2020 (5) TMI 91 - HC - Income Tax

Reopening of assessment u/s 147 - validity of reasons to believe - HELD THAT - In the entire reasons recorded there is not even a whisper that there is any failure on the part of the assessee to disclose fully and truly all material facts. It being an admitted position that the assessment is sought to be reopened beyond a period of four years from the end of the relevant assessment year in a case where a scrutiny assessment has been made u/s 143(3) it was incumbent upon the AO to record, in the reasons itself, as to whether there was any failure on the part of the assessee to disclose fully and truly all material facts. In the absence of any such finding in the reasons recorded for reopening the assessment, the assumption of jurisdiction on the part of the Assessing Officer, beyond a period of four years from the end of the relevant assessment year, lacked validity. No substantial question of law. Insofar as the finding recorded by the Tribunal that the Assessing Officer could not lay his hands on any new information and has re-appreciated the information already possessed by him and considered it in the scrutiny assessment, as rightly pointed out by the learned senior standing counsel for the appellant, in the light of the provisions of Explanation 1 to section 147 there is no bar against the Assessing Officer on reopening the assessment on the basis of information contained in the material which was already placed before the Assessing Officer. Information has to be such as is contemplated in the Explanation 1 to section 147 of the Act. In the present case, there is no observation of the AO that the material on record was embedded in such a manner that it was not possible for the AO to notice the same at the time of scrutiny assessment. Moreover, as recorded earlier, the very same issue had already been scrutinized during the course of scrutiny assessment. No infirmity can be found in the impugned order warranting interference. - Decided against revenue.

Summary

Issues:
Challenge to order under section 260A of the Income Tax Act, 1961 - Reopening of assessment under section 147 - Cessation of liability u/s 41(1) - Disclosure of material facts - Validity of reopening assessment beyond four years - Jurisdiction of Assessing Officer - New information for reopening assessment.

Analysis:
1. Reopening of Assessment under Section 147:
The appellant-revenue challenged the order passed by the Income Tax Appellate Tribunal regarding the reopening of assessment under section 147 of the Income Tax Act. The Tribunal set aside the assessment order, leading to the appeal. The Tribunal found that the Assessing Officer did not establish that the assessee failed to disclose all material facts fully and truly, resulting in income escaping assessment. The Tribunal held that the Assessing Officer did not have any new information and only re-evaluated existing information, without alleging any withholding of information by the assessee.

2. Cessation of Liability u/s 41(1):
The issue of treating an amount credited directly to the Capital Reserve account without crediting it to the Profit and Loss account as cessation of liability u/s 41(1) was raised. The Tribunal observed that this issue had already been scrutinized during the original assessment proceedings under section 143(3) of the Act. The Tribunal noted that the Assessing Officer did not mention any failure on the part of the assessee to disclose all material facts fully and truly. As the assessment was sought to be reopened beyond four years from the relevant assessment year without such a finding, the jurisdiction of the Assessing Officer was deemed invalid.

3. Disclosure of Material Facts and Validity of Reopening:
The Tribunal emphasized that the Assessing Officer did not base the reopening of assessment on any new information but re-evaluated existing material. However, the Tribunal clarified that the Assessing Officer can reopen assessment based on existing information if it meets the criteria under Explanation 1 to section 147 of the Act. In this case, there was no indication that the material was not noticeable during the scrutiny assessment, and the issue in question had already been scrutinized. Therefore, the Tribunal found no infirmity in the order to warrant interference.

4. Jurisdiction of Assessing Officer and New Information:
The Tribunal highlighted the importance of the Assessing Officer establishing a failure on the part of the assessee to disclose all material facts fully and truly when reopening an assessment beyond four years. Without such a finding, the jurisdiction of the Assessing Officer to reopen the assessment is considered lacking validity. The Tribunal reiterated that the Assessing Officer can reopen assessment based on existing information if it aligns with the provisions of Explanation 1 to section 147 of the Act.

5. Conclusion:
The appeal challenging the Tribunal's order failed, and it was summarily dismissed. The Tribunal's decision to set aside the assessment order was upheld based on the lack of new information for reopening the assessment and the absence of a finding regarding the failure of the assessee to disclose material facts fully and truly. The Tribunal's analysis emphasized the importance of meeting the legal requirements for reopening assessments under section 147 of the Income Tax Act.