2016 (1) TMI 942 - HC - Income Tax

Reopening of assessment - addition u/s 69A - Held that - There was true and full disclosure by the assessee of all material facts. As that in the scrutiny assessment order, the Assessing Officer accepted the claim of the assessee under Section 69A and that however, after the expiry of four years, the Assessing Officer sought to reopen the proceedings contrary to the proviso to Section 147 and the reopening of assessment is contrary to law. - Decided in favour of assessee

Issues Involved:
1. Legality of the reopening of assessment.
2. Validity of reasons for reopening assessment.
3. Compliance with the limitation period under Section 147.
4. Allegation of change of opinion by the Assessing Officer.
5. Alleged failure to disclose material facts by the assessee.
6. Violation of principles of natural justice.

Detailed Analysis:

1. Legality of the Reopening of Assessment:
The appellant challenged the reopening of assessment on the grounds that it was illegal. The original assessment was completed on 31.12.2010, and a rectification order was passed on 6.9.2011. The reopening notice under Section 148 was issued on 19.12.2013, which the appellant contended was beyond the permissible period of four years as stipulated by the proviso to Section 147. The court found that the reopening was indeed beyond the four-year limitation period, as the original assessment year ended on 31.03.2009.

2. Validity of Reasons for Reopening Assessment:
The reasons for reopening the assessment were communicated by a letter dated 8.12.2014, which indicated that the addition under Sections 68 and 69A is deemed income and does not come under any heads of income specified in Chapter IV of the Income-tax Act, 1961. The court held that the reasons provided were not sufficient to justify the reopening of the assessment, especially since the original assessment had already considered the income from undisclosed sources under Section 69A.

3. Compliance with the Limitation Period under Section 147:
The court clarified that the proviso to Section 147 mandates that no action shall be taken after the expiry of four years from the end of the relevant assessment year unless there is a failure on the part of the assessee to disclose fully and truly all material facts. Since the reopening was beyond this period, it was deemed illegal. The court emphasized that the starting point for the limitation period is from the end of the relevant assessment year, not from the date of any subsequent rectification order.

4. Allegation of Change of Opinion by the Assessing Officer:
The appellant contended that the reopening of assessment was based on a mere change of opinion by the Assessing Officer, which is not permissible. The court referred to the Supreme Court's ruling in Commissioner of Income Tax v. Kelvinator of India Limited, which held that the Assessing Officer does not have the power to review and that a change of opinion cannot justify reopening an assessment. The court found that the original assessment had already considered the income from undisclosed sources, and hence, the reopening was indeed a change of opinion.

5. Alleged Failure to Disclose Material Facts by the Assessee:
The court examined whether the assessee failed to disclose fully and truly all material facts necessary for the assessment. It was found that all material facts were disclosed during the original assessment, and the Assessing Officer had taken these into account. The court held that there was no failure on the part of the assessee to disclose material facts, as required by the proviso to Section 147.

6. Violation of Principles of Natural Justice:
The appellant argued that the Assessing Officer did not consider the detailed objections submitted on 19.1.2015 and a subsequent letter seeking time to file further objections, thereby violating the principles of natural justice. The court found merit in this argument, noting that the Assessing Officer was in undue haste and did not provide adequate opportunity for the appellant to present their case.

Conclusion:
The court concluded that the reopening of assessment was contrary to law due to the following reasons:
- There was true and full disclosure by the assessee of all material facts.
- The scrutiny assessment order had already accepted the claim under Section 69A.
- The reopening was initiated after the expiry of the four-year limitation period.
- The reopening was based on a mere change of opinion.
- There was a violation of the principles of natural justice.

The writ appeals were allowed, the common order of the learned Judge was set aside, and the writ petitions were allowed with no costs.

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