2021 (11) TMI 538 - HC - Income Tax

Reopening of assessment u/s 147 - Eligibility of reasons to believe - AO jurisdiction to issue notice - HELD THAT - In this case, as we have held that the allegation in the reasons recorded for reopening that petitioner has not disclosed all fully and truly material facts necessary for the assessment is incorrect, one of the condition for reopening the assessment before the Assessing Officer could assume jurisdiction for issuing notice under Section 148 has not been satisfied. On this ground alone, it can be concluded that the notice is issued without jurisdiction. The tangible material to initiate assessment proceedings, as stated in the reasons for reopening, is an agreement dated 6th March 2014 post the period with which the impugned notice is concerned. When the reopening for the Assessment year 2011-2012 was challenged in this Court, this Court, on identical facts, in its order 2019 (1) TMI 1146 - BOMBAY HIGH COURT while setting aside the notice issued under Section 148, held that an agreement post the period with which the impugned notice is concerned by itself could not form the basis for the Assessing Officer to have come to a reasonable belief that income chargeable to tax has escaped assessment for the subject assessment year 2011-2012. Thus the impugned notice is quashed as being without jurisdiction. - Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of notice under Section 148 of the Income Tax Act.
2. Requirement of disclosing fully and truly material facts for assessment.
3. Reopening assessment after four years from the end of the relevant assessment year.

Analysis:
1. The petitioner challenged a notice and order issued under Section 148 of the Income Tax Act, contending that the notice was without jurisdiction. The respondents decided to reopen the assessment four years after the assessment order, invoking Section 147 of the Act. The Court highlighted the necessity for the Assessing Officer to have valid reasons to believe that income has escaped assessment before issuing a notice under Section 148. In this case, the Court found that the allegation of failure to disclose all material facts necessary for assessment was incorrect, rendering the notice issued without jurisdiction.

2. The Court examined the petitioner's compliance with disclosing material facts during assessment proceedings. The petitioner had provided detailed responses and annexures to the respondents' queries, including information on expenses debited to the profit and loss account. The Court emphasized that the Assessing Officer must have valid reasons to believe that the assessee failed to disclose material facts fully and truly for assessment. In this case, the Court found that the petitioner had indeed disclosed all necessary material facts, refuting the allegation of non-disclosure.

3. The Court scrutinized the tangible material used to initiate assessment proceedings, emphasizing the need for valid reasons to believe that income has escaped assessment. The Court referred to a previous judgment where it was held that an agreement post the relevant period could not form the basis for assuming income had escaped assessment. The Court reiterated the requirement for the Assessing Officer to form a reasonable belief based on tangible material before reopening assessments. In this case, the Court found that the notice was unsustainable due to a lack of valid reasons to believe income had escaped assessment.

Overall, the Court quashed the impugned notice, concluding that it was issued without jurisdiction and lacked valid grounds for reopening the assessment. The judgment emphasized the importance of complying with legal requirements and providing complete and accurate information during assessment proceedings to avoid arbitrary reopening of assessments after the statutory period.