2025 (3) TMI 100 - HC - Income Tax

Reopening of assessment u/s 147 - Notice beyond the mandatory period of four years - eligibility of reasons to believe - HELD THAT - A perusal of the reasons for the reopening for the petitioner s case reveals that the assessing officer has not made out any case to the effect that the petitioner failed to disclose fully and truly all material facts necessary for assessment. The impugned order does not in any manner attribute such reasoning stipulated under proviso to Section 147 to the petitioner in any manner whatsoever. In fact the reasons for reopening of the assessment are itself based on the records provided by the petitioner like the books of account documents loan confirmation details from various parties which were furnished by the petitioner during the course of the assessment proceedings. The fact of complete disclosure by the petitioner of all details necessary for assessment were duly disclosed by the petitioner in its letter dated 19 December 2016 (supra) along with all details annexures in specific response to the final show cause notice dated 13 December 2016 issued by the respondents for the A.Y. 2014-15. It is such material which formed the basis of reopening of the assessment as is evident from the impugned assessment order dated 29 March 2022. There appears to be no fresh tangible material before the respondents to form its own/independent opinion in regard to reopening of the petitioner assessment for the A.Y. 2014-15 under Section 147 of the IT Act. Denial of natural justice - We may observe that the mandatory procedure postulated u/s 144B is also not followed by the respondents. This is in as much as the petitioner s objection dated 18 February 2022 to the reasons recorded for reopening of the assessment by the respondent dated 9 December 2021 were neither considered dealt with much less disposed of by the respondents. Further the reply of the petitioner to the draft assessment order dated 24 March 2022 was filed by the petitioner on 28 March 2022 mainly pointing out that the reassessment proceedings were contrary to the provisions of section 147 read with the decision of GKN Driveshaft 2002 (11) TMI 7 - SUPREME COURT The respondent failed to even consider these vital aspects which embrace the requirement of reasonable opportunity to be given to the petitioner rushed to pass the impugned assessment order on 29 March 2022 i.e. just within a day after receiving a reply dated 28 March 2022 from the petitioner to the draft assessment order. No opportunity of being heard/hearing was given to the petitioner despite the variations prejudicial to the petitioner were unilaterally proposed by the respondents nor were the objections raised by the petitioner separately disposed of by the respondents. Thus the impugned assessment order runs contrary to the intrinsic principles of natural justice inbuilt and ingrained under Section 144B of the IT Act rendering the impugned order patently illegal. Thus there is no fresh tangible material on the basis of which the assessing officer decided to reopen the petitioner s assessment for the impugned A.Y. 2014-15 - The impugned assessment order fails to consider that the assessment cannot be reopened beyond a period of four years from the relevant assessment year A.Y. 2014-15 in terms of the first proviso to section 147. Such action would stare in non compliance of jurisdictional requirements and is therefore non-est in law. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core issue before the Court was whether the assessment order dated 29 March 2022, read with the notice under Section 148 of the Income Tax Act, 1961, reopening the assessment of the petitioner for the Assessment Year 2014-2015, was illegal, without jurisdiction, and non-est.

ISSUE-WISE DETAILED ANALYSIS

Reopening of Assessment Beyond Four Years

The legal framework under Section 147 of the IT Act stipulates that no action shall be taken after four years from the end of the relevant assessment year unless there is a failure by the assessee to disclose fully and truly all material facts necessary for assessment. The petitioner argued that the reopening was beyond this period and without any failure on their part to disclose necessary facts.

The Court noted that the original assessment was completed after considering all relevant details, and the reopening was based on the same material, indicating a change of opinion, which is not permissible under the law. The Court emphasized that the reopening did not meet the jurisdictional requirements as no new tangible material was presented to justify it.

Failure to Dispose of Objections

The petitioner contended that their objections to the reopening were not disposed of by a separate order, contrary to the Supreme Court's decision in GKN Driveshafts (India) Ltd v. Income Tax Officer. The Court found that the respondents failed to address the objections, which is a jurisdictional issue affecting the validity of the assessment order. The Court reiterated the necessity for the assessing officer to dispose of objections by a speaking order.

Change of Opinion

The petitioner argued that the reopening was based on a change of opinion, which is impermissible. The Court agreed, noting that the reasons for reopening did not indicate any failure by the petitioner to disclose material facts. The reasons were based on the same material already available during the original assessment, highlighting a change of opinion rather than new information.

Application of Legal Precedents

The Court applied the principles from the Supreme Court's decision in Commissioner of Income-Tax v. Kelvinator of India Ltd, which prohibits reopening based on a mere change of opinion. The Court also referred to its previous decisions, reinforcing that reopening requires new tangible material and cannot be based on the same facts considered in the original assessment.

Principles of Natural Justice

The Court found that the respondents failed to adhere to the principles of natural justice by not providing an opportunity for the petitioner to be heard before finalizing the assessment order. The lack of a separate order disposing of objections further violated these principles.

SIGNIFICANT HOLDINGS

The Court held that the reopening of the assessment was without jurisdiction and illegal, as it was based on a change of opinion without new tangible material. The failure to dispose of objections separately and the violation of natural justice principles rendered the impugned assessment order invalid.

The Court quoted the Supreme Court's decision in GKN Driveshafts, emphasizing the need for a speaking order to dispose of objections. The Court also reiterated the principle from Kelvinator of India Ltd that reopening requires tangible material beyond a mere change of opinion.

The final determination was that the impugned notice and assessment order were quashed and set aside, with the rule made absolute in terms of the petitioner's prayer clauses.

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