2019 (3) TMI 166 - HC - Income Tax

Reopening of assessment - Original assessment u/s 143(3) - notice u/s 147/148 to be premised on fresh or tangible material - HELD THAT - It is far too well settled that any notice u/s 147/148 is to be premised on fresh or tangible material made available with the Revenue within the time granted or within the extended time under Section 147. The only other circumstance when it can seek recourse to the reassessment power is if material documents, having significance on the reassessment, are withheld or improperly disclosed. The duty of the AO, it has been repeatedly emphasised from the decision of the Supreme Court in Calcutta Discount Co.Ltd. vs. ITO, Companies District-I, Calcutta (1960 (11) TMI 8 - SUPREME COURT) is to truly assess the income disclosed by the assessee. The corresponding duty or the responsibility of the assessee is to disclose all material facts. Once that duty is discharged, the inability of the AO to carry out the task assigned to him by the statute properly does not authorize a second opinion, based upon which the AO can issue reassessment notice. In the present case, it is plain that the reassessment notice was based upon a second opinion or revisiting of the same facts by a subsequent Assessing Officer and no more. For these reasons, the reassessment notice has to be quashed. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 based on exceeding statutory liberty and lack of fresh material for reassessment.

Analysis:
1. The petitioner challenged a notice under Section 148 of the Income Tax Act, 1961 for the assessment year 2011-2012, alleging that the Revenue exceeded the liberty granted by the statute and that the power was invoked without fresh material but by re-appreciating existing information from the original scrutiny assessment.

2. The petitioner, engaged in the hospitality business, filed a return declaring losses. The assessment was completed after scrutiny, where queries were raised regarding misappropriation amounts and adjustments in taxable income. The AO sought specific details, and after receiving responses, the assessment was finalized.

3. The reasons for the reassessment notice stated that certain provisions made by the assessee were not offered for taxation, leading to an alleged escapement of income. The AO believed that material facts were not fully disclosed, justifying the reassessment under Section 147/148.

4. The petitioner argued that the reassessment lacked valid grounds as there was no allegation of withholding material facts, citing legal precedent to support the contention. The absence of tangible material with the Revenue rendered the reassessment unsustainable and sought its quashing.

5. The Revenue contended that the AO's lack of discussion in the scrutiny order indicated non-consideration of circumstances, justifying the reassessment. It was argued that the amounts in question were not offered for taxation, warranting the notice to stand.

6. The Court emphasized that a reassessment notice must be based on fresh or tangible material provided within the stipulated time frame. The AO's duty is to assess the disclosed income, and the assessee must reveal all material facts. In this case, the reassessment notice seemed to stem from a second opinion rather than new material, leading to its quashing.

7. The Court found that the reassessment notice was a reevaluation of existing facts rather than a result of undisclosed material, warranting its annulment. The Court concluded that the reassessment notice was not valid and ordered its quashing, leading to the success of the writ petition.