2019 (10) TMI 1611 - HC - Income Tax

Reopening of assessment us 147 - reasons to belove - whether the assessee has disclosed fully and truly what material facts necessary for his assessment for that assessment year or not? - HELD THAT - In the instant cases notices under Section 148 are issued against which the petitioner filed the return of the particular assessment year and also filed his reply seeking reasons. The first respondent has given the reasons for the same against which the petitioner filed his objections which were rejected by the Assessing Authority by a speaking order. That particular orders are under challenge. It is pertinent to note that all the requirements as observed in GKN Driveshafts (India) Ltd. 2002 (11) TMI 7 - SUPREME COURT have been followed by the petitioner and it is only the rejection order which is challenged now against which in the opinion of this Court the Writ is maintainable and it cannot be said that the petitioner has rushed to the Court without availing the alternative remedy. Insofar as the contention raised by the respondents that as per explanation 1 once the Assessing Authority with due diligence has discovered some material evidence it will not amount to disclose the same within the meaning of Section 147 is concerned the Hon ble Supreme Court has held that it is the assessee who can only produce the documents and he cannot be expected to give inference to the disclosure. Once all the primary facts are before the Assessing Authority he requires no further assistance by way of disclosure and it is not possible for the assessee to draw any particular inference and communicate the same to the Assessing Authority and explanation given to Section 147 does not cast a duty upon the assessee to disclose the inferences. In the instant cases the assessee has submitted Form-2 disclosing all the materials giving all the explanations. In such circumstances it cannot be said that he has not submitted all the materials fully and truly. Therefore once the assessee has submitted reply; once he submitted the returns for the assessment year; and once he has filed a reply to the notice u/s 148 and files his objections to the reasons for issuance of 148 notice before the very same authority Section 147 is fully complied with. The objections raised by the assessee had been considered and rejected by the Assessing Authority but the reasons given by the first respondent are contrary to the well settled principles of law laid down by the Hon ble Supreme Court. WP Allowed.

Summary

The core legal questions considered by the Court in this matter revolve around the validity and maintainability of proceedings initiated under Section 148 of the Income Tax Act, 1961, for reopening the assessment of the petitioner for the assessment year 2011-2012. Specifically, the issues include:

(a) Whether the reopening of assessment under Section 148 is barred by limitation;

(b) Whether the Assessing Officer had jurisdiction and valid reasons to believe that income chargeable to tax had escaped assessment;

(c) Whether the petitioner had disclosed all material facts fully and truly in the original return and subsequent submissions, thereby precluding reopening;

(d) Whether the reasons recorded for reopening are vague, general, or based on mere change of opinion;

(e) Whether the writ petitions challenging the issuance of notice under Section 148 are maintainable or barred by principles of alternative remedy and procedural propriety;

(f) The scope of judicial review in cases of reopening assessments and the application of settled legal principles and precedents in this context.

Issue-wise Detailed Analysis:

1. Limitation and Validity of Reopening Proceedings under Section 148

The legal framework under Section 147 and its proviso restricts reopening of assessments to within four years from the end of the relevant assessment year, except in cases of failure to file return, failure to respond to notices, or failure to disclose fully and truly all material facts. The petitioner filed the original return on 29.09.2011 and complied with all subsequent requests for information. The reopening notice was issued on 31.03.2018, beyond the four-year period from 31.03.2012, the end of the assessment year.

The Court examined whether any of the exceptions in the proviso to Section 147 applied. The petitioner contended full and true disclosure of all material facts, supported by submissions of Form-2 and responses to notices under Section 142 and 148. The Assessing Officer's reasons for reopening were challenged as vague and lacking specific new material.

Relevant precedents such as Asianet Star Communications (P) Ltd. vs. ACIT and Commissioner of Income Tax vs. Kelvinator of India Ltd. were relied upon, where the Supreme Court emphasized that reopening cannot be based on mere change of opinion and must be supported by tangible material indicating escapement of income. The Court reiterated that reopening beyond the limitation period without valid cause is impermissible.

The Court concluded that since the petitioner had filed complete returns and disclosures, and no new material was brought to light within the limitation period, the reopening was barred by limitation and constituted an impermissible review of the original assessment.

2. Disclosure of Material Facts and the Requirement of Full and True Disclosure

The petitioner asserted that all primary facts were disclosed in the original return and subsequent submissions, including details of shareholding, capital transactions, and financial data. The explanation to Section 147 clarifies that the duty of disclosure extends only to primary facts, not the inferences to be drawn therefrom. It is the Assessing Officer's responsibility to draw legal and factual inferences.

The Court relied on the Supreme Court's interpretation that the assessee is not obliged to communicate inferences or conclusions arising from disclosed facts. The petitioner's submission of Form-2 and detailed responses to notices were held to constitute full and true disclosure.

The Assessing Officer's reasons for reopening, alleging black money circulation, illegal gratification, and kickbacks, were found to be based on generalized beliefs without specific or new material facts linked to the petitioner's assessment year. The Court held that such vague allegations do not satisfy the threshold for reopening.

3. Jurisdiction and Maintainability of Writ Petitions Challenging Section 148 Notices

The respondents argued that the petitioner had submitted to the jurisdiction of the Assessing Officer by filing returns and objections, and thus could not prematurely approach the Court. They relied on judgments such as GKN Driveshafts (India) Ltd. vs. Income Tax Officer, which suggest that challenges to notices under Section 148 should await final orders.

However, the Court referred to the Supreme Court's ruling in Jeans Knit (P.) Ltd. vs. Deputy Commissioner of Income-Tax, which overruled earlier views and held that writ petitions challenging notices under Section 148 are maintainable. The Court emphasized that judicial review of the reasons recorded for reopening is permissible and necessary to prevent abuse of power.

The Court found that the petitioner had complied with procedural requirements by filing returns, seeking reasons, and filing objections, which were rejected by a speaking order. Thus, the writ petition challenging the rejection and reopening was maintainable and not premature.

4. Application of Law to Facts and Treatment of Competing Arguments

The Court carefully examined the factual matrix, including the petitioner's disclosures, the assessment history, and the reasons for reopening. The petitioner's detailed disclosures and prior appeals leading to partial reversal of tax demands were weighed against the Assessing Officer's generalized allegations.

The respondents' reliance on the existence of material evidence such as alleged black money circulation and inflated contracts was found to be insufficiently particularized or linked to the petitioner's tax year under consideration. The Court noted that reopening cannot be justified on mere suspicion or generalized belief without tangible new material.

On the question of limitation, the Court held that the reopening notice issued beyond four years without valid exception was invalid. The Court rejected the argument that transactions of related but independent entities could justify reopening against the petitioner company.

Regarding procedural propriety, the Court acknowledged the availability of alternative remedies but held that the petitioner had not rushed to the Court prematurely, having exhausted the procedural steps before the Assessing Officer.

Significant Holdings and Core Principles Established:

The Court articulated the following crucial legal principles:

"However, one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of 'mere change of opinion', which cannot be per se reason to re-open."

"Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn."

"The legitimate and reasonable expectation is that a detailed and speaking order is passed in cases where he differs and dissents from the stand of the assessee."

"All relevant, primary particulars have been produced/filed/furnished by the petitioner at the first instance before the authorities, in a transparent fashion. Having missed the bus at that point, the Department cannot seek to re-assess the income as culled from material already on record, as this constitutes a review of the original assessment."

"Writ petitions challenging notices under Section 148 are maintainable, and judicial review of the reasons recorded for reopening is permissible to prevent abuse of power."

"The Explanation to Section 147 does not cast a duty upon the assessee to disclose 'inferences'-drawing proper inferences is the duty of the income-tax officer."

The Court ultimately held that the impugned orders and notices issued under Section 148 were liable to be set aside as:

(a) The reopening was barred by limitation;

(b) The petitioner had made full and true disclosure of all material facts;

(c) The reasons recorded for reopening were vague, generalized, and based on mere change of opinion without new tangible material;

(d) The writ petitions challenging the rejection of objections and reopening notices were maintainable;

(e) The reopening constituted an impermissible review of the original assessment.