2016 (3) TMI 974 - HC - Income Tax

Reopening of assessment - non-charging of interest from SPPL on the sum advanced - Held that - Petitioner did disclose all the material facts necessary for the assessment. Apart from the fact that the return was picked up for scrutiny, a detailed questionnaire was issued, in which specific questions touching upon the said loan to SPPL were raised. The Petitioner replied to the said letter disclosing all the necessary information. Consequently, as far as the first ground for reopening of the assessment is concerned, the Court is satisfied that the precondition of the first proviso to Section 147 regarding failure on the part of the Assessee to fully and truly disclose the material facts, is not fulfilled. The mere fact that the assessment order may itself not advert to the fact that a questionnaire was issued and a reply was filed thereto by the Assessee would not ipso facto lead to an inference that the AO did not apply his mind and form an opinion on that ground. - Decided in favour of assessee Share capital received by the Assessee during the AY - Held that - Even if the records are now to be produced before the Court and perused by it, it is not open for the Court to gather from the records the material/information which would support the reasons as communicated to the Petitioner by the DCIT. The court is therefore satisfied, that even in respect of the second reason for reopening the assessment, the mandatory requirement of the AO having to form a prima facie view regarding failure on the part of the Assessee to fully and truly disclose all the material facts is not fulfilled. - Decided in favour of assessee

Summary

Issues:
1. Challenge to notice for reopening assessment for AY 2007-08 under Section 148 of the Income Tax Act, 1961.
2. Disclosure of material facts by the Assessee regarding advance to a company and share capital received.
3. Jurisdiction of AO to reopen assessment based on MCA database search.
4. Legal validity of the reasons for reopening assessment and objections filed by the Assessee.

Analysis:
1. The writ petition challenges a notice issued by the Deputy Commissioner of Income Tax under Section 148 of the Income Tax Act, seeking to reopen the assessment for AY 2007-08. The Assessee had filed its return declaring NIL income, which was picked up for scrutiny. The AO passed an assessment order determining total income as nil. The notice for reopening was issued after four years from the end of the AY, citing issues related to loans advanced and share capital received by the Assessee.

2. Regarding the advance to a company without charging interest, the Court found that the Assessee had disclosed all material facts necessary for assessment. The Court held that the first reason for reopening the assessment was not valid as the Assessee had responded to specific queries in the questionnaire, satisfying the precondition of disclosing material facts.

3. The second reason for reopening, related to share capital received, was based on MCA database search indicating defunct companies. The Court emphasized that the AO must form a prima facie view based on tangible material before reopening an assessment. However, the vague reference to companies being defunct did not establish a failure on the Assessee's part to disclose material facts fully and truly.

4. The Court rejected the Revenue's plea to produce additional records to substantiate reasons for reopening. It reiterated that the validity of jurisdiction under Section 147 can only be tested based on the reasons recorded for reopening. The Court concluded that the mandatory requirement of forming a prima facie view regarding non-disclosure of material facts was not met, leading to the quashing of the notice and the order rejecting objections.

Overall, the Court found that the Assessee had fulfilled the obligation to disclose material facts, rendering the reasons for reopening the assessment invalid. The writ petition was allowed, and the impugned notice and order were quashed, disposing of the application accordingly.