2022 (1) TMI 377 - HC - Income Tax

Reopening of assessment u/s 147 - assessment as proposed after expiry of period of 4 years - eligibility of reasons to believe - power of AO to review an assessment which has been concluded - Change of opinion - assessment of firm u/s 184 - HELD THAT - As in the reasons to believe in the present case, we do not find even a single ground which can be considered to be tangible basis for re-opening the assessment or conclude that there has been failure to disclose any material fact. AO states that from the partnership deed, audited accounts and Form No.3CD report, it is seen that that the Assessee has 15 partners, one of whom is Dhansukh Nanda HUF. According to the AO, an HUF cannot become a partner of a firm or enter into a contract with other person and hence the Assessee has not complied with the provisions of Section 184 of the Act and the amount and remuneration paid to partners, aggregating cannot be considered for deduction. This is a clear case of change of opinion because petitioner had, before the original assessment order was passed, filed Form No.3CD in which Dhansukh Nanda HUF is shown as a partner with 10% profit sharing ratio. Form No.3CD also indicates that a sum of ₹ 1,94,826/- has been paid as interest to Dhansukh Nanda (HUF). These materials were on the face of a document available before the Assessing Officer who passed the original Assessing Order dated 27/01/2015. Mr. Walve states that in the original Assessment Order, there is no mention about Dhansukh Nanda HUF and therefore it is likely that the original Assessing Officer has failed to note that one of the partners in petitioner firm was an HUF. We do not agree with Mr. Walve because if Assessment Order does not speak about this, we would consider it as having been accepted by the Assessing Officer who passed the original Assessment Order that it was perfectly okay for an HUF to be a partner in petitioner firm. We would hasten to add that we are not for a moment opining whether an HUF can be a partner in a firm under the provisions of Indian Parnership Act, 1932. This is a clear case of change of opinion. There is also nothing to indicate any failure on the part of petitioner to disclose any material fact. Hence, we do not propose to go into the issue as to whether the stand of respondent that petitioner has not complied with provisions of Section 184 of the Act is correct. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice dated 27/03/2019 issued under Section 148 of the Income Tax Act, 1961.
2. Compliance with the mandatory period of 4 weeks prescribed in the judgment of Asian Paints Ltd. v/s. Deputy Commissioner of Income Tax.
3. Whether there was a failure on the part of the petitioner to disclose material facts.
4. Consideration of whether an HUF can be a partner in a firm under the provisions of Indian Partnership Act, 1932.

Issue 1: Validity of Notice dated 27/03/2019 under Section 148:
The petitioner challenged a notice dated 27/03/2019 issued under Section 148 of the Income Tax Act, 1961. The Court examined the reasons for re-opening the assessment provided in a communication dated 07/06/2019. It was noted that the Assessing Officer must have tangible material to show an escapement of income and a failure to disclose material facts. However, the Court found no tangible basis in the reasons provided for re-opening the assessment. The Assessing Officer's contention regarding an HUF being a partner in the firm was deemed a clear case of change of opinion, as the information was available before the original assessment order was passed.

Issue 2: Compliance with Mandatory Period of 4 Weeks:
The Assessment Order and notice of demand dated 09/12/2019 were passed without waiting for the mandatory period of 4 weeks as prescribed in the Asian Paints Ltd. judgment. The Officer who passed the Assessment Order expressed ignorance of the judgment and tendered an apology. The Court accepted the apology and considered the Assessment Order and notice of demand as withdrawn.

Issue 3: Failure to Disclose Material Facts:
The Assessing Officer contended that the petitioner had not complied with the provisions of Section 184 of the Act regarding a partner being an HUF. However, the Court found this to be a case of change of opinion as the information was available before the original assessment order. There was no failure on the part of the petitioner to disclose material facts, and the Court did not delve into the issue of compliance with Section 184.

Issue 4: HUF as a Partner in a Firm:
The Court addressed the question of whether an HUF can be a partner in a firm under the Indian Partnership Act, 1932. While not opining on this matter, the Court emphasized that the original Assessment Order's silence on this issue indicated acceptance by the Assessing Officer that an HUF could be a partner in the firm.

In conclusion, the Court allowed the petition and issued a Writ of Certiorari to quash and set aside the notice under Section 148 dated 27/03/2019, the subsequent order disposing of the petitioner's objections, and the assessment order and notice of demand dated 09/12/2019.