2024 (8) TMI 1305 - HC - Income Tax

Validity of reopening of assessment proceedings - Impugned Notice is that the foundational ingredients of Section 147, including jurisdictional facts, are absent - notice issued beyond period of four years - as argued very issuance of the Impugned Notice purported to be without jurisdiction - HELD THAT - A vital precondition for invoking Section 147 after the expiry of four years from the end of the relevant assessment year, is that during the original assessment, the assessee ought to have failed to fully and truly disclose all material facts necessary for the assessment. It is evident from the face of the record that the reassessment was initiated in March 2021, which is five years after the end of the Assessment Year 2015-16. As examined the sanction granted u/s 151 for the reassessment, along with reasons put up for securing the sanction. These reasons are near-identical to what was eventually provided to the Petitioner on 6th August, 2021, with one paragraph of comments missing. We find that the jurisdictional fact necessary to invoke Section 147 for reassessment is absent. Considering that the reassessment is admittedly being undertaken after the four-year period, it is necessary to show that during the original assessment, there had been a failure 0n the part of the Petitioner to disclose fully and truly, the material facts necessary for the assessment. The original assessment had been conducted pursuant to scrutiny proceedings. It entailed active examination and thorough engagement between the Petitioner and the AO - The scrutiny proceedings led to the Assessment Order, which increased the total income from the level computed in the returns. Each of the four aspects set out in the reasons for reassessment, related to facts fully disclosed by the Petitioner in the course of the original assessment. During the original assessment, a notice u/s 143 (2) had been served on the Petitioner. A notice u/s 142 (1) had also been served. These notices were responded to. Detailed written replies dated 7th December, 2017 and 11th December, 2017 had been provided. Personal hearings had also been held on 29th November, 2017 and 8th December, 2017. On each of the four counts for which reassessment is being proposed, the facts had indeed been disclosed, as is seen from the very reasons provided by the Revenue in support of initiating reassessment. Therefore, it is evident that the Revenue is now seeking to express a different opinion based on the very same facts fully disclosed during the original assessment. Sanction Mechanism u/s 151 - The power to sanction reassessment u/s 151, is coupled with a duty to exercise such power reasonably, and not arbitrarily. It is trite law that absence of valid reasons constitutes arbitrariness. In the instant case, the entire process of according sanction demonstrates non-application of mind to the ingredients of Section 147, rendering the sanction to be arbitrary, calling for intervention by a writ court. Evidently, the proposal, the recommendation and the approval in the instant case was mechanical, without either application of mind to the law and the facts or even a modicum of how the ingredients of the law had been met. In short, the machinery u/s 151 completely failed. The imperative requirement of compliance with the ingredients of Section 147 and Section 148 is underlined in innumerable judgments. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment notice under Section 147 of the Income Tax Act, 1961.
2. Compliance with jurisdictional requirements for reassessment after four years.
3. Adequacy of reasons provided for reassessment.
4. Validity of sanction under Section 151 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reassessment Notice under Section 147 of the Income Tax Act, 1961:
The Petitioner challenged the reassessment proposed by the Revenue for the Assessment Year 2015-16, initiated by a notice dated 30th March 2021 under Section 147 read with Section 148 of the Income Tax Act, 1961. The reassessment was premised on the assertion that income had escaped assessment due to the Petitioner's failure to make full and true disclosures during the original assessment.

2. Compliance with Jurisdictional Requirements for Reassessment After Four Years:
The Court emphasized that Section 147 requires a failure to disclose fully and truly all material facts necessary for the assessment to initiate reassessment after four years. The reassessment notice was issued five years after the end of the Assessment Year 2015-16. The Court found that the reassessment was initiated based on facts already disclosed during the original assessment, thus failing to meet the jurisdictional requirement of non-disclosure of material facts.

3. Adequacy of Reasons Provided for Reassessment:
The reasons communicated to the Petitioner included issues such as the treatment of leasehold improvement costs, donations, amortization of investments, and interest under Section 201(1A). The Court noted that all these aspects were fully disclosed during the original assessment. The Court observed:
- The amortization of investments and its detailed explanation were already provided during the original assessment.
- The donation amount and the claimed deduction under Section 80G were clearly disclosed in the financial statements.
- The leasehold improvement costs were treated as revenue expenditure, which was evident in the computation of income.
- The interest amount was listed in the Auditor's Report, indicating full disclosure.

The Court concluded that the reassessment was based on a mere change of opinion on the same facts, which is not permissible under Section 147.

4. Validity of Sanction under Section 151 of the Income Tax Act, 1961:
The reassessment was sanctioned by the Principal Commissioner of Income-tax with a mechanical approval, stating, "Yes, I am satisfied with the reasons recorded by the A.O. for issuance of Notice u/s 148 of the I.T. Act, 1961." The Court held that the sanction process demonstrated non-application of mind and was arbitrary. The requirement under Section 151 for a high-ranking official to apply their mind was not met, rendering the sanction invalid.

Conclusion:
The Court held that the reassessment notice and the subsequent proceedings were arbitrary and devoid of valid reasons. The reassessment was initiated based on a change of opinion on facts already disclosed, failing to meet the jurisdictional requirement under Section 147. The sanction under Section 151 was found to be mechanical and without proper application of mind.

Judgment:
- The order dated 25th March 2021 sanctioning the reassessment under Section 151, the notice dated 30th March 2021 under Section 148, and the order dated 25th February 2022 rejecting the Petitioner's objections were declared illegal.
- All consequential reassessment proceedings were quashed and set aside.
- The Writ Petition was allowed with no order as to costs.