2019 (3) TMI 132 - HC - Income Tax

Reopening of assessment - reopening of tantamount to fishing or roving inquiry - reopening of assessment beyond four years - HELD THAT - AO during the scrutiny for assessment year 2012.13 had not raised any query on this aspect and had not verified the same during the assessment. In that view of the matter, he was of the opinion that the issue requires verification; which would tantamount to fishing or roving inquiry. His reference to the subsequent assessment, in absence of any additional material outside of the present assessment proceedings would not form a valid source of information permitting him to reopen assessment. If during the assessment of the later assessment year, the AO collects or chances upon new material which may have bearing on the assessment of the assessee, and in case where the assessment is sought to be reopened beyond four years, he can also establish lack of true and full disclosures on the part of the assessee, it may be open for him to reopen assessment of the earlier year. Merely because in the later year, the AO takes a different view on the basis of similar material, which may have been collected during such process, would not permit him to reopen the assessment. Under these circumstances, the AO s reference to further exercise undertaken while carrying out scrutiny assessment for the assessment year 2014-15 during which he decided to tax the assessee at higher rate would not enable the AO in the present case to reopen the assessment beyond four years. - Decided in favour of assessee.

Issues Involved:
1. Legality of the notice for reopening assessment beyond four years.
2. Whether the petitioner made true and full disclosures in the original assessment.
3. Validity of the Assessing Officer's belief based on subsequent assessment years.
4. Whether the petitioner is a beneficial owner of the interest income as per DTAA.
5. Whether the Assessing Officer's scrutiny in subsequent years justifies reopening the assessment.

Issue-wise Detailed Analysis:

1. Legality of the notice for reopening assessment beyond four years:
The petitioner challenged the notice of reopening of assessment dated 3.4.2018, which was issued beyond the period of four years from the end of the relevant assessment year. The court noted that under these circumstances, the additional requirement flowing from the first proviso of Section 147 of the Income Tax Act, that escapement of income chargeable to tax should be due to a failure on the part of the assessee to disclose truly and fully all material facts, must be satisfied.

2. Whether the petitioner made true and full disclosures in the original assessment:
The court examined the materials on record and concluded that the petitioner had made true and full disclosures. During the original assessment, the Assessing Officer had raised multiple queries and elicited detailed replies from the petitioner. The petitioner had provided comprehensive information and documents, including details of investments, interest earned, and the shareholding structure. The court observed that there was no failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment.

3. Validity of the Assessing Officer's belief based on subsequent assessment years:
The Assessing Officer's belief was based on information obtained during the assessment of subsequent years, particularly the assessment year 2014-15. The court noted that the Assessing Officer's reference to the scrutiny assessment for the assessment year 2012-13 indicated that no query was raised on the issue of beneficial ownership during the original assessment. However, the court held that merely because the Assessing Officer formed a different view in subsequent years based on similar material does not permit reopening the assessment beyond four years without new material indicating a lack of true and full disclosures by the assessee.

4. Whether the petitioner is a beneficial owner of the interest income as per DTAA:
The Assessing Officer had concluded that the petitioner was not the beneficial owner of the interest income and thus denied the treaty benefits under the DTAA, taxing the interest income at a higher rate of 20% instead of 10%. The petitioner argued that it held a tax residency certificate issued by Cyprus Authorities, and the Assessing Officer could not disregard this certificate. The court did not delve into the merits of this contention but focused on the procedural aspect of reopening the assessment.

5. Whether the Assessing Officer's scrutiny in subsequent years justifies reopening the assessment:
The court observed that the Assessing Officer's scrutiny in subsequent years, which led to a different conclusion, does not justify reopening the assessment beyond four years in the absence of new material indicating a failure to disclose true and full facts by the assessee. The court emphasized that reopening the assessment based on a change of opinion or further scrutiny without additional material outside the present assessment proceedings is not permissible.

Conclusion:
The court quashed the impugned notice for reopening the assessment, stating that it cannot be sustained. The court did not examine the merits of the petitioner's contention regarding the tax rate but focused on the procedural invalidity of reopening the assessment beyond four years. The petition was allowed and disposed of accordingly.

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