2022 (1) TMI 376 - HC - Income Tax

Validity of reopening of assessment u/s 147 - Scope of Explanation- 1 to section 147 of the Act - eligible reasons to believe - Income assesseble under the head business income or other sources and as such Petitioner was not entitled to the deduction under section 24 - As per JAO because the properties which were demerged from BCCL and vested in the Petitioner Company, have not been mutated to the ownership of Petitioner, the transactions cannot be regarded as demerger but transfer of various assets and liabilities undertaken, which attract capital gain - HELD THAT - AO had these details before him and also has accepted that there was a scheme of arrangement between BCCL and Petitioner and the Real Estate Division of the BCCL was demerged and vested with Petitioner with effect from 1st April, 2011. Therefore, Petitioner had explained all the details and after considering all that, the assessment order dated 12th March, 2015 was passed, accepting the return of income filed by Petitioner with same set of reason. AO had in his possession all the primary facts and it was for him to make necessary enquiries and draw proper inference as to whether the amount was to be allowed as deduction under section 24. AO had all material facts before him when he made original assessment. When the primary facts necessary for assessment are fully and truly disclosed, the Assessing Officer is not entitled on change of opinion to commence proceedings for re-assessment. Even if the Assessing Officer, who passed the assessment order, may have raised too many legal inferences from the facts disclosed, on that count the Assessing Officer, who has decided to reopen the assessment, is not competent to reopen assessment proceedings. Where on consideration of the material on record, one view is conclusively taken by the Assessing Officer, it would not be open to re-open the assessment based on the very same material with a view to take another view. As pointed out that the Explanation to the sub-section has nothing to do with inferences and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income-tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose inferences to draw the proper inferences being the duty imposed on the Income Tax Officer. Therefore, it can be concluded that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this. Using the words failure to disclose fully and truly all material facts , is clearly made only as an attempt to take the case out of the restrictions imposed by the proviso (1) to section 147 of the Act. - Decided in favour of assessee.

Summary

Issues:
Impugning a notice under section 148 of the Income Tax Act, 1961 and rejection of objections to the reopening of assessment.

Analysis:
1. The petitioner challenged a notice dated 30th March, 2019, issued under section 148 of the Income Tax Act, 1961, and an order dated 15th October, 2019, rejecting the objections to the reopening of assessment. The petitioner argued that the notice lacked jurisdiction and authority of law due to the absence of satisfaction of conditions precedent under section 148 of the Act. It was contended that there was no failure on the petitioner's part to disclose all material facts, hence no reason to believe in income escapement. The petitioner emphasized that the reasons for reopening indicated a mere change of opinion, which is impermissible in law.

2. The petitioner had initially filed the income return for Assessment Year 2012-13, revising it later. The assessment was completed by assessing the total income. Subsequently, a notice was issued after four years from the end of the relevant assessment year, alleging income escapement. The reasons for reopening were scrutinized, revealing a change of opinion by the Assessing Officer. The petitioner had provided all necessary details during the assessment process, including information related to a scheme of arrangement between entities, which was duly accepted by the Assessing Officer.

3. The Assessing Officer contended that certain transactions should be treated as transfers of assets attracting capital gain, rather than demerger. However, the petitioner had disclosed relevant details in the revised computation of total income, which were duly considered during the initial assessment. The Assessing Officer had all primary facts before him and was obligated to draw proper inferences during the assessment process. Reopening the assessment based on the same material and attempting to take a different view was deemed impermissible.

4. The Respondent argued that there was a failure to disclose all material facts, citing Explanation-1 to section 147 of the Act. However, the duty of the assessee is limited to disclosing primary relevant facts, and not to draw inferences from those facts. The Explanation does not impose a duty on the assessee to disclose inferences, as drawing proper inferences is the Assessing Officer's responsibility. The attempt to use the phrase "failure to disclose fully and truly all material facts" was seen as an effort to circumvent the restrictions imposed by the relevant proviso.

5. Ultimately, the High Court quashed and set aside the notice dated 30th March, 2019, and the order dated 15th October, 2019, ruling in favor of the petitioner. The petition was disposed of with no order as to costs.