2021 (10) TMI 71 - HC - Income Tax

Reopening of assessment u/s 147 - setting off of the interest expenses under Section 57 - Assessment reopened after the expiry of a period of four years - review v/s reopening - mandation of recording satisfaction before concluding reason to believe - wrong claim of the deduction under Section 57 - HELD THAT - petitioner had truly and fully disclosed all material facts necessary for the purpose of assessment. Not only material facts were disclosed by petitioner truly and fully but they were carefully scrutinized and figures of income as well as deduction were reworked carefully by the Assessing Officer. In the reasons for reopening, the Assessing Officer has infact relied upon the audited accounts to say that the claim of deduction under Section 57 of the Act was not correct, the figures mentioned in the reason for reopening of assessment are also found in the audited accounts of petitioner. In the reasons for reopening, there is not even a whisper as to what was not disclosed. In the order rejecting the objections, the Assessing Officer admits that all details were fully disclosed. In our view, this is not a case where the assessment is sought to be reopened It cannot be said in the present case that there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. It cannot be stated that the condition precedent to the reopening of an assessment beyond a period of four years has been fulfilled. As observed in Parashuram Pottery Works Co. Ltd. 1976 (11) TMI 1 - SUPREME COURT it would be in the interest of citizens of India or we should say, civilization that those who are entrusted with the task of calculating and realising the price that we pay for the civilization should familiarise themselves with the relevant provisions and become well versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. The petition is allowed.

Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income Tax Act, 1961.
2. Failure to disclose fully and truly all material facts necessary for assessment.
3. Change of opinion by the Assessing Officer as a ground for reopening assessment.
4. Jurisdictional requirements for reopening an assessment after four years.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessment under Section 147 of the Income Tax Act, 1961:
The court examined whether the reopening of the assessment under Section 147 was valid. The petitioner had filed its annual returns for the Assessment Year 2012-2013 and received a notice under Section 148 of the Act on 26th March 2019, stating that the income chargeable to tax had escaped assessment. The court noted that the reasons for reopening were based on the belief that the petitioner had wrongly claimed a deduction under Section 57, which should have been capitalized to the Work In Progress (WIP). The court held that the Assessing Officer must have tangible material to believe that income had escaped assessment and that such escapement was due to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment.

2. Failure to Disclose Fully and Truly All Material Facts Necessary for Assessment:
The court emphasized that for reopening an assessment after four years, the proviso to Section 147 requires a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found that the petitioner had disclosed all primary facts, including audited accounts, balance sheet, profit and loss account, and details of interest expenses claimed under Section 57. The court noted that the Assessing Officer had all the material facts before him during the original assessment and that there was no failure on the part of the petitioner to disclose material facts.

3. Change of Opinion by the Assessing Officer as a Ground for Reopening Assessment:
The court held that the reopening of the assessment was based on a change of opinion by the Assessing Officer. The court reiterated that the Assessing Officer cannot reopen an assessment merely based on a change of opinion. The court cited several judgments, including Calcutta Discount Co. Ltd. v. Income Tax Officer and Commissioner of Income Tax v. Bhanji Lavji, to support the view that the duty of the assessee is to disclose all primary facts, and it is for the Assessing Officer to draw inferences from those facts. The court concluded that the reopening of the assessment was not justified as it was based on a change of opinion.

4. Jurisdictional Requirements for Reopening an Assessment After Four Years:
The court examined whether the jurisdictional requirements for reopening the assessment after four years were met. The court noted that the Assessing Officer must record reasons for believing that income had escaped assessment and that such escapement was due to the failure of the assessee to disclose fully and truly all material facts. The court found that the reasons recorded by the Assessing Officer did not disclose any specific material fact that was not disclosed by the petitioner. The court held that the jurisdictional requirements for reopening the assessment were not met, and the notice issued under Section 148 was invalid.

Conclusion:
The court set aside the impugned order and held that the Assessing Officer had no jurisdiction to issue the notice under Section 148 of the Act. The court quashed the notice dated 26th March 2019 and the order dated 30th September 2019. The petition was allowed, and the reopening of the assessment was deemed invalid. The court emphasized that the duty of the assessee is to disclose all primary facts, and it is for the Assessing Officer to draw inferences from those facts. The court reiterated that reopening an assessment based on a change of opinion is not permissible.

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