2024 (2) TMI 1522 - HC - Income Tax

Validity of reassessment proceedings beyond period of limitation - as argued reasons as recorded would clearly evidence that the reassessment is essentially a change of opinion which had already been formed during the course of original assessment - scope of mere generation of a notice HELD THAT - A Court would while examining a challenge to the invocation of Section 148 and where it be asserted that it essentially amounts to a change of opinion have to bear in mind that the power to reassess would be wholly unjustified in a case where the assessment order itself reflects that an issue was raised and duly examined. Usha International 2012 (9) TMI 767 - DELHI HIGH COURT lays emphasis on the assessment record and the various queries that may have been addressed by the AO for eliciting information. It thus held that if the record of the reassessment proceedings were to evidence a query being specifically addressed and answered by the assessee and the same not being pursued by the AO or leading to an addition being made must necessarily be rendered finality and a quietus. This it observed since it found that even if the view taken by the AO in that respect were erroneous or prejudicial to the interest of the Revenue it did not stand deprived of a right to adopt corrective measures including those provisioned for in Section 263 of the Act. However it was held that such a contingency would not justify the power of reassessment being exercised. Fresh or new factual information that may come to light pursuant to an order of assessment made subsequently - The Full Bench in Usha International held that if new information comes to the knowledge of the AO in the course of undertaking an assessment for a subsequent period the same could be validly taken into consideration and would not amount to a change of opinion. It observed that an opinion which may have been formed originally if established to be based on wrong or incorrect facts would not stand insulated or rendered immunity from review. It thus held that factual information or material which was either not available at the time of original assessment or which comes to light subsequently may justify the initiation of reassessment proceedings. Usha International pertinently observes that it is equally important to bear in consideration the fact that if material facts are duly disclosed by an assessee it is for the AO to draw appropriate legal inferences and appreciate the implications of those disclosures. It thus held that a failure on the part of the AO to duly apply a legal provision or give shape to a liability which would arise under the Act despite appropriate disclosures being made would not justify the invocation of Section 148. Reverting then to the facts of our case we find that the petitioner had unmistakeably placed copious material on the record during the original assessment proceedings and which would have been relevant and determinative of the four new issues which constitute the basis for invoking Section 147. The respondents therefore cannot justifiably urge that the petitioner had failed to make a full and true disclosure. Whether it be with regard to remittances to SMC TDS long or short term capital gains the petitioner had not only made adequate disclosures these aspects also appear to have been duly flagged and noticed by the AO in the course of the original assessment. The details of the material placed for the consideration of the AO the documentation submitted the nature of the queries that were addressed and the replies submitted leave us in no doubt that all material germane and relevant to the assessment had been duly presented by the writ petitioner. Having thus found that the petitioner has crossed the rubicon of a full and true disclosure we then proceed forward to consider whether the impugned action constitutes a change of opinion and whether the fresh material could have been validly taken into consideration for the purposes of formation of opinion that reassessment was warranted. The record which has been analysed by us leads us to the inevitable conclusion that it would be wholly incorrect to hold that the AO was not cognizant of the relevant facts the different heads of income and expenditure involved the remittances made to SMC as well as the issue of short and long term capital gains. The petitioner has also demonstrated that appropriate disclosures were made with respect to placement of representatives of SMC in India. This therefore clearly appears to be a case where the AO though conscious and cognizant chose not to make any additions draw any adverse inference or doubt the stand which was taken by the writ petitioner. The discussion on this aspect however must be prefaced with the observation that it is not the case of the respondent that what was disclosed by the petitioner in the earlier assessment had been found to be incorrect or wrong. It is also not their case that the material and information that came to light in the subsequent AY casts a doubt on the correctness or credibility of the responses which were submitted. It is these aspects which convince us to hold that the four new issues neither constituted fresh information nor could have validly formed the basis for commencement of action under Section 147 of the Act. In our considered opinion this was at best a case where the respondents could have perhaps only alleged that the AO had failed to correctly appreciate and apply the appropriate legal provisions or give shape to a liability under the Act despite adequate disclosures having been made. A reading of the reasons assigned establishes that the AO has not even made a token or superficial attempt to evaluate the issue from that perspective. The decision to reopen thus clearly appears to have been predicated solely on the basis of what the AO came to hold in AY 2010-11. We thus and for all the aforesaid reasons find ourselves unable to sustain or uphold the impugned action under Section 147 of the Act.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

a. Whether the reassessment notice issued under Section 148 of the Income Tax Act, 1961, was barred by limitation, given that it was dispatched after the statutory deadline.

b. Whether the reassessment action constituted a "change of opinion," which is impermissible under the law, given the full and true disclosures made by the petitioner during the original assessment.

c. Whether the reassessment was justified based on new factual information that came to light in subsequent assessment years.

d. Whether the Assessing Officer (AO) independently applied their mind or merely relied on a report to initiate the reassessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

a. Limitation of Reassessment Notice

- Relevant legal framework and precedents: Section 149 of the Income Tax Act prescribes the time limits for issuing reassessment notices. The Court referenced the decision in Suman Jeet Agarwal, which clarified that the issuance of a notice is only complete upon its dispatch, not merely its generation.

- Court's interpretation and reasoning: The Court found that the notice was dispatched on 01 April 2016, beyond the permissible period ending on 31 March 2016. The Court held that the reassessment action was time-barred based on the principles established in Suman Jeet Agarwal.

- Conclusions: The reassessment notice was quashed as it was issued beyond the statutory limitation period.

b. Change of Opinion

- Relevant legal framework and precedents: The principle of "change of opinion" bars reassessment if the AO had previously examined the issue during the original assessment. The Court referenced the Full Bench decision in CIT v. Usha International Ltd., which outlined the circumstances under which reassessment would be invalid due to a change of opinion.

- Court's interpretation and reasoning: The Court found that the petitioner had made full disclosures during the original assessment, and the AO had raised and addressed relevant queries. The reassessment was deemed a change of opinion, as the AO had already formed an opinion on the issues during the original assessment.

- Conclusions: The reassessment action was invalidated as it constituted a change of opinion.

c. New Factual Information

- Relevant legal framework and precedents: The Court considered whether new information from subsequent assessment years could justify reassessment. It referenced decisions like New Delhi Television Ltd. v. Deputy CIT, which allowed reassessment based on new information that casts doubt on previous disclosures.

- Court's interpretation and reasoning: The Court found no evidence of new information that rendered the original disclosures false or misleading. The issues cited for reassessment were already known and examined during the original assessment.

- Conclusions: The reassessment was not justified on the basis of new information.

d. Independent Application of Mind

- Relevant legal framework and precedents: The Court emphasized the necessity for the AO to independently assess the need for reassessment rather than relying solely on external reports or communications.

- Court's interpretation and reasoning: The AO's decision to reopen was based solely on a communication from the ACIT without independent examination of the facts. This lack of independent application of mind rendered the reassessment invalid.

- Conclusions: The reassessment was quashed due to the AO's failure to independently apply their mind.

3. SIGNIFICANT HOLDINGS

- "The reassessment action is thus liable to be struck down on this short ground alone." This conclusion was reached because the notice was issued beyond the statutory limitation period.

- "The reassessment action would not sustain." The Court held this view because the reassessment was based on a change of opinion, which is impermissible when full and true disclosures have been made.

- "The reasons fail to demonstrate the AO having even prima facie examined whether there was any fresh information." This finding highlighted the lack of independent assessment by the AO, further invalidating the reassessment.

- The final determination was that the reassessment notice dated 31 March 2016 was quashed and set aside, as it was both time-barred and constituted a change of opinion without any new factual basis justifying its issuance.