2024 (8) TMI 692 - HC - Income Tax

Validity of reopening proceedings - reasons to believe - excess depreciation claimed - HELD THAT - As on perusal of the reasons recorded that the AO has formed a reason to believe only on the basis of material available on record in absence of any fresh tangible material having live nexus with the reasons recorded. As also not in dispute that there is no failure on part of the assessee to disclose fully and truly all material facts relevant for assessment in absence of any allegation or even remote reference to that effect made in the reasons recorded. On perusal of the assessment order u/s 143 (3) AO in the regular course of assessment has considered the issue of depreciation and has chosen to make addition only on the point of depreciation claimed on depreciation on the project development phase which clearly shows that the AO after considering the claim of entire depreciation has made addition only on excess depreciation claimed by the assessee on the above issue. The impugned notice u/s 148 is therefore, not tenable and is accordingly quashed and set aside - Decided in favour of assessee.

Issues Involved:
1. Legality of the notice issued under section 148 of the Income Tax Act, 1961 for reopening the assessment for Assessment Year 2014-2015.
2. Validity of reopening the assessment based on material already on record without fresh tangible material.
3. Compliance with procedural requirements for issuing notice under section 148.
4. Impact of audit objections on the reopening of assessment.
5. Failure of the assessee to disclose fully and truly all material facts necessary for assessment.

Detailed Analysis:

1. Legality of the notice issued under section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice issued under section 148 of the Income Tax Act, 1961, dated 31.03.2021, for reopening the assessment for Assessment Year 2014-2015. The petitioner argued that there was no fresh tangible material distinct from what was made a part of the assessment proceedings. The court observed that the Assessing Officer formed a reason to believe based only on the material available on record and not on any fresh tangible material. Therefore, the notice under section 148 was deemed not tenable and was quashed and set aside.

2. Validity of reopening the assessment based on material already on record without fresh tangible material:
The petitioner contended that reopening the assessment based on material already on record without any fresh tangible material is impermissible. The court agreed with this contention, noting that the reasons recorded by the Assessing Officer did not involve any new material but were based on the existing records. The court cited the decision in Shanti Enterprise (2016) 76 taxmann.com 184, supporting the argument that reopening without fresh tangible material is not permissible.

3. Compliance with procedural requirements for issuing notice under section 148:
The respondent argued that all statutory requirements as per the Income-tax Act were followed before issuing the notice under section 148. The Assessing Officer recorded the reasons in writing after due application of mind and forming an independent opinion. The court, however, found that the reasons recorded were based on the material already available on record and not on any new information, which rendered the notice under section 148 invalid.

4. Impact of audit objections on the reopening of assessment:
The petitioner argued that the reopening of the assessment was based on audit objections, which were not acceptable to the Assessing Officer. The court noted that reopening based on audit objections without independent application of mind by the Assessing Officer is not permissible. The court referred to the decision in Reckitt Benckiser Healthcare India (P.) Ltd. (2017) 392 ITR 336, which supports the view that reopening based solely on audit objections is not valid.

5. Failure of the assessee to disclose fully and truly all material facts necessary for assessment:
The petitioner argued that there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The court found that there was no allegation or reference to any failure by the assessee to disclose material facts in the reasons recorded by the Assessing Officer. The court concluded that in the absence of any such failure, the reopening of the assessment was not justified.

Conclusion:
The court quashed and set aside the notice issued under section 148 of the Income Tax Act, 1961, and the order disposing of the objections raised by the petitioner. The petition was disposed of, and the rule was made absolute to the extent of quashing the impugned notice and order. No order as to cost was made.

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