2022 (2) TMI 1038 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - notice beyond period of four years - eligibility of reasons to believe - Addition of expenses towards leased assets repurchase - HELD THAT - The reasons recorded by the Assessing Officer,singularly lack the element of satisfaction recorded by the Assessing Officer that the escapement of income was on account of the failure on the part of the petitioner to make a true and full disclosure. Nay, there is no assertion that there was a failure to disclose on the part of the petitioner. the causal connection between alleged escapement and failure to disclose is simply non-existent. The petitioner had made a full and true disclosure of the material, which forms the basis of the alleged reasons to believe escapement of income, and there was also a conscious consideration of the said material by the Assessing Officer during the course of scrutiny assessment under Section 143(3) of the Act, 1961, also appears to be borne out by the material on record. Expenses towards leased assets repurchase - The situation which is obvious is that during the course of the scrutiny assessment under Section 143(3) of the Act, 1961, the Assessing Officer had made specific query as regards leased assets repurchase expenses and solicited explanation and documents. In compliance thereto, the petitioner furnished the requisite information and documents. It is true that in the assessment order dated 18th December, 2008, the Assessing Officer did not specifically advert to the said aspect of the matter and in terms record that the explanation so furnished was accepted and allowance upheld. However, this factor is not of decisive significance. It is trite law that once a query is raised and the assessee furnishes explanation thereto, the Assessing Officer is presumed to have applied his mind to the question so raised and the fact that the Assessing Officer had not specifically dealt with the said aspect in the assessment order does not justify an inference that the Assessing Officer did not consider the same. On the contrary, it would be justifiable to assume that the Assessing Officer was satisfied with the explanation so furnished by the assessee. Once it becomes evident that the Assessing Officer had raised the query and reply thereto was furnished by the assessee, the endeavour on the part of the revenue to reopen the assessment is fraught with two infirmities. One, it cannot be said that the income escaped assessment on account of failure to make a true and full disclosure of the material facts (in cases where the proviso operates). Two, the exercise would then fall in the realm of mere change of opinion on the basis of the very same material, which is legally impermissible. Further, it cannot be said that there is a tangible material which would justify recourse to the provisions contained in Section 147 Non-application of mind - The second leg of the alleged escapement of income to the tune of ₹ 1,78,05,149/- towards assets written off (irregular spares) , is not at all borne out by the material on record. The claim of the petitioner that in the return submitted by the petitioner, the said amount of ₹ 1,78,05,149/- came to be added back, finds support in the computation of income submitted along with the tax audit report. Evidently, the Assessing Officer had not at all adverted to the fact that the petitioner had not claimed the said amount of ₹ 1,78,05,149/- as deduction towards the revenue expenses. Failure to take cognizance of the fact that the said amount of ₹ 1,78,05,149/- came to be added back as income erodes not only the sanctity of the reasons recorded by the Assessing Officer but also the sanction accorded by the Principal Commissioner, under Section 151 of the Act, 1961. As contextually relevant to note that the rejection of the objections to the reopening also suffers from a familiar error, which the notices for reopening usually manifest. The Assessing Officer in the impugned order recorded that though the details of the expenses were called for and brought on record, no further inquiry regarding the expenses was conducted and, thus, the Assessing Officer (during the course of the scrutiny assessment) cannot be said to have applied his mind and recorded a finding as to the allowability or otherwise of the said expenses. These reasons betray a clear change of opinion on the same material. Thus the impugned notice under Section 148 and the consequent action are required to be quashed - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality and validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Non-application of mind by the Assessing Officer.
3. Jurisdictional conditions for invoking Section 147 of the Income Tax Act, 1961.
4. Alleged failure to disclose material facts.
5. Change of opinion by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Notice under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 25th February 2013, issued under Section 148 of the Income Tax Act, 1961, and the subsequent order dated 17th February 2014, rejecting the objections to reopening the assessment for the Assessment Year 2006-2007. The primary ground of challenge was the absence of material to form the "reason to believe" that income chargeable to tax had escaped assessment.

2. Non-application of Mind by the Assessing Officer:
The petitioner argued that the notice suffered from clear non-application of mind. Specifically, the Assessing Officer failed to recognize that an amount of ?1,78,05,149/- was added back to the computation of income by the petitioner itself, and no deduction was claimed on this count. The court found merit in this argument, noting that the Assessing Officer did not consider the fact that the petitioner had not claimed the amount as a deduction, which eroded the validity of the reasons recorded for reopening the assessment.

3. Jurisdictional Conditions for Invoking Section 147 of the Income Tax Act, 1961:
The court emphasized that for reopening an assessment beyond four years, the first proviso to Section 147 required the Assessing Officer to record that the escapement of income was due to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found that the reasons recorded by the Assessing Officer lacked this essential element of satisfaction, thereby failing to meet the jurisdictional conditions for invoking Section 147.

4. Alleged Failure to Disclose Material Facts:
The court examined whether the petitioner had failed to disclose material facts necessary for the assessment. It was evident that during the original assessment proceedings, the petitioner had provided detailed information and explanations regarding the expenses in question. The court concluded that the petitioner had made a full and true disclosure of the material facts, and the Assessing Officer had considered these facts during the scrutiny assessment under Section 143(3).

5. Change of Opinion by the Assessing Officer:
The court addressed the issue of whether the reopening of the assessment was based on a mere change of opinion. It was noted that the Assessing Officer had raised specific queries during the original assessment, and the petitioner had furnished the requisite information and documents. The court held that the attempt to reopen the assessment was based on the same material, which constituted a change of opinion. This was legally impermissible, as it did not involve any "tangible material" justifying the reopening.

Conclusion:
The court quashed and set aside the impugned notice under Section 148 and the consequent actions. The petition was allowed, and the rule was made absolute. No costs were awarded. The judgment highlighted the importance of adhering to the jurisdictional conditions for reopening assessments and the impermissibility of reopening based on a mere change of opinion.