2022 (2) TMI 879 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - certain income, which are liable for payment of tax, has escaped the assessment and it warrants re-assessment - assessee had not disclosed fully and truly the material facts necessary for the completion of the assessment - whether there was no fresh material that came to the notice of the Assessing Officer? - HELD THAT - In the re-assessment order, it was merely stated that it was noticed that the assessee was allowed a deduction of ₹ 94,86,333/- as bad debts, wrongly. The assessment was therefore re-opened under Section 147 . This would stand testimony to the fact that the Assessing Officer has no tangible material evidence to initiate the re-assessment proceedings. Had there been any material evidence, which prompted the assessing officer to initiate re-assessment proceedings, he ought to have atleast indicated it in the order of reassessment proceedings. But the re-assessment proceedings was concluded only on the basis of the explanation offered by the assessee with respect to the suit filed against them before this Court and the Memorandum of Understanding entered into with M/s. Shree Aravindh Steel Private Limited. Therefore, it is evident that the re-assessment proceedings have been initiated without any tangible material evidence, unearthed subsequently, which the assessee did not produce at the time of original assessment u/s 143 (3) . Thus based on a change of opinion on the part of the Assessing Officer, the re-assessment proceedings were initiated. The Tribunal also held that there was no fresh material in the possession of the Assessing Officer warranting initiation of re-assessment proceedings under Section 147 - Tribunal is right in allowing the appeal filed by the assessee - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening assessment for the Assessment Year 1998-99 under Section 147 of the Income Tax Act.
2. Disclosure of material particulars by the assessee during the assessment proceedings.

Analysis:
1. Validity of Reopening Assessment:
The case involved a dispute regarding the reopening of the assessment for the Assessment Year 1998-99 under Section 147 of the Income Tax Act. The Assessing Officer initiated re-assessment proceedings based on the deduction of bad debts amounting to ?94,86,333, which was considered erroneous. The Tribunal held that the re-assessment proceedings were invalid as there was no fresh material justifying the reopening after a lapse of four years from the original assessment. The Tribunal emphasized the need for tangible material to establish income escapement for a valid reassessment. Citing the decision in CIT vs. Kelvinator of India Limited, the Tribunal concluded that the re-assessment proceedings were null and void ab initio due to the absence of fresh material, leading to the quashing of the re-assessment order.

2. Disclosure of Material Particulars:
The appellant contended that the assessee failed to disclose the dispute with M/s. Shree Aravindh Steel Limited over a sum of ?45.97 lakhs during the original assessment proceedings. The appellant argued that the Memorandum of Understanding entered into between the parties before the completion of the assessment justified the re-opening under Section 147. However, the Tribunal found that the re-assessment was solely based on a change of opinion by the Assessing Officer without any new material evidence. The Tribunal emphasized that the absence of fresh material at the time of re-assessment initiation rendered the proceedings invalid. The Tribunal's decision was supported by the Supreme Court's interpretation of Section 147, emphasizing the requirement of tangible material for income escapement to justify reassessment.

In conclusion, the High Court dismissed the Tax Case Appeal, upholding the Tribunal's decision that the re-assessment proceedings were invalid due to the lack of fresh material and the Assessing Officer's change of opinion. The Court ruled in favor of the assessee, emphasizing the importance of tangible evidence for justifying re-opening assessments under Section 147 of the Income Tax Act.