2022 (5) TMI 176 - HC - Income Tax

Reopening of assessment u/s 147 - Eligibility of reasons to believe - HELD THAT - In the present case, it is evident from the reasons recorded for reopening that the petitioner had truly and fully disclosed all material facts necessary for the purpose of assessment. In fact, in the reasons for reopening, there is not even a whisper as to what was not disclosed. Assessing Officer has relied upon the records filed by petitioner including the profit and loss account and balance-sheet and says from those records it is revealed that there is closing stock in trade of Rs.33,49,89,003/-. Therefore, the respondent No.1 is relying upon the same primary facts which were before the AO who concluded the assessment proceedings to take a different view. In our view, this is not a case where the assessment is sought to be reopened on the reasonable belief that income had escaped assessment on account of failure of assessee to disclose truly and fully all material facts that were necessary for computation of income but this is a case wherein the assessment sought to be reopened on account of change of opinion of the Assessing Officer about the manner of computation. In view of proviso to section 147 of the Act, the same is not permissible. Appeal of assessee allowed.

Summary

Issues:
1. Validity of notice under section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year (A.Y.) 2014-15.
2. Compliance with the proviso to section 147 of the Act regarding the requirement of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
3. Whether the reassessment is based on new information or a mere change of opinion.
4. Interpretation of the decision of the Delhi High Court in CIT vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 regarding the obligation to offer to tax notional rental income on closing stock-in-trade.

Analysis:
1. The petitioner, a registered partnership firm engaged in construction, filed its original return of income for A.Y. 2014-2015, declaring total income. The return was selected for scrutiny assessment, and the assessment order was passed under section 143(3) of the Act after examining all details furnished by the petitioner.
2. The respondent issued a notice under section 148 of the Act seeking to reopen the assessment, alleging that income chargeable to tax had escaped assessment due to the petitioner's failure to offer notional rental income on closing stock-in-trade. The petitioner contended that there was no failure on their part to disclose all material facts necessary for assessment.
3. The petitioner argued that the reassessment was impermissible as it was based on the same material facts available during the original assessment, amounting to a change of opinion. The proviso to section 147 was cited, emphasizing the requirement of failure to disclose material facts for initiating reassessment after the expiry of four years from the relevant assessment year.
4. The respondent justified the reopening based on the Delhi High Court decision, stating that the petitioner was obligated to offer notional rental income on closing stock-in-trade. However, the court found that the reassessment was not based on new information but on a change of opinion, which was impermissible under the proviso to section 147.
5. Citing the decision in Ananta Landmark Pvt. Ltd. vs. Deputy Commissioner of Income Tax, the court held that the Assessing Officer cannot review an assessment after the lapse of four years without disclosing tangible material indicating an escapement of income due to failure to fully and truly disclose material facts. Consequently, the court allowed the petition, quashing the notice for reopening the assessment and the order on objections.

Overall, the court ruled in favor of the petitioner, emphasizing the importance of disclosing all material facts and prohibiting reassessment based on a mere change of opinion without new information.