2023 (3) TMI 418 - HC - Income Tax

Reopening of assessment u/s 147 - reasons to believe - tangible material with the AO justifying reopening of the assessment - set off of the long-term capital loss against the long-term capital gain of the current year could not have been allowed while taxing the long-term capital gain - HELD THAT - In the case of ITO v/s. Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT the Supreme Court held that the duty of the assessee does not extend beyond making a true and full disclosure of the primary facts. Once he has done that his duty ends, it is for the Income Tax Officer to draw the correct inference through primary facts. It is not responsibility of the assessee to advise the Income Tax Officer with regard to the inference which he should draw from the primary facts. If the Income Tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. As based upon the reasons recorded, one needs to scrutinize whether there was any tangible material with the Assessing Officer justifying reopening of the assessment or can it be said to be a case of review and change of opinion by the said officer. On the perusal of the papers and the reasons mentioned in the notice for reopening we find that AO has not mentioned what was the new tangible material to justify the reopening and what was the material fact which was not truly and fully disclosed. In the absence of any new tangible material available with the Assessing Officer, and in view of the fact that there is a general presumption that an order of assessment u/s 143(3) has been passed after proper application of mind and considering the fact that in the present case, the AO had sought clarification with regard to the details of sale of property and transfer of shares, details whereof were submitted during the course of the proceedings, it certainly goes to show that the issue with regard to transactions with all parties had been gone into by the said AO. There is no failure on the part of the petitioner to disclose any material facts and consequently the reopening is invalid in view of the proviso of Section 147 of the IT Act. In this regard reliance is placed on Tata Sons 2022 (2) TMI 496 - BOMBAY HIGH COURT where the Court held that when there is a discretion in the assessment order connected with the issue for which the reassessment is initiated, the reopening was struck down as being without jurisdiction on the ground of change of opinion - once the facts and claims were enquired into during the original assessment, a notice on the same would be construed as a change of opinion, for the purposes of reopening of the assessment. In the present case, the petitioner has disclosed all the primary facts to the respondent as can be evinced from the responses to the original proceedings. We are, accordingly, of the opinion that the original assessment was completed with, after having considered all the facts and material. Thus the impugned notice u/s 148 and assessment order passed u/s 143 (3) r.w.s. 147 are quashed and set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act.
2. Alleged failure to disclose material facts by the petitioner.
3. Whether the reopening of the assessment was based on a change of opinion.
4. Adequacy of the reasons provided for reopening the assessment.
5. Compliance with procedural requirements for reopening the assessment.

Detailed Analysis:

1. Validity of the Notice under Section 148 of the Income Tax Act:
The petitioner challenged the notice dated 31st March 2021 under Section 148 of the Income Tax Act, asserting that the reopening of the assessment was based on a change of opinion. The petitioner argued that the assessment order passed under Section 143(3) r.w.s. 147 on 31st March 2022, which rejected the set-off of the current year's long-term capital loss against long-term capital gain, was invalid. The court found merit in the petitioner's argument, concluding that the reopening was indeed based on a change of opinion, as all material facts had been disclosed during the original assessment.

2. Alleged Failure to Disclose Material Facts by the Petitioner:
The respondent contended that the petitioner failed to disclose fully and truly all material facts necessary for the assessment, justifying the reopening. However, the court noted that the petitioner had provided all required details during the original assessment proceedings, including responses to notices and queries from the Assessing Officer (AO). The court referenced the Supreme Court's ruling in ITO v/s. Lakhmani Mewal Das, emphasizing that the duty of the assessee is to make a true and full disclosure of primary facts, and it is the AO's responsibility to draw correct inferences from those facts.

3. Whether the Reopening of the Assessment was Based on a Change of Opinion:
The petitioner argued that the reopening was based on a change of opinion, as the AO had already considered the long-term capital loss during the original assessment. The court agreed, citing the case of Kelvinator of India Limited, which established that a presumption of application of mind is raised when a regular order of assessment is passed under Section 143(3). The court found no new tangible material to justify the reopening, indicating that the AO was merely reviewing the earlier order.

4. Adequacy of the Reasons Provided for Reopening the Assessment:
The court scrutinized the reasons provided for reopening the assessment and found that they were based on verification of case records and material already on record. The court cited the case of Ananta Landmark (P.) Ltd., emphasizing that the AO must mention the tangible material justifying the reopening and the material fact not fully disclosed by the assessee. The court concluded that the AO failed to provide new tangible material, reinforcing that the reopening was unjustified.

5. Compliance with Procedural Requirements for Reopening the Assessment:
The petitioner argued that the respondent failed to furnish the approval of the Principal Commissioner of Income Tax (Pr. CIT) as required under Section 151 before issuing the notice under Section 148. The respondent countered that the objections raised by the petitioner were duly disposed of. The court found that the procedural requirements were not adequately met, particularly the failure to show new tangible material and the reliance on previously disclosed facts.

Conclusion:
The court concluded that the reopening of the assessment was invalid due to the lack of new tangible material and the change of opinion by the AO. The impugned notice under Section 148 dated 31st March 2021 and the assessment order passed under Section 143(3) r.w.s. 147 dated 31st March 2022 were quashed and set aside. The petition was allowed with no order as to costs.