2023 (1) TMI 181 - HC - Income Tax

Reopening of assessment u/s 147 - sufficiency or inadequacy of reasons - suppression or withholding of information by the assessee at the time of framing of the assessment or during the assessment proceedings - Whether the notice dated 29.03.2018 issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2011-12 is liable to be quashed or sustained? - HELD THAT - There is no whisper in the impugned order as regards any failure on the part of petitioner to disclose fully and truly all material facts and as such it is not possible for this Court to infer any such failure on the part of the assessee from the reasons recorded. Petitioner had made adequate disclosures during assessment proceedings which is now sought to be reopened and particularly with reference to ground Nos.1 and 2 on which the respondent authority has proposed to reopen the assessment. The first three grounds on which the Assessing Officer has proposed to reopen the assessment as could be discerned from the assessment order, was part of the scrutiny during the assessment and Assessing Officer having consciously taken a particular decision, the change of opinion cannot form the basis for reopening the assessment that too based on same set of facts. In fact, it would be apt and appropriate to note at this juncture that during the course of the assessment proceedings, assessee has submitted three communications with reference to the first three issues based on which the assessment is sought to be reopened by highlighting the facts as more specifically stated therein which has gone into the decision making process at the time of passing assessment orders or in other words, the Assessing Officer took note of these facts and has formed an opinion, which opinion is now sought to be substituted and made as a ground for reopening of the assessment which is impermissible as change of opinion cannot be the basis for reopening the assessment. We are of the considered view that prayer sought for in the petition deserves to be granted by answering the point formulated hereinabove in favour of the assessee and against the Revenue.

Summary

Issues Involved:
1. Legality and validity of the impugned notice dated 29.03.2018 under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings are justified based on the reasons provided by the Assessing Officer (AO).
3. Applicability of the provisions under Section 147 and 148 of the Income Tax Act.
4. Alleged non-application of mind by the AO in dealing with the objections raised by the petitioner.
5. Whether the reassessment proceedings are barred by limitation.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Impugned Notice:
The petitioner challenged the notice dated 29.03.2018 under Section 148 of the Income Tax Act, seeking its quashing. The petitioner argued that the notice was issued without proper application of mind and was beyond the permissible period of four years. The court observed that the AO had failed to deal with specific objections raised by the petitioner and acted mechanically, which indicated non-application of mind. The court held that the impugned notice and the order disposing of objections were bad in law and illegal.

2. Justification of Reassessment Proceedings:
The petitioner contended that the reasons for reopening the assessment were not germane to law and factually incorrect. The court examined the reasons provided by the AO for reopening the assessment, which included non-deduction of TDS, incorrect accounting of VAT and service tax, and improper claim of MAT credit. The court found that the petitioner had provided detailed explanations and supporting documents for each issue, which were not properly considered by the AO. The court concluded that the reasons for reopening were not sufficient and the reassessment proceedings were unjustified.

3. Applicability of Provisions under Section 147 and 148:
The court noted that for reopening an assessment under Section 147, the AO must have a reason to believe that income has escaped assessment due to the failure of the assessee to disclose fully and truly all material facts. The court found that the AO's reasons for reopening the assessment were based on borrowed opinions and lacked independent application of mind. The court held that the conditions precedent for reopening the assessment were not satisfied, making the reassessment proceedings impermissible.

4. Non-application of Mind by the AO:
The petitioner argued that the AO disposed of the objections in a stereotypical manner without applying mind. The court observed that the AO's order merely reproduced the reasons for reopening without independently examining the objections and supporting documents provided by the petitioner. The court held that the AO's action reflected non-application of mind and was perverse, warranting the quashing of the impugned notice and order.

5. Limitation for Reassessment Proceedings:
The petitioner contended that the reassessment proceedings were initiated beyond the permissible period of four years. The court noted that the relevant period ended on 31.03.2016, whereas the notice was issued on 29.03.2018, beyond the four-year limitation period. The court held that the reassessment proceedings were barred by limitation and impermissible under the provisions of the Act.

Conclusion:
The court concluded that the impugned notice dated 29.03.2018 and the order dated 25.10.2018 were illegal, suffering from non-application of mind, and barred by limitation. The court quashed the notice and the consequential proceedings, allowing the petition in favor of the petitioner.