2022 (2) TMI 882 - HC - Income Tax

Validity of reopening of assessment u/s 147 - Eligibility of reasons to believe - HELD THAT - One thing is very clear from the reasons recorded that there is nothing to indicate that there was non disclosure by the assessee of any material facts. Since the reasons do not indicate the failure on the part of assessee to disclose fully and truly all material facts, on this ground alone, the impugned notice dated 23rd March, 2021 has to be quashed and set aside. Assessing Officer has issued notice before passing assessment order to which Petitioner has responded providing all documents including the share purchase agreement and the Assessing Officer has passed the assessment order accepting the returned income. Therefore, this issue has also been discussed and considered by the Assessing Officer before passing assessment order. To reopen an assessment based on the same material to take a different view, is not permissible as held time and again by various Courts. In the circumstances, we have no hesitation in holding that the impugned notice dated 23rd March, 2021 requires to be quashed and set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income Tax Act, 1961.
2. Requirement of disclosing material facts by the assessee.
3. Applicability of the Punjab & Haryana High Court decision on the nature of income.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessment under Section 147 of the Income Tax Act, 1961:

The petitioner challenged the reopening of the assessment under Section 147 of the Income Tax Act, 1961, arguing that the reopening was barred by the proviso to Section 147 since it was initiated more than four years after the expiry of the relevant assessment year. The court noted that for the Assessing Officer (AO) to assume jurisdiction under Section 147, two conditions must be satisfied:

- The AO must have reason to believe that income chargeable to tax had escaped assessment.
- The AO must also have reason to believe that such escapement occurred due to the omission or failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment.

The court found that the reasons recorded for reopening did not indicate any failure on the part of the assessee to disclose material facts. The entire basis for reopening was a change in the interpretation of the nature of the transaction (from capital gains to business income) based on a decision by the Punjab & Haryana High Court. The court held that reopening on the same material to take a different view is not permissible.

2. Requirement of Disclosing Material Facts by the Assessee:

The court emphasized that the duty of the assessee is to disclose fully and truly all primary facts necessary for the assessment. Once the primary facts are disclosed, it is the AO's responsibility to draw inferences and determine the tax implications. The court referred to the Supreme Court's judgment in Calcutta Discount Co. Ltd. vs. Income Tax Officer, which clarified that the duty of the assessee does not extend beyond disclosing primary facts. The court found that the petitioner had disclosed all primary facts, including the share purchase agreement and other relevant documents, during the original assessment proceedings.

3. Applicability of the Punjab & Haryana High Court Decision on the Nature of Income:

The AO sought to reopen the assessment based on the Punjab & Haryana High Court's decision in Sumeet Taneja vs. CIT, which held that certain share transactions should be treated as business income rather than capital gains. The court noted that this decision was available before the original assessment order was passed, and the AO had all the material facts before him. The court held that the AO cannot reopen the assessment to remedy an error resulting from his own oversight, as established in the Supreme Court's judgment in Gemini Leather Stores vs. Income Tax Officer.

Conclusion:

The court quashed and set aside the impugned notice dated 23rd March 2021, and the order dated 15th December 2021, on the grounds that there was no failure on the part of the assessee to disclose material facts, and the reopening was based on a change of opinion, which is not permissible. The petition was disposed of in terms of prayer clause (a), and no order as to costs was made.