2020 (3) TMI 812 - HC - Income Tax

Reopening of assessment u/s 147 - notice for reopening is issued beyond a period of 4 years on the basis of the verification of the material available during the scrutiny assessment - whether income chargeable to tax has escaped assessment for the failure on part of the assessee to disclose fully and truly all material facts, is emerging from the reasons recorded? - HELD THAT - When the impugned notice issued under Section 148 of the Act is clearly beyond the period of four years from the end of relevant assessment year, in view of the first proviso to Section 147 of the Act, the respondent has to record the reason as to whether the income chargeable to tax has escaped assessment for the failure on part of the assessee to disclose truly and fully all material facts for its assessment for the year under consideration. On perusal of the reasons recorded as well as material on record, it is evident that there was no failure on the part of the petitioner to disclose truly and fully all material facts. It is settled proposition of law that for fishing inquiry, reopening of assessment is not permissible, that too, reopening beyond the period of four years from the end of the relevant assessment year when it is not even the case of the respondent that there is a failure on the part of the petitioner to disclose truly and fully all material facts. There is no tangible material for the respondent to come to the conclusion that there is escapment of income from assessment. Moreover, there is no live link for formation of such belief while recording the reasons for reopening the assessment. In such circumstances, when the entire material had been placed by the petitioner before the Assessing Officer, who accepted the view canvassed by the assessee then merely because he did not record such acceptance in assessment order would not be a ground to conclude that income has escaped the assessment, and therefore, the assessment is required to be reopened. Petition succeeds and is accordingly allowed. The impugned notice dated 29.03.2018 issued by the respondent under Section 148 is hereby quashed and set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Alleged failure of the petitioner to deduct TDS on various expenses.
3. Alleged improper payment of bonus to directors in lieu of dividends.
4. Validity of reopening the assessment beyond four years.

Detailed Analysis:

Legality of the Notice Issued Under Section 148:
The petitioner challenged the notice issued under Section 148 of the Income Tax Act, 1961, arguing that it was based solely on information from the audit party without any independent application of mind by the Assessing Officer (AO). The court observed that the notice was issued beyond four years from the end of the relevant assessment year. Therefore, it was crucial to determine if the income chargeable to tax had escaped assessment due to the failure of the assessee to disclose fully and truly all material facts.

Alleged Failure to Deduct TDS:
The AO issued the notice alleging that the petitioner failed to deduct TDS on payments made for wharfage expenses, import expenses, and operation and maintenance charges for windmills. The court noted that during the original assessment proceedings, the petitioner had provided all necessary details regarding these expenses, including TDS returns and explanations. The AO had already considered these details while passing the original assessment order under Section 143(3) of the Act.

Alleged Improper Payment of Bonus to Directors:
The AO also alleged that the petitioner paid a bonus to its directors, who held a significant shareholding, instead of declaring dividends, thereby reducing the taxable profit. The court found that the details of the bonus and remuneration paid to the directors were furnished during the original assessment, and the AO had considered these details. Therefore, the issue of disallowance under Section 36(1)(ii) of the Act had already been addressed.

Validity of Reopening the Assessment Beyond Four Years:
The court emphasized that for reopening an assessment beyond four years, it must be shown that there was a failure on the part of the assessee to disclose fully and truly all material facts. The court found that the reasons recorded for reopening were based on the material already on record during the original assessment proceedings. There was no allegation of failure on the part of the petitioner to disclose material facts. The court cited several precedents, including the Supreme Court's decision in Kelvinator of India Ltd., to assert that a mere change of opinion does not justify reopening an assessment.

Conclusion:
The court concluded that the notice issued under Section 148 was invalid as it was based on a mere change of opinion and not on any new tangible material. The court quashed the notice and ruled in favor of the petitioner, emphasizing that the reopening of assessment beyond four years was not justified in the absence of any failure to disclose material facts by the petitioner. The petition was allowed, and the impugned notice was set aside.