2022 (1) TMI 378 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - eligibility of reasons to believe - change of opinion - Disallowance u/s 14A r.w.r. 8D - HELD THAT - Re-opening of assessment is based on the very same material which has been considered before the original Assessing Order was passed, with a view to take another view - petitioner by its letter dated 05/01/2015, had informed the Assessing Officer that the average value of equity investment was ₹ 239.29 crores against the average net worth of the Company of ₹ 795 crores. AO who passed the original Assessment Order, had all primary facts necessary for assessment and he is supposed to have considered all these points when he passed the Assessment Order. Also on change of opinion, assessment cannot be re-opened and in any event, even if we, for a moment, agree with the contents of the reason that the average value of investment was adopted at ₹ 21.79 crores as against ₹ 239.29 crores, still there is a bar under section 147 of the Act as then prevailing to re-open assessment after a period of 4 years where the assessment order has been passed under sub-section 3 of section 143 unless any income chargeable to tax, has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. As in this case, it is not even prima facie the case of the Assessing Officer that there was failure on part of petitioner to fully and truly disclose all material facts, this Court has to interfere by exercising its jurisdiction under Article 226 of the Constitution of India. - Decided in favour of assessee.

Summary

Issues:
1. Re-opening of assessment under section 147 and 148 of the Act after the expiry of the relevant assessment year.
2. Failure on the part of the petitioner to disclose fully and truly material facts necessary for assessment.
3. Validity of the reasons for re-opening the assessment.
4. Application of the proviso to Section 147 regarding the time limit for re-opening assessments.
5. Jurisdiction of the High Court under Article 226 of the Constitution of India.

Analysis:

Re-opening of assessment under section 147 and 148 of the Act after the expiry of the relevant assessment year:
The petitioner, a non-banking finance company, filed its e-return of income and the case was selected for scrutiny. The Assessing Officer made disallowances under section 14A of the Act, and the total income was determined. Subsequently, the assessment was re-opened after more than 4 years from the relevant assessment year. The proviso to Section 147 was invoked, shifting the burden to the Respondent to establish a failure on the part of the petitioner to disclose material facts required for assessment.

Failure on the part of the petitioner to disclose fully and truly material facts necessary for assessment:
The Respondent failed to demonstrate any failure on the part of the petitioner to disclose material facts necessary for assessment. The Court noted that the Assessing Officer had all primary facts available during the original assessment and that the re-opening was based on the same material without any new disclosure by the petitioner. The Court emphasized that re-opening assessments based on a change of opinion is impermissible, and in this case, there was no indication of any failure to disclose material facts by the petitioner.

Validity of the reasons for re-opening the assessment:
The Court scrutinized the reasons for re-opening and found that the Respondents did not disclose any material fact that the petitioner had failed to disclose earlier. The reasons provided were based on information already available during the original assessment, indicating a mere change in viewpoint without any new undisclosed facts by the petitioner.

Application of the proviso to Section 147 regarding the time limit for re-opening assessments:
The Court highlighted that under Section 147, re-opening assessments after 4 years from the original assessment is permissible only if income chargeable to tax has escaped assessment due to the assessee's failure to fully and truly disclose all material facts. Since there was no prima facie case of such failure in this instance, the re-opening of the assessment was deemed impermissible.

Jurisdiction of the High Court under Article 226 of the Constitution of India:
The High Court exercised its jurisdiction under Article 226 and allowed the petition, quashing the notice for re-opening the assessment and the subsequent order. The Court held that since there was no failure on the part of the petitioner to disclose material facts, the re-opening of the assessment was beyond the jurisdictional restraints imposed by the law.

In conclusion, the High Court's judgment emphasized the importance of establishing a failure on the part of the assessee to disclose material facts for validly re-opening assessments under Section 147 and 148 of the Act, ultimately ruling in favor of the petitioner due to the absence of such failure in this case.