2025 (2) TMI 709 - HC - Income Tax

Reopening of assessment u/s 147 - failure of the petitioner to disclose fully and truly all material facts necessary for assessment - HELD THAT - As Hindustan Lever Ltd. 2004 (2) TMI 41 - BOMBAY HIGH COURT thus holds that the AO must disclose all the reasons for reopening the assessment. This would include a reference to the facts or materials which were allegedly not disclosed by the assessee for the relevant assessment year. The Court held that the AO in case of a challenge to the reasons must be able to justify the same based on the material on record. The AO must disclose the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessing that assessment year to establish a vital link between the reasons and the evidence. Court emphasised that this vital link safeguards against the arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavits or making oral submissions. Otherwise the reasons lacking in material particulars would get supplemented by the time the matter reaches the Court on the strength of the affidavit or oral submissions advanced. Thus relying on the issue in Hindustan Lever Ltd. 2004 (2) TMI 41 - BOMBAY HIGH COURT and applying it to the facts in the present case including the fact that the Assessing Officer in the reasons furnished to the petitioner has not bothered to disclose which material facts according to the Assessing Officer were not fully and truly disclosed by the Petitioner for the relevant assessment year we quash the impugned notice. In any event this is a case of reopening beyond the prescribed period of four years. Therefore unless a case of failure to disclose fully and truly all the material facts by the assessee was made out there is no question of overcoming the statutory bar in seeking to reopen the assessment beyond four years. In Shrenik Kumar Baldota 2025 (1) TMI 1067 - BOMBAY HIGH COURT we had to reject a similar objection because the reasons furnished to the assessee in the Petition did not mention the audit objections as one of the reasons for reopening. Accordingly we held it was the settled position that the reopening restrictions must be tested on the touchstone of the reasons as recorded. Nothing could be added or subtracted there. Since neither the reasons recorded nor the order deciding the objections stated that the reopening was done based on the audit objections the reopening notice could not be sustained.

Summary

The judgment by the Bombay High Court addressed a petition challenging the reopening of the petitioner's assessment for the assessment year 2014-2015 due to an impugned notice issued beyond the prescribed period of four years. The key issues considered in the judgment include whether the notice to reopen the assessment was valid based on the failure of the petitioner to disclose fully and truly all material facts necessary for assessment and whether the reasons provided for reopening were sufficient and in compliance with legal requirements.The Court analyzed the reasons provided for reopening the assessment, which included concerns regarding the issuance of Compulsory Convertible Debentures (CCD) and the treatment of certain amounts in the petitioner's accounts. The Court noted that the reasons for reopening did not specifically identify which material facts were allegedly not fully and truly disclosed by the petitioner, as required by law. Citing the Hindustan Lever Ltd. case, the Court emphasized the importance of the Assessing Officer disclosing all reasons for reopening, including the specific facts or materials not disclosed by the assessee.The Court highlighted that the reasons provided for reopening did not mention audit objections, which were later raised by the respondent. The Court held that the statutory bar on reopening assessments beyond four years could only be overcome if there was a clear case of failure to disclose material facts by the assessee. Since the reasons did not establish such failure, the Court quashed the impugned notice and subsequent orders.In conclusion, the Court set aside the impugned notice dated 27 March 2021 and ruled in favor of the petitioner, emphasizing that the reasons for reopening assessments must be clear, unambiguous, and based on evidence to prevent arbitrary actions by the Assessing Officer. The judgment underscored the importance of complying with legal requirements when issuing notices for reassessment and upheld the principle that statutory restrictions on reopening assessments must be strictly adhered to.This judgment serves as a reminder of the procedural safeguards in place to protect taxpayers from arbitrary reassessment and reaffirms the principle that Assessing Officers must provide clear and justifiable reasons for reopening assessments beyond the prescribed period.