2023 (2) TMI 927 - HC - Income Tax

Reopening of assessment u/s 147 - reopening beyond the period of four years - reasons to believe - whether the jurisdictional pre-conditions envisaged u/s 147 as was applicable to the present case, before its substitution by way of Finance Act, 2021 with effect from 1st April 2021 had been fulfilled, and if not, whether the reassessment proceedings could be said to be bad on account of change of opinion? - HELD THAT - Section 147 of the Act empowers the AO to assess or re-assess an income if he has reasons to believe that such income has escaped assessment, subject to the provisions of section 148 to 153. The first Proviso to the said section, however, envisages, inter-alia that where an assessment under section 143(3) has been made, no action shall be taken after the expiry of period of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such year by reason of the failure on the part of the assessee as to make a return under section 139, or in response to the notice u/s 142(1) or section 148 as to disclose fully and truly all material facts necessary for its assessment for that assessment year. Since this is a case of reopening beyond the period of four years, AO was to satisfy the jurisdictional conditions on both counts, i.e., reason to believe and failure to disclose fully and truly the material facts . It is a settled principle of law that the jurisdiction exercised u/s 147 by an AO has to be tested on the touchstone of the reasons recorded, which can neither be improved subsequently nor added in the reply or in the subsequent pleadings. Admittedly, this was a case where an order of assessment under section 143(3) had been passed for the relevant assessment year. As per the ratio of the judgment in Hindustan Lever Ltd. V/s. R. B. Wadkar, Assistant Commissioner of Income-Tax and Ors. 2004 (2) TMI 41 - BOMBAY HIGH COURT AO was obliged to disclose as to which fact or material was not disclosed by the Assessee fully and truly for the purposes of assessment of that assessment year so as to establish a vital linkage between the reasons and the evidence. In the present case, the jurisdictional condition has not been satisfied by the AO, except having made a bald statement that the material facts were not disclosed fully and truly. Shelter is sought to be taken by the AO in the reasons recorded that although the assessee had produced books of account, annual reports and audited profit and loss account as also the balance-sheet etc., the relevant material or facts were so embedded therein that they could not have been discovered by the AO despite due diligence. AO has failed to establish that there was any failure on the part of the assessee to disclose fully and truly any material fact in the present case. As all the relevant facts had not only been disclosed, as stated in the preceding paragraphs, but had also been considered by the AO, while considering the claim of deduction under section 35(2AB) in the order of assessment. Apart from this, the impugned notice has been issued without there being any tangible material with the AO as he clearly relied upon the material which was already on record. No information was received by the AO between the date of the order of assessment under section 143(3) and the issuance of the notice under section 148 - This is clearly impermissible in terms of the ratio of the judgment in the case of Jindal Photo Films Ltd. 1998 (5) TMI 20 - DELHI HIGH COURT as being a case of mere change of opinion which does not provide jurisdiction to the AO to initiate proceedings under section 147. Decided in favour of assessee.

Summary

Issues:
1. Legality of Notice dated 30th March 2021 under section 148 of the Income Tax Act, 1961 for reopening assessment for the assessment year 2015-16.
2. Validity of the order dated 21st July 2022 disposing of objections to the reopening of assessment.

Analysis:

Issue 1:
The petitioner challenged the legality of a Notice dated 30th March 2021 seeking to reopen the assessment for the assessment year 2015-16 under section 148 of the Income Tax Act, 1961. The Notice was based on the ground that income chargeable to tax had escaped assessment due to the failure of the assessee to disclose fully and truly all material facts necessary for assessment. The Assessing Officer (AO) argued that even though the assessee had produced various documents, the material facts necessary for assessment were not fully disclosed. However, the Court found that the AO failed to establish any failure on the part of the assessee to disclose material facts. The Court emphasized that all relevant facts had been disclosed and considered by the AO during the assessment. Additionally, the Notice was issued without any new tangible material, constituting a mere change of opinion, which does not provide jurisdiction to initiate proceedings under section 147 of the Act.

Issue 2:
The objections filed by the assessee to the proposed reopening of assessment were rejected by the order dated 21st February 2022. The petitioner contended that the notice and the order were unsustainable as the assessee had made full disclosure of all material facts necessary for assessment. The Assessing Officer's view was supported by the revenue counsel. The Court held that since the jurisdictional pre-conditions under section 147 of the Act were not fulfilled, the reassessment proceedings were deemed bad due to a change of opinion. The Court referred to the requirement that the AO must disclose which fact or material was not fully and truly disclosed by the assessee for the assessment year to establish a vital linkage between the reasons and the evidence. As the AO failed to satisfy the jurisdictional conditions, the impugned notice and order were held to be unsustainable and were set aside.

In conclusion, the Court allowed the petition, ruling that the Notice dated 30th March 2021 and the order dated 21st February 2022 were unsustainable and set them aside, as the jurisdictional pre-conditions under section 147 of the Act were not fulfilled, and the reassessment proceedings were deemed bad due to a change of opinion.