2020 (5) TMI 517 - HC - Income Tax

Reopening of assessment u/s 147 - Whether the notice that has been issued to the petitioner was on account of change of opinion or on account of failure on the part of the petitioner to fully and truly disclose all material required for the assessment? - whether there was full and true disclosure by the petitioner as is contemplated under proviso to Section 147? - HELD THAT - In this case, mere filing to the annexure by the petitioner in response to notice during scrutiny assessment by itself may or may not have been sufficient to come to the conclusion that there was full and true disclosure by the petitioner if the information furnished was neither complete nor true. Question is whether the information furnished were complete in all respect is to be decided only in a adjudicator mechanism. It is therefore best left open for the petitioner to demonstrate before the respondent that the details furnished by the petitioner meets the requirements of full and true disclosure for the Assessing Officer to drop the proceedings in terms of 1st proviso to Section 147 of the Income Tax Act, 1961. In case there is a change of opinion, the respondent cannot proceed in the light of the decision of the Hon ble Supreme Court in CIT Vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT In case indeed there is a mere change in opinion, the respondent will be obliged to drop the proceeding. To ascertain whether is a mere change of opinion or not first it has to be established that there was true and full disclosure by the petitioner. As mentioned above, this can be demonstrated by the petitioner only before the respondent and not in a proceeding under Art.226 of the Constitution of India as scope of judicial review is very limited and it is not possible to conduct a roving enquiry on facts and accounts. Under these circumstances, find no merits in quashing the impugned notice and the communication overruling the objection of the petitioner. Relegate the petitioner to participate in the proceedings before the respondent by filing appropriate representations/objections within a period of thirty days from the date of receipt of a copy of this order. If the circumstance do not justify invocation of proviso to Section 147, the respondent shall drop the proceedings.

Summary

Issues:
Challenge to re-opening of assessment under Section 148 of the Income Tax Act, 1961 for Assessment Year 2003-04 based on communication overruling objections, reliance on internal audit party's views, lack of fresh material, failure in diminution value computation under Section 115JB, disallowance of bad and doubtful debts provision, and enhancement of liability.

Detailed Analysis:

1. Re-opening of Assessment:
The petitioner challenged the re-opening of assessment under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2003-04. The notice was issued on the last day of the limitation period, seeking to re-open the assessment based on reasons related to bad and doubtful debts provision and diminution in value not added back under Section 115JB computation.

2. Objections and Reliance:
The petitioner contended that the Assessing Authority relied on objections raised by the Internal Audit Party without independently forming an opinion, contrary to legal precedents like Indian & Eastern Newspaper Society and Hamilton Housewares cases. The petitioner argued that no fresh material justified invoking Section 148 and the failure in diminution value computation was based on a change of opinion.

3. Disallowance and Liability:
The petitioner asserted that the provision for bad and doubtful debts was disallowed as the petitioner did not claim any deduction for it, indicating no income escapement. Similarly, the petitioner argued that diminution in value did not enhance the liability, citing relevant legal decisions to support their position.

4. Judicial Interpretation:
The court emphasized the procedural requirements for re-opening assessments under Section 148 and the significance of full and true disclosure by the assessee. The court highlighted the distinction between change of opinion and failure to disclose, as per legal interpretations provided by the Honorable Supreme Court.

5. Court's Decision:
The court declined to quash the notice and communication overruling objections, directing the petitioner to participate in the proceedings before the respondent by filing representations within a specified period. The court instructed the respondent to pass orders on merits within a designated timeframe and drop the proceedings if the circumstances do not justify invoking the relevant proviso.

6. Conclusion:
The judgment underscores the importance of adherence to procedural requirements, assessment based on full disclosure, and the need for the respondent to make decisions in accordance with the law. It clarifies the roles of the Assessing Officer and the assessee in re-assessment proceedings under the Income Tax Act, ensuring a fair and lawful process.