2022 (3) TMI 728 - HC - Income Tax

Reopening of assessment u/s 147 - Change of opinion - escapement of income premised on the lack of creditworthiness of JMPL and the consequent sham nature of the loan transaction was enquired into by the AO on as many as four occasions - As argued jurisdictional condition to reopen the assessment is not fulfilled as no income escaped assessment on account of failure to make a true and full disclosure of the material relevant for the assessment, on the part of the petitioner - HELD THAT - The information solicited by the Assessing Officer during the course of scrutiny assessment under section 143 of the Act, Mr. Mistri would urge, there is no room to allege that the income escaped assessment on account of the failure on the part of the assessee to disclose truly and fully all the relevant material. We are persuaded to hold that, in the facts of the case, the submission appears impeccable. Indisputably, the petitioner had disclosed the unsecured loan transaction of ₹ 75 Lakhs availed from JMPL. The petitioner had availed loan from multiple entities. This propelled the Assessing Officer to seek details of unsecured loans/deposits in a prescribed format. Not only the information was furnished by the petitioner but all the supporting documents were submitted. It can hardly be gainsaid that all the primary facts were placed before the Assessing Officer by the petitioner. Respondents made an endeavour to draw home the point that though the information and documents were furnished, yet the petitioner did not disclose all the relevant information. The genuineness of the transaction and the creditworthiness of the creditor could not be ascertained at that point of time, on account of non-disclosure of the relevant facts. The submission of Mr. Suresh Kumar that the information and documents so furnished did not equip the Assessing Officer to draw inference about the non-genuineness of the transaction and question the creditworthiness of the creditor, cuts the revenue's case in two ways. First, it implies an admission that all the primary facts were placed before the Assessing Officer. Second, the revenue's stand becomes vulnerable to the charge of change of opinion. The fact that in the assessment order under section 143(3), the Assessing Officer did not explicitly advert to the questions of non-genuineness of the transaction and the creditworthiness of the creditor does not carry the case of the revenue any further. What matters is the consideration of the issues at that point of time. Once the queries were raised and information solicited, an inference follows that the Assessing Officer considered those issues. The next submission on behalf of the petitioner that proposed reopening of the assessment suffers from the vice of 'change of opinion' also appears well founded. Evidently, the search action under section 132 of the Act, did not reveal any tangible material qua the transaction of unsecured loan from JMPL. In fact, the petitioner was called upon to explain the very transaction, in respect of which, during the course of scrutiny assessment, the then Assessing Officer had already solicited information and documents. Eventually, during the course of scrutiny assessment, the Assessing Officer having been satisfied with the explanation furnished by the petitioner, did not make any addition. In the course of the proceedings under section 153A also, the revenue did not claim that any incriminating material was found qua the transaction with JMPL. In this view of the matter, the reopening of the assessment on the premise that the creditor lacked the creditworthiness and thus the loan transaction was sham, is nothing but a change of opinion. The conspectus of the aforesaid consideration is that the jurisdictional condition to reopen the assessment is not made out. In any event, the exercise falls in the realm of 'change of opinion' with regard to the very same material. The petition, thus, deserves to be allowed.

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961.
2. Rejection of objections to the proposed reopening of assessment.
3. Fulfillment of jurisdictional conditions for reopening the assessment.
4. Alleged failure to make a true and full disclosure by the petitioner.
5. Alleged change of opinion by the Assessing Officer.
6. Independent application of mind by the Assessing Officer.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 18th March 2021 issued under section 148 of the Income Tax Act, 1961, asserting that the notice was based on an alleged reason to believe that income chargeable to tax had escaped assessment.

2. Rejection of Objections to the Proposed Reopening:
The petitioner’s objections to the reopening of the assessment were rejected by the respondent on 3rd September 2021. The objections were based on the grounds that the jurisdictional conditions for reopening the assessment were not fulfilled and that there was no failure to make a true and full disclosure of material facts.

3. Fulfillment of Jurisdictional Conditions for Reopening the Assessment:
The petitioner argued that the jurisdictional condition to reopen the assessment was not fulfilled as no income had escaped assessment due to any failure on the part of the petitioner to make a true and full disclosure of material facts. The assessment was proposed to be reopened beyond four years from the end of the assessment year 2013-14, and in the absence of satisfaction on the part of the Assessing Officer regarding the failure to make such full and true disclosure, the assumption of jurisdiction was legally unsustainable.

4. Alleged Failure to Make a True and Full Disclosure:
The respondents contended that the income escaped assessment solely due to the petitioner’s failure to make a full and true disclosure of material facts, particularly regarding the identity and creditworthiness of the lender and the genuineness of the transaction. The respondents argued that the lack of creditworthiness and the non-genuine nature of the loan transaction could only be ascertained post-search action under section 132 of the Act.

5. Alleged Change of Opinion by the Assessing Officer:
The petitioner asserted that the issue of creditworthiness of the creditors and the genuineness of the transaction was already considered during the original assessment, and thus, the reopening of the assessment was barred as it fell within the realm of a change of opinion, which is legally impermissible. The court noted that the petitioner had disclosed the unsecured loan transaction and furnished all supporting documents during the original assessment. The court found that the Assessing Officer had considered these issues during the original assessment, and thus, the reopening of the assessment was indeed an outcome of a change of opinion.

6. Independent Application of Mind by the Assessing Officer:
The petitioner argued that there was no independent application of mind by the Assessing Officer as the reopening was based merely on information received from the Investigation Wing of the department. The court observed that the Assessing Officer had solicited information and documents regarding the unsecured loans during the original assessment and had considered the issues of genuineness and creditworthiness at that time.

Conclusion:
The court concluded that the jurisdictional condition to reopen the assessment was not made out, and the exercise fell within the realm of a change of opinion with regard to the same material. Therefore, the petition was allowed, and the impugned notice dated 18th March 2021 and the impugned order dated 3rd September 2021 were quashed and set aside. No costs were awarded.

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