2022 (6) TMI 806 - HC - Income Tax

Reopening of assessment u/s 147 - Eligibility of reasons to believe - change of opinion - HELD THAT - The two fundamental errors can be noticed. Firstly, by notice dated 29 March 2004 the assessment in respect of year 1997-98 was sought to be reopened, however, there is not even an assertion that there is failure on the part of the Petitioner to disclose fully and truly all material facts which is a mandatory requirement for the Respondent to assume jurisdiction. Secondly, the Respondent No.1 seems to proceed on the ground that the Petitioner has applied wrong method in respect of depreciation. This is a clear change of opinion. There is absolutely no failure on the part of the Petitioner to disclose the facts. Therefore, in the light of settled law governing exercise of powers under Sections 147 and 148 of the Act, the Petitioner is entitled to succeed.

Summary

Issues:
Challenging notice under Section 148 of the Income Tax Act, 1961 and order disposing of objections raised by the Petitioner.

Analysis:
The Petitioner, a Private Limited Company engaged in manufacturing and export of gold jewellery, filed a return of income in 1997 declaring total income at Rs. Nil after claiming depreciation on a straight-line method. An assessment order was issued in 1999 after scrutiny. However, in 2004, Respondent No.1 issued a notice under Section 148 proposing to reassess the income for the assessment year 1997-98. The Petitioner requested to treat the original return as a response to the notice. Objections were raised and rejected in 2005, leading to the present petition challenging the notice and order.

The reasons supplied for reassessment included the writing back of depreciation in earlier years, claimed as exempt under Section 10A of the Act. The notice alleged a failure to apply the correct method for depreciation, indicating an income of Rs. 3,65,619/- had escaped assessment. However, it was argued that there was no failure to disclose all material facts, a mandatory requirement for assuming jurisdiction under Section 147. The Petitioner's use of the straight-line method was deemed a clear change of opinion by Respondent No.1. As per established law, without a failure to disclose facts, the Petitioner was entitled to succeed in challenging the reassessment.

The Court found in favor of the Petitioner, making the rule absolute in terms of the prayer clauses challenging the notice and order. No costs were awarded in the judgment.