2024 (3) TMI 730 - HC - Income Tax

Validity of reopening of assessment - Reasons to believe - non- independent application of mind by AO/Borrowed satisfaction - as argued jurisdictional preconditions have not been fulfilled in the present case, as the belief found by the AO is based on an audit objection without fulfilling an objective criteria - HELD THAT - As details admittedly, were made available to the AO by Petitioner itself. It is thus clear that there is no failure on the part of Petitioner to disclose fully and truly the necessary information. Department has heavily relied upon the audit objections received from its own revenue Department to justify reopening of assessment. But it is clear from the documents themselves that the AO had sought explanation from Petitioner in respect of queries raised by the audit party. Petitioner has averred that as before the Respondent No. 1 made his submissions to the revenue audit objection he called for submissions from the Petitioner - each of the said audit objections have been duly explained by the Petitioner s Chartered Accountant through their letters dated 20.02.2018 and 01.11.2019. Petitioner understands that the then Respondent No. 1 had found the said explanation to be satisfactory and accordingly responded to the revenue audit objections. This is because from January, 2019 upto March 2021 that is for almost 26 months, no corrective steps were taken by the Respondent No. 1 in respect of any of the said items . This has not been denied in the affidavit in reply. Thus, we have no hesitation in holding that there was no failure on the part of Petitioner to disclose fully and truly the material facts, nor there was any tangible material with the AO, which could have otherwise justified the reopening of assessment by issuing the notice impugned. In the present case, the notice to reopen assessment does not even remotely make any mention of any tangible material has come to the notice of the AO after passing original assessment order to conclude that there was an escapement of assessment. The AO has failed to aver what material fact that Petitioner has failed to disclose fully and truly. It is clearly the very information which was before the AO as provided by Petitioner on the basis of which, a different view is being taken. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Jurisdictional preconditions for reopening assessment.
3. Failure to disclose material facts by the Petitioner.
4. Reliance on audit objections for reopening assessment.

Summary:

1. Validity of the notice under Section 148 of the Income Tax Act, 1961:
The Petitioner challenged the notice dated 27th March 2021 issued by the Assessing Officer (AO) under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year (AY) 2014-15. The Petitioner also contested the order dated 21st December 2021, which rejected the objections raised against the reopening notice.

2. Jurisdictional preconditions for reopening assessment:
The Petitioner argued that the jurisdictional preconditions were not fulfilled as the AO's belief was based on an audit objection without fulfilling an objective criterion. The Petitioner had disclosed every detail and document sought by the AO, and the original assessment order was passed based on relevant material. The court emphasized that the reopening of assessment beyond four years requires a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

3. Failure to disclose material facts by the Petitioner:
The court noted that the reasons to believe were based on information and details available to the AO during the original assessment proceedings. The Petitioner had provided all necessary information, and there was no failure to disclose fully and truly the necessary information. The court highlighted that the AO had sought explanations from the Petitioner regarding the audit queries, which were satisfactorily addressed.

4. Reliance on audit objections for reopening assessment:
The Department relied heavily on audit objections from its revenue department to justify reopening the assessment. However, the court found that the AO had already addressed the audit queries based on the explanations provided by the Petitioner. The court held that reopening of assessment must be based on the AO's own satisfaction and not on the dictate of another authority. The notice to reopen the assessment did not mention any tangible material that came to the AO's notice after the original assessment order.

Conclusion:
The court concluded that there was no failure on the part of the Petitioner to disclose fully and truly the material facts, nor was there any tangible material with the AO to justify reopening the assessment. The impugned notice dated 27th March 2021 and the order dated 21st December 2021 were set aside. The Petition was allowed, and the rule was made absolute with no order as to cost.