2021 (9) TMI 375 - HC - Income Tax

Reopening of assessment u/s 147 - assumption of jurisdiction by the second respondent - Proceedings after expiry of four years from the end of the assessment year - taxability of the benefit derived from one time settlement (OTS) - waiver of loan liability as trading liability or capital liability - HELD THAT - AO while completing the original assessment, took note of the submissions and in the assessment order dated 27.7.2009 u/s 143(3) of the Act, there was a discussion in respect of the OTS and the loans, etc. With regard to the hire purchase interest, AO noted that the same was not disallowed in the earlier years under Section 43(B) of the Act and as such, when it was waived, it became income of the assessee since the same was allowed in the earlier years as trading liability. Accordingly, a sum was assessed to tax under Section 41(1) of the Act. The issue, which appears to be the reason for reopening, was, in fact, discussed by the AO in the original assessment and it was completed. If such is the factual position, unless and until the AO has fresh tangible material brought on record while recording the reasons for reopening, the reopening of assessment, if permitted, would amount to review of the earlier decision, which is impermissible in law. Thus, we are satisfied that the assumption of jurisdiction by the second respondent to reopen the assessment is not sustainable. - Decided in favour of assessee.

Summary

Issues:
Challenge to the reopening of assessment for the year 2007-08 under Section 147 of the Income Tax Act, 1961 based on failure to fully disclose material facts and invoking the Explanation to Section 147. Reopening of assessment on the ground of taxability of benefit from a one-time settlement (OTS) previously accepted in the original assessment order. Lack of fresh tangible material for sustaining the reassessment proceedings beyond four years. Review of earlier decision impermissible in law without fresh tangible material for reopening.

Analysis:

Issue 1: Challenge to Reopening of Assessment
The appellant contested the reopening of assessment beyond four years from the end of the assessment year 2007-08, arguing that it should fall under the Proviso of Section 147 due to the absence of failure to disclose material facts. The appellant emphasized that the mere production of books of accounts or evidence does not constitute disclosure as required by law. Additionally, the appellant argued that the Explanation to Section 147 was wrongly invoked by the second respondent, suggesting a change of opinion and contradicting established legal precedents.

Issue 2: Taxability of OTS Benefit
The appellant raised concerns regarding the taxability of the benefit derived from a one-time settlement (OTS), which had been discussed and accepted in the original assessment order. Citing relevant case law, the appellant argued that the reopening of assessment on the same ground amounted to a change of opinion and was against established legal decisions. The appellant contended that the reassessment for taxing the OTS benefit was contrary to previous court rulings and lacked fresh tangible material to justify the reopening.

Issue 3: Lack of Fresh Tangible Material
The appellant highlighted that the reasons for reopening did not reference any fresh tangible material that came to the notice of the Assessing Officer, essential for sustaining the reassessment proceedings. It was argued that without such new material, the reassessment beyond four years was unwarranted and amounted to a review of the earlier decision, which is impermissible under the law. The absence of fresh tangible material was a crucial point in challenging the validity of the reassessment.

Judgment Outcome
The High Court analyzed the original assessment order and noted that the issue prompting the reopening had been thoroughly discussed and concluded in the initial assessment. Without fresh tangible material justifying the reassessment, the Court deemed the assumption of jurisdiction by the second respondent to reopen the assessment as unsustainable. Consequently, the writ appeal was allowed, the impugned order was set aside, and the reassessment dated 02.3.2015 was quashed. The Court emphasized that reopening without new material would amount to a review of the earlier decision, which is impermissible in law. No costs were awarded, and the connected CMP was closed.