2023 (8) TMI 727 - HC - Income Tax

Reopening of assessment u/s 147 - Bad Debts Written Off claimed as deduction Computation of MAT liability u/s 115JB and Disallowance u/s 14(A) - HELD THAT - A perusal of the reasons for reopening set out in the said letter show that there is no such failure on the part of the Petitioner to disclose fully and truly any material fact necessary for the Assessment. The reasons so recorded themselves clearly show that even according to Respondent No. 1 there was no failure to disclose any material fact. According to Respondent No. 1 on the facts disclosed by the Petitioner during the assessment proceedings it had wrongly claimed and was allowed a deduction towards Bad Debts Written Off. Further Petitioner clearly showed that the Petitioner had in response to specific queries raised during the assessment proceedings disclosed to the Respondents all the material facts in respect of Bad Debts Written Off. Therefore the reason given by Respondent No. 1 in the said letter dated 23rd July 2021 for reopening the reassessment in respect of Bad Debts Writing Off cannot be a reason to reopen the Assessment under Section 148 of the Act. Computation of MAT liability under Section 115JB - A perusal of the reasons given clearly show that there is no failure on the part of the Petitioner to disclose any material fact. In fact Respondent No. 1 records that the incorrect application of provisions of the Act by the Department resulted in under assessment of income of Rs. 50, 99, 00, 000/- with a consequent short levy of tax of Rs. 10, 68, 77, 590/- . This itself shows that there is merely a change of opinion on the part of Respondent No. 1 and no failure to disclose any material fact on the part of the Petitioner. In letter in response to specific queries raised during the assessment proceedings the Petitioner had given the computation in respect of of MAT liability. This once again shows that the Petitioner had disclosed all material facts in respect of computation of MAT liability and there was no failure on its part to disclose any material fact. Disallowance under Section 14A - In paragraph 4 of the Assessment Order passed u/s 143(3) of the Act the Assessing Officer had discussed in detail this disallowance under Section 14A and had passed orders in respect thereof. This by itself shows that there is no failure on the part of the Petitioner to disclose any material fact in respect of the disallowance u/s 14A - Further Petitioner has given the facts and the reasons as to why no disallowance can be made under Section 14A of the Act except disallowance of 1% of exempt income considered by the Petitioner as an administrative expenditure relating to exempt income. Thus the said Assessment Order and the said letters once again clearly show that there is no failure on the part of the Petitioner to disclose any material fact even in respect of the issue of disallowance under Section 14A of the Act. Thus reopening of assessment quashed - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Notice under Section 148 of the Income Tax Act, 1961.
2. Validity of Order rejecting objections against reopening of assessment.

Summary:

Issue 1: Validity of Notice under Section 148 of the Income Tax Act, 1961

The petitioner challenged the Notice dated 24th March 2021 issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the Assessment Year 2014-15. The petitioner argued that during the original assessment proceedings, all material facts were fully and truly disclosed, and the assessment was completed with a determination of NIL income under normal provisions and Rs. 3,82,53,206/- under Section 115JB of the Act.

The court observed that the reasons for reopening the assessment, as provided by Respondent No. 1, did not indicate any failure on the part of the petitioner to disclose material facts. Specifically, the reasons related to Bad Debts Written Off, Computation of MAT liability, and Disallowance under Section 14A were all addressed during the original assessment proceedings. The court noted that the reasons for reopening were based on a change of opinion rather than any new tangible material, which is not permissible under the law.

Issue 2: Validity of Order rejecting objections against reopening of assessment

The petitioner objected to the reopening of the assessment, stating that all material facts were disclosed during the original assessment proceedings, and there was no new evidence to justify the reopening. The court found that the impugned order dated 13th January 2022, which rejected the petitioner's objections, did not provide any reasons to establish that the petitioner had failed to disclose material facts as required by the first proviso to Section 147 of the Act.

The court held that without a finding of failure to disclose material facts, the reopening of the assessment was not justified. The court emphasized that the reasons for reopening must clearly indicate what material facts were not disclosed by the assessee, which was not evident in this case.

Conclusion:

The court allowed the writ petition, quashing the impugned notice under Section 148 of the Act dated 24th March 2021 and the impugned order dated 13th January 2022, as being without jurisdiction, illegal, and arbitrary. The court reiterated that reopening of assessment based on a change of opinion is not permissible, and there must be a clear indication of failure to disclose material facts for such action to be valid.