2018 (5) TMI 444 - HC - Income Tax

Reopening of assessment - reason to believe that income on account of EDC had escaped assessment - Held that - There was material even outside the record with the AO which requires consideration. There are detailed provisions regarding the EDC. The Act deals with the liabilities to pay EDC. It also deals with the nature of the charge. The statutory agreements to be entered into and declarations to be filed with the authorities also referred to the payment of the EDC. EDC has been the subject matter of litigation before this Court. None of this was before the Assessing Officer in the assessment proceedings. Thus apart from the material on record, there was other tangible material that was not considered during the assessment proceedings. There is no question in the facts of the present case of the re-opening being on account of a change of opinion. The issue of change of opinion could only arise if the issue had been dealt with or the material with regard to EDC was there before the A.O. at the time of framing the assessment. As is apparent from the record, the issue was not considered at the time of assessment. There was no occasion for the A.O. to make further inquiry with regard to EDC. There cannot be any quarrel with the proposition that the assessee has no control over the framing of an assessment order. There can be cases where after discussion the A.O. may be satisfied on the issue and does not find it appropriate to discuss the same in the assessment order. This is not the case here. The petitioner has failed to establish that there was any discussion or adjudication on the said issue. In such circumstance, there would be no occasion for the petitioner to argue that merely because the said issue has not been discussed in the assessment order, it will not mean that it was not considered.

Issues Involved:
1. Validity of the reopening of assessment under Sections 147 and 148 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings are based on a change of opinion.
3. Whether the assessee disclosed fully and truly all material facts necessary for assessment.

Detailed Analysis:

1. Validity of the reopening of assessment under Sections 147 and 148 of the Income Tax Act, 1961:

The petitioner sought to quash the order disposing of objections to the reasons recorded for reopening the assessment under Sections 147 and 148 of the Income Tax Act, 1961. The petitioner had filed a return for the assessment year 2010-11, including an audited balance sheet. The Assessing Officer (A.O.) issued a questionnaire asking for details of current liabilities amounting to ?7,311,864,244.78. The petitioner provided a reply detailing sundry creditors and current liabilities, including External Development Charges (EDC). The assessment was finalized under Section 143(3) on 31.12.2012 without referring to EDC. A notice under Section 147/148 was issued on 06/07.02.2017 to reopen the assessment, stating that the petitioner’s income chargeable to tax had escaped assessment due to the treatment of EDC as a liability instead of revenue.

The court examined whether the proceedings for reassessment were maintainable, considering the petitioner’s reply dated 05.12.2012 to the A.O.'s queries. Section 147 requires the A.O. to have "reason to believe" that income chargeable to tax has escaped assessment and that there was a failure on the part of the assessee to disclose fully and truly all material facts.

2. Whether the reassessment proceedings are based on a change of opinion:

The court referred to several judgments to elucidate the principle that a mere change of opinion does not justify the reopening of assessment. The Supreme Court in Commissioner of Income Tax Versus Kelvinator of India Ltd. emphasized that the A.O. must have "tangible material" to form a belief that income has escaped assessment and that reassessment cannot be based on a mere change of opinion. The court noted that the reasons for reopening indicated that the A.O. had reason to believe that income on account of EDC had escaped assessment. The assessment order did not deal with EDC, and the reasons for reopening detailed the nature and purpose of EDC, leading to the inference that EDC is revenue in nature.

3. Whether the assessee disclosed fully and truly all material facts necessary for assessment:

The court examined whether the petitioner had disclosed all material facts fully and truly. The petitioner provided details of current liabilities, including EDC, in response to the A.O.’s query. However, the court found that the petitioner did not clearly show EDC as a current liability in its reply. The court emphasized that the duty of the assessee is to disclose primary relevant facts, but it does not extend to instructing the A.O. about the inferences to be drawn from those facts. The court concluded that the petitioner’s failure to disclose the material facts regarding EDC fully and truly led to the escapement of income.

Conclusion:

The court held that the conditions for reopening the assessment under Section 147 were satisfied. The A.O. had reason to believe that income chargeable to tax had escaped assessment due to the petitioner’s failure to disclose fully and truly all material facts regarding EDC. The reassessment proceedings were not based on a mere change of opinion but on tangible material indicating escapement of income. The writ petition was dismissed, and the reopening of the assessment was deemed valid.

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