2024 (9) TMI 484 - HC - Income Tax

Reopening of assessment - reassessment based on the report of the DDIT which stated that the net profit declared by the assessee was 0.05% of the turnover and felt that in the line of business of forex dealers in Goa, the average gross profit would be 0.50% of the turnover - cash deposits made in various bank accounts by the assessee company - HELD THAT - According to us, it was for the AO to have called for explanation on this aspect before conclusion of the assessment proceedings. Thus, the reason that in respect of other dealers in this line of business the average gross profit will be around 0.5% of the turnover cannot be said to be a fresh fact which has come to light which was not previously disclosed or that it is such information with regard to the fact previously disclosed coming into possession of the AO which tends to expose the untruthfulness of those facts. Had it been a case where some fresh facts which come to light were not previously disclosed or some information with regard to the facts previously disclosed coming into possession of the AO which tends to expose the untruthfulness of those facts, in such situation, it would not be a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Undoubtedly, the belief is that of the Income Tax Officer, the sufficiency of reasons for forming the belief is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. We are not persuaded by the arguments of Revenue that the assessee had not made full and true disclosure of the material facts at the time of the original assessment and therefore the income chargeable to tax has escaped assessment. Large cash deposits made in the accounts of the assessee which appear to be on account of unauthorized transactions of forex which are made without requisite KYC of the forex purchasing party - All the relevant registers indicating the cash deposits were placed before the Assessing Officer. In the order under clause (d) of Section 148A, it is mentioned that these cash deposits are made without requisite KYC of the forex purchasing party. The learned counsel for the Revenue was at pains to submit that the assessee was obliged to make a true and complete disclosure including the details of the KYC which the assessee failed to do. In our view, before concluding the assessment, the Assessing Officer could have called for the KYC document if there was any doubt in his mind that large cash deposits were made in the accounts of the assessee on account of unauthorized transactions of forex. As indicated earlier, the sufficiency of reason for forming the belief of the Income Tax Officer is not for the Court to judge but it is open to an assessee to establish that there existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. Though the learned counsel for the Revenue was at pains to urge that the assessee had not made full and true disclosure of the material facts at the time of the original assessment and therefore, the income chargeable to tax has escaped assessment, we are not persuaded to accept this argument in the facts of the present case. The Supreme Court has explained that the purpose and intent of Sections 147 (a) and 148 of the Act is to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say ' you accepted my lie, now your hands are tied and you can do nothing . No doubt, it would be travesty of justice to allow the assessee that latitude. The test to be applied is as to whether there was reason to believe that the income has escaped assessment and whether the AO has sufficient reason for forming that belief. We have to be mindful of the observations in Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT which explained the conceptual difference between the power to review and power to reassess. AO has no power to review; he has the power to reassess. But reassessment has to be based on the fulfillment of certain precondition and if the concept of change of opinion is removed, then, in the garb of reopening the assessment, review would take place. Thus, we are satisfied that in the facts and circumstances of the present case, in the garb of reopening the assessment, the review would take place. The petition therefore succeeds and is accordingly allowed.

Issues Involved:

1. Validity of the impugned notice under Section 148 of the Income Tax Act, 1961.
2. Whether the reopening of assessment constitutes a change of opinion.
3. Compliance with KYC requirements and its relevance to the case.
4. Adequacy of the information provided by the assessee during the initial assessment.
5. Jurisdictional challenge to the reopening of assessment under Article 226 of the Constitution of India.

Detailed Analysis:

1. Validity of the Impugned Notice under Section 148 of the Income Tax Act, 1961:

The petitioner challenged the notice dated 31.03.2022 issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961. The petitioner argued that the issuance of the impugned notice was illegal and without satisfaction of the jurisdictional requirement. The petitioner contended that the reopening sought to be carried out was in the nature of a change of opinion and/or review, in the absence of fresh tangible information. The court examined the jurisdictional requirement for issuance of show cause notice under Section 148A(b) of the Act and found that the details of the information and enquiry enclosed with the notice in Annexure-A stated "cash deposits made in various bank accounts by the assessee company during the Financial Year 2017-18 (Assessment Year 2018-19) of Rs. 65,41,72,500/-."

2. Whether the Reopening of Assessment Constitutes a Change of Opinion:

The petitioner argued that the reopening of the assessment was based on a change of opinion. The court referred to the Supreme Court's decision in Mangalam Publications Vs Commissioner of Income Tax, which exhaustively dealt with the expression 'change of opinion.' The court noted that the principle is well settled by the Supreme Court that a mere change of opinion cannot be a basis for reopening completed assessments. The court found that the NP/GP ratio and the large cash deposits were already available with the Assessing Officer when the assessment was concluded. The court concluded that the reasons for reopening the assessment were not based on fresh facts that had come to light but were based on facts that were previously disclosed.

3. Compliance with KYC Requirements and Its Relevance to the Case:

The respondents argued that the large cash deposits made in the accounts of the assessee appeared to be on account of unauthorized transactions of forex, which were made without requisite KYC of the forex purchasing party. The court noted that the KYC requirements did not form part of the show cause notice under Section 148A(b) of the Act. The court found that the fact that unauthorized transactions of forex were made without requisite KYC of the forex purchasing party could not be said to be a fresh fact that had come to light, which was not previously disclosed.

4. Adequacy of the Information Provided by the Assessee During the Initial Assessment:

The court noted that the assessee had submitted all details and answered all queries during the initial assessment. The assessee had enclosed cash flow statements, registers of sale and purchase of foreign currency, daily summaries, balance books, and RBI audit letters. The court found that the information provided by the assessee during the initial assessment was adequate and that the Assessing Officer could have called for the KYC documents if there was any doubt in his mind about the large cash deposits.

5. Jurisdictional Challenge to the Reopening of Assessment under Article 226 of the Constitution of India:

The court referred to the Supreme Court's decision in Anshul Jain Vs Principal Commissioner of Income Tax, which held that the High Court should not interfere at a premature stage when the proceedings initiated are yet to be concluded by a statutory authority. The court noted that the test to be applied at this stage is whether there was reason to believe that the income has escaped assessment and whether the Assessing Officer has sufficient reason for forming that belief. The court found that the reopening of the assessment in the present case was not based on fresh facts but was a mere change of opinion.

Conclusion:

The court concluded that the reopening of the assessment in the present case was not justified and that the impugned notice under Section 148 of the Income Tax Act, 1961, was invalid. The court allowed the petition and quashed the impugned notice.

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