2024 (3) TMI 1078 - HC - Income Tax

Validity of reopening of assessment u/s 147 - Reason to believe - tangible material to initiate reassessment proceedings or not? - HELD 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. 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. In the present case, there is a full and true disclosure by Petitioner, and information on those transactions have been accepted under the heads claimed by Petitioner. Appeal allowed.

Summary

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Alleged failure of the petitioner to disclose fully and truly all material facts necessary for the assessment.
3. Justification for reopening the assessment based on audit objections.

Summary:

Validity of the Notice under Section 148:
The petitioner challenged the notice dated 27th March 2021 issued by the Deputy Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for AY 2013-14. The petitioner argued that the notice was issued without fulfilling the jurisdictional preconditions, as the belief formed by the Assessing Officer (AO) was based on an audit objection without an objective criterion. The court noted that the reasons for reopening were based on information available during the original assessment proceedings, indicating no failure on the petitioner's part to disclose necessary information.

Alleged Failure to Disclose Material Facts:
The petitioner had provided all required documents and details during the original assessment proceedings, including responses to notices under Section 142(1) of the Act. The court emphasized that the assessment for AY 2013-14 was sought to be reopened beyond four years from the end of the relevant assessment year. According to the proviso to Section 147 of the Act, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for that year. The court found no such failure on the part of the petitioner.

Justification for Reopening Based on Audit Objections:
The Department relied heavily on audit objections received from its revenue department to justify reopening the assessment. However, the court observed that the AO had sought explanations from the petitioner in response to the audit queries and had found the explanations satisfactory. The court cited the case of South Yarra Holdings v. Income Tax Officer, which held that reopening an assessment must be based on the AO's own satisfaction and not at the dictate of another authority. The court concluded that there was no tangible material with the AO to justify the reopening of the assessment.

Conclusion:
The court held that the petitioner had fully and truly disclosed all material facts and that the AO had no new tangible material to justify the reopening of the assessment. Consequently, 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 costs.