2024 (1) TMI 1391 - HC - Income Tax

Reopening of assessment - validity of the notice issued u/s 148 - disallowance u/s 14A - HELD THAT - It is not in dispute that the petitioner has issued the dis-allowance u/s 14A of the Act was considered during the course of the original assessment proceedings and after considering the submissions made by the petitioner, AO made dis-allowance u/s 14A r.w.r. 8D. Merger of orders - Petitioner challenged the assessment order before the CIT (Appeals), the CIT (Appeals) has passed the impugned assessment order holding that the Assessing Officer was justified in making the addition under Section 14A of the Act. Therefore, the issue of dis-allowance under Section 14A of the Act had already merged with the order passed by the CIT (Appeals). In such circumstances, the AO could not have assumed the jurisdiction to issue the impugned notice under Section 148 of the Act on the same ground of dis-allowance under Section 14A read with Rule 8(d) of the Rules. Therefore, the reasons recorded for reopening of the assessment for the year under consideration is nothing but a change of opinion in absence of any fresh material available on record, which is impermissible. Assessing Officer has not be able to justify in the reasons recorded that the petitioner has failed to disclose fully and truly all material facts during the course of the original assessment year and admittedly the impugned notice is issued beyond the period of four years for the relevant assessment year. In such circumstances, as per proviso to Section 147 of the act, the respondent would not have any jurisdiction to issue notice for reopening. Decided in favour of assessee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 based on change of opinion and failure to disclose material facts.

Analysis:
The petitioner filed its original return for AY 2014-15, later revised, leading to scrutiny and assessment under Section 143(3) disallowing expenses under Section 14A. The CIT(A) allowed the appeal on the issue of disallowance under Section 14A. The respondent issued a notice under Section 148, prompting objections from the petitioner on jurisdictional grounds. The Assessing Officer rejected the objections, leading to the present challenge.

The petitioner argued that the notice under Section 148 was impermissible as it amounted to a change of opinion without fresh material. The disallowance under Section 14A had already been considered and upheld by the CIT(A), merging the issue in the appellate order. The petitioner contended that no income had escaped assessment, as the disallowance was correct throughout.

In contrast, the respondent asserted that the notice was valid, as the petitioner had not fully disclosed material facts during the original assessment, leading to an escapement of income. The Assessing Officer found that the petitioner's dividend income was exempt, necessitating a disallowance under Rule 8D read with Section 14A, which was overlooked in the original proceedings.

The court held that the notice under Section 148 was based on a change of opinion without fresh material, impermissible under the law. The Assessing Officer failed to establish non-disclosure of material facts by the petitioner, rendering the notice beyond the four-year limit under Section 147. Citing legal precedent, the court quashed the notice and rejected the objections, ruling in favor of the petitioner.

This judgment clarifies the limitations on the Assessing Officer's power to reopen assessments, emphasizing the need for valid reasons and fresh material to support such actions. It underscores the importance of full and accurate disclosure of material facts by taxpayers during assessments to prevent arbitrary reassessments based on mere changes of opinion.