2019 (1) TMI 801 - HC - Income Tax

Reopening of assessment - notice issued beyond the period of four years - escapement of income should be on account of failure on part of the assessee to disclose truly and fully all material facts - Held that - Notice of reopening of assessment has been issued beyond the period of four years from the end of relevant assessment year. The additional requirement as per the proviso of Section 147 of the Act that . In the present case, from the reasons recorded, find that no such requirement was fulfilled. In the reasons itself the AO has stated that the record of the assessee was checked and it was found that it is a builder and therefore, to verify the intelligence gathered by Intelligence Wing, it is necessary to carry out thorough and detailed inquiry. Very clearly thus by his own account the Assessing Officer wishes to carry out a fishing inquiry. Reopening of assessment cannot be permitted for carrying out fishing inquiries. AO is proceeding on completely wrong premise. Perusal of the reasons recorded show that he has some prima facie objections to the assessee having developed Ganesh Krupa Housing Society land which according to information received by him did not contain any agreement. When the assessee repeatedly pointed out to the AO before and even after issuing of notice for reopening that he had neither developed any such project during the year of the consideration nor claimed exempt income arising out of such project, it was duty of the AO atleast to prima facie show how such assertion of the assessee was incorrect. He simply cannot claim that full assessment must be permitted even in absence of any prima facie evidence of income chargeable to tax having escaped assessment. For all these reasons, impugned notice is set aside. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice of reopening of assessment beyond the four-year period.
2. Requirement of failure on part of the assessee to disclose material facts for reopening assessment.
3. Justification for reopening assessment based on intelligence report and need for detailed inquiry.
4. Permissibility of fishing inquiries in reopening assessments.
5. Duty of Assessing Officer to address objections raised by the assessee before reopening assessment.

Analysis:
1. The petitioner, a partnership firm in the construction business, challenged a notice of reopening of assessment issued beyond the four-year period for the assessment year 2011-12. The Assessing Officer had accepted the petitioner's returned income in the original assessment under Section 143(3) of the Income Tax Act, 1961. The reasons for reopening the assessment included information received from the Deputy Director of Income Tax regarding redevelopment projects and joint venture arrangements. The petitioner objected to the reopening, citing no involvement in the mentioned projects.

2. The petitioner contended that the notice of reopening was issued beyond the statutory period and without any failure on their part to disclose material facts. The Assessing Officer's reasons indicated a fishing inquiry based on the petitioner's builder status and intelligence report. The High Court held that the requirement of disclosing all material facts was not met, and reopening for fishing inquiries was impermissible. The notice was set aside as the income chargeable to tax had not escaped assessment due to the petitioner's actions.

3. The Assessing Officer's reliance on an intelligence report and the need for detailed inquiry into the petitioner's activities were deemed unjustified by the Court. The reasons for reopening assessment were found to be based on a wrong premise regarding the petitioner's involvement in a specific project. Despite the petitioner's clarifications and objections, the Assessing Officer failed to provide prima facie evidence of income escapement. The Court emphasized the Assessing Officer's duty to address the petitioner's contentions before reopening assessments.

4. The Court highlighted that reopening assessments solely for fishing inquiries is not permissible under the law. The Assessing Officer must have a genuine reason to believe that income chargeable to tax has escaped assessment. In this case, the Court found that the Assessing Officer's intentions were more aligned with conducting a fishing expedition rather than addressing specific income escapement concerns. Therefore, the notice of reopening was deemed unjustified and set aside.

5. In conclusion, the High Court allowed the petition and disposed of the case in favor of the petitioner. The Assessing Officer's actions in reopening the assessment were found to be based on incorrect premises and without fulfilling the legal requirements for such actions. The Court emphasized the importance of adhering to statutory provisions and providing valid reasons before reopening assessments, ensuring fairness and transparency in the tax assessment process.