2014 (4) TMI 862 - HC - Income Tax

Validity of notice u/s 148(1) of the Act Mere-change of opinion - Bar of limitation Deduction on interest income - u/s 36(1)(viii) of the Act Held that - The words interest income received can only be the gross interest received it is not fit to disallow the deduction claimed u/s 36 (1) (viii) - there was no failure on the part of the assessee to disclose fully and truly all material facts as contemplated under the 1st proviso to section 147 of the Act - the initiation of reassessment proceedings u/s 147 of the Act was only based on a change of opinion which is impermissible in law - there was no failure on the part of the assessee to disclose fully and truly all material facts in relation to the A.Y. 2005 -2006 - Even in the scrutiny proceedings u/s 143 (3), all disclosures were made by the assessee regarding its claim for a deduction u/s 36 (1) (viii) of the Act Thus, the reassessment proceedings were initiated only on the basis of a change of opinion and had no jurisdiction to reopen the assessment proceedings Decided in favour of Assessee.

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961.
2. Alleged failure to disclose fully and truly all material facts necessary for assessment.
3. Reopening of assessment based on a "change of opinion."

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The Petitioner sought the quashing of the notice dated 28th March 2012 issued under section 148 of the Income Tax Act, 1961, for the assessment year (A.Y.) 2005-2006. The notice was issued more than four years after the end of the relevant assessment year. The Petitioner argued that the Respondent could not issue the notice without concluding that there was a failure to disclose fully and truly all material facts necessary for assessment, as required by the first proviso to section 147 of the Act. The court found that there was no allegation in the reasons recorded for reopening the assessment that the Petitioner had failed to disclose any facts as required.

2. Alleged Failure to Disclose Fully and Truly All Material Facts Necessary for Assessment:
The Petitioner had filed its return of income for A.Y. 2005-2006, claiming a deduction under section 36(1)(viii) of the Act. The original assessment was completed under section 143(3) after considering all relevant aspects. The reasons for reopening the assessment did not allege any failure on the part of the Petitioner to disclose material facts. The court emphasized that the reasons recorded for reopening must be clear and unambiguous, based on evidence, and should establish a vital link between the reasons and the evidence. The court found that the Petitioner had disclosed all material facts fully and truly, and the Respondent had considered the same before making the assessment order under section 143(3).

3. Reopening of Assessment Based on a "Change of Opinion":
The court noted that the reopening of the assessment was based merely on a "change of opinion," which is impermissible in law. The original assessment order had accepted the Petitioner's claim for deduction under section 36(1)(viii) after detailed scrutiny. The court held that the reassessment proceedings initiated on the basis of a "change of opinion" were not justified. It was emphasized that the reasons recorded for reopening should not be vague and must clearly indicate the failure to disclose material facts if that is the basis for reopening.

Conclusion:
The court ruled in favor of the Petitioner, holding that the reassessment proceedings were invalid as they were based on a "change of opinion" and lacked any allegation of failure to disclose material facts. The notice issued under section 148 was quashed, and the rule was made absolute in terms of the prayer clauses (a) and (c) of the writ petition. There was no order as to costs.

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