1) of the Income Tax Act:

The petitioner argued that no sanction was obtained from the Director of Income Tax/Commissioner of Income Tax as mandated under Section 151(1) of the Act, making the reopening proceedings invalid.

6. The Role of Tangible Material in Reopening Proceedings:

The court held that the availability of tangible material is sufficient for reopening assessments, especially when the reopening is beyond four years. The court noted that the Assessing Officer had "reason to believe" that income chargeable to tax had escaped assessment based on new tangible materials.

7. The Necessity for the Petitioner to Fully and Truly Disclose All Material Facts:

The court observed that the petitioner failed to disclose fully and truly all material facts necessary for the assessment. The court emphasized that mere production of books of accounts and materials is insufficient if the authorities form an opinion that tax has escaped assessment.

Conclusion:

The court dismissed the writ petition, holding that the reasons furnished for reopening were sufficient and that the petitioner must participate in the reopening proceedings to defend their case. The court emphasized that it is not within its purview to form an opinion on the findings to be made during the reassessment proceedings. The court's role is to ensure that the conditions and process adopted for reopening are in accordance with the law.

← Previous Next →