2021 (4) TMI 1397 - HC - Income Tax

Validity of reassessment proceedings - writ petition challenging the assessment order and notice issued u/s 143(3) and 148 - HELD THAT - The power of High Court under Article 226 is to scrutinize the process through which a decision is taken in consonance with the provisions of the Act and certainly not the decision itself. This being the principles to be borne in mind while considering the writ proceedings under Article 226 of the Constitution of India a doubt raised by the Department regarding full and true disclosure of the facts by the assessee and if there are some materials to establish the same the Authorities have to initiate action based on the concept of reason to believe and the assessee must co-operate for the assessment by defending his case and by availing the opportunities contemplated under the provisions of the Act. Contrarily if the High Court takes an exception with reference to certain facts and circumstances then there is a possibility of escape from the clutches of Tax proceedings which is certainly not preferable. Further the Income Tax Authorities are experts and they must be provided with an opportunity to consider the defence as well as the materials identified by affording an opportunity to the assessee. In the present case in proceedings which is reply to the objections for reopening of the assessment u/s 147 there is a clear finding by the Authority that the AO had no time to verify with PHBL about the genuineness of the transactions. Write of bad debts is relating to business and is not eligible for set off against Capital Gains. Further a finding is made that the assessee has waited for 4 years and conveniently claimed bad debts to be deducted from Capital Gains . These are all certain contra facts which are all raised as grounds for reopening of the assessment as the Authorities have reason to believe that there was no true and full disclosure by the assessee at the time of the original assessment. This being the facts and circumstances this Court is of the considered opinion that the respondents after initiation of proceedings u/s 147 proceeded with reassessment and the assessment order was also passed on 04.10.2016 itself. Now four years lapsed and further in respect of said assessment order the petitioner has to approach the competent authority for redressal of grievances if any exists. WP dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary legal questions considered in this judgment are:

• Whether the initiation of proceedings under Section 147 of the Income Tax Act, 1961, for the reopening of assessment for the assessment year 2009-10, was valid and in accordance with the law.
• Whether the writ petition challenging the assessment order and notice issued under Sections 143(3) and 148 of the Income Tax Act, respectively, is maintainable, given that the assessment order has already been passed.
• Whether the reopening of the assessment was based on a mere change of opinion or due to non-disclosure of full and true facts by the assessee.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Proceedings under Section 147

• Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act allows the reopening of an assessment if the Assessing Officer has "reason to believe" that any income chargeable to tax has escaped assessment. The court referenced the judgment in P.V.P. Ventures Limited vs. Assistant Commissioner of Income Tax, which allows courts to adjudicate on the correctness of disclosures made by the assessee.
• Court's Interpretation and Reasoning: The court emphasized that the power to reopen assessments is broad and should not be restricted narrowly. It is intended to ensure full and true disclosure of income by the assessee.
• Key Evidence and Findings: The court noted that the original assessment order dated 23.12.2011 had considered the claim of bad debts. The reopening was based on the same facts, suggesting a potential change of opinion rather than new information.
• Application of Law to Facts: The court found that the reopening was not solely based on a change of opinion. The Income Tax Department had identified certain intricacies and non-disclosures in the transactions that justified the reopening.
• Treatment of Competing Arguments: The petitioner argued that the reopening was based on a change of opinion, while the respondent contended that new facts justified the reassessment. The court sided with the respondent, finding sufficient grounds for the reopening.
• Conclusions: The court concluded that the reopening of the assessment under Section 147 was justified due to the non-disclosure of full and true facts by the assessee.

2. Maintainability of the Writ Petition

• Relevant Legal Framework and Precedents: Article 226 of the Constitution allows High Courts to issue writs for the enforcement of fundamental rights and for any other purpose. However, the court noted that it should be cautious in intervening in tax matters where the statutory remedy of appeal is available.
• Court's Interpretation and Reasoning: The court emphasized that the power under Article 226 is to scrutinize the process of decision-making, not the decision itself. It highlighted the availability of an appellate remedy as a reason to dismiss the writ petition.
• Key Evidence and Findings: The court found that the assessment order was passed during the pendency of the writ petition and that the petitioner had not pursued an appeal due to the writ petition's pendency.
• Application of Law to Facts: The court determined that the petitioner should avail itself of the appellate remedy provided under the Income Tax Act, rather than seeking relief through a writ petition.
• Treatment of Competing Arguments: The petitioner argued for the writ petition's maintainability due to the alleged procedural irregularities in the assessment. The court, however, pointed to the statutory appeal process as the appropriate forum for such grievances.
• Conclusions: The writ petition was deemed not maintainable, and the petitioner was directed to pursue the statutory appeal process.

SIGNIFICANT HOLDINGS

• Core Principles Established: The court reinforced the principle that the "reason to believe" for reopening assessments under Section 147 should be interpreted broadly to ensure compliance with tax laws. It also highlighted the importance of the appellate process in tax disputes, discouraging the use of writ petitions where statutory remedies exist.
• Final Determinations on Each Issue: The court dismissed the writ petition, directing the petitioner to pursue an appeal against the assessment order. It upheld the validity of the proceedings under Section 147, finding them justified by the non-disclosure of full and true facts by the assessee.

The judgment underscores the importance of full disclosure by taxpayers and the broad powers of tax authorities to ensure compliance, while also emphasizing the appropriate use of judicial review in the context of available statutory remedies.