2023 (9) TMI 625 - HC - Income Tax

Reopening of assessment - reason to believe - awarding the Petitioner compensation of ₹300/- per square metre - HELD THAT - Neither the notice nor the reasons disclose what was suppressed by the Petitioner and how such suppression offers the AO reason to believe that the income had escaped assessment. The justification belatedly offered in the impugned order by which the Petitioner's objections were disposed of cannot be regarded as a valid defence of the impugned notice. The reasons cannot be given for the first time at the stage of disposal of objections filed by the Petitioner objecting to reopen an assessment. The reasons must exist and be recorded at the time of issuing notice u/s 147/148 - The validity or otherwise of the notice u/s 147/148 is required to be determined based on such reasons existing and recorded at the time of issuance of notice. As has been repeatedly held, such reasons cannot be supplemented or substituted belatedly either by affidavits or while disposing of objections of the Petitioner. Thus, it is clear that the crucial jurisdictional parameters prescribed in the proviso to Section 147 of the IT Act i.e. assessee's failure to disclose fully and truly all material facts necessary for assessment, was not fulfilled. The impugned notice, therefore, warrants interference. We are not too sure whether the ratio of SL Lumax Ltd. 2021 (9) TMI 249 - MADRAS HIGH COURT would apply to the facts of the present case when there is no dispute that the Petitioner had furnished reference Court's award determining the market rate at ₹300/- per square metre. The record discloses that at the time of original assessment proceedings, the Petitioner had filed hardly five documents, out of which one was a copy of the judgment and award of the District Court enhancing base rate for compensation to ₹300/- per square metre. Since the impugned notice warrants interference based upon non-satisfaction with the crucial jurisdictional parameters prescribed in the proviso to Section 147 we do not propose to examine Mr Rao's contention based upon a change of opinion.

Issues Involved:
1. Validity of the notice dated 31.03.2021 under Section 147 of the Income Tax Act, 1961.
2. Legitimacy of the reassessment order dated 14.04.2023 for Assessment Year 2015-2016.
3. Alleged failure of the Petitioner to disclose fully and truly all material facts necessary for assessment.
4. Application of Explanation - 1 to Section 147 of the IT Act.

Summary:

1. Validity of the Notice Dated 31.03.2021:
The Petitioner challenged the notice dated 31.03.2021 issued under Section 147 of the Income Tax Act, 1961, on the grounds that it was issued beyond the four-year limitation period without alleging any failure on the part of the Petitioner to fully and truly disclose all material facts necessary for assessment. The Court noted that the impugned notice did not contain any such allegation, which is a jurisdictional requirement under the proviso to Section 147 of the IT Act when reopening assessments beyond four years. The Court referenced multiple precedents, including Aroni Commercials Limited and Hubtown Limited, which support the Petitioner's contention that reopening assessments beyond four years requires a specific allegation of failure to disclose material facts.

2. Legitimacy of the Reassessment Order Dated 14.04.2023:
The Petitioner also contested the reassessment order dated 14.04.2023, which rejected the Petitioner's objections to the notice dated 31.03.2021. The Court observed that the reasons furnished for reopening the assessment did not include any allegation of failure to disclose material facts. The Court reiterated that reasons for reopening an assessment must be recorded at the time of issuing the notice and cannot be supplemented later. The Court found that the reassessment order could not justify the impugned notice as it failed to meet the jurisdictional requirements.

3. Alleged Failure to Disclose Material Facts:
The Respondents argued that the Petitioner failed to disclose fully and truly all material facts necessary for assessment, specifically regarding the compensation rate of Rs. 300 per square metre determined by the reference Court. However, the Court found that the impugned notice and the reasons furnished did not contain any such allegation. The Court emphasized that any failure to disclose material facts must be explicitly stated in the notice or reasons for reopening the assessment.

4. Application of Explanation - 1 to Section 147:
The Respondents invoked Explanation - 1 to Section 147, arguing that mere production of documents does not amount to full disclosure. However, the Court did not delve into this issue as the primary jurisdictional requirement of alleging failure to disclose material facts was not met in the notice or reasons furnished.

Conclusion:
The Court allowed the Petition, quashing the notice dated 31.03.2021 and the reassessment order dated 14.04.2023. The Court issued a Writ of Certiorari and a Writ of Prohibition restraining the Respondents from proceeding with the reassessment for Assessment Year 2015-2016. There was no order for costs.

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