2022 (2) TMI 47 - HC - Income Tax

Reopening of assessment u/s 147 - reopening proposed after expiry of four years - Eligibility of reason to believe - HELD THAT - As considered the reasons recorded for reopening and in our view, it does not disclose anywhere that there was failure on the part of petitioner to disclose fully and truly all material facts. Simply using the words, by reason of failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment, would be of no use to respondents since it is rather obvious that it is made only as an attempt to take the case out of the restrictions imposed by proviso to Section 147 of the Act. By no stretch of imagination, it can be held that there was non-disclosure on the part of petitioner. These facts have been brought to the notice of respondents by petitioner vide letter dated 10th October, 2019. Notwithstanding the same, the order on the objections dated 16th October, 2017 and impugned in the petition has been passed. Having heard the Counsels and considered the petition along with documents annexed thereto, the JAO has not verified the facts with the data available with him and simply on the basis of information received from DDIT, has issued the notice to petitioner. Therefore the condition precedent for taking action under Section 147 of the Act that mandates, it is exclusively the satisfaction of the assessing authority based on some direct, correct and relevant material has not been met. This Court in CIT vs. Shodiman Investment P. Ltd. 2018 (4) TMI 1287 - BOMBAY HIGH COURT has held that reopening notice has to be issued by the Assessing Officer on his own satisfaction and not on borrowed satisfaction. As in the order disposing petitioner s objections, Assessing Officer has relied upon various judgments of which copies have not been provided or were brought to the notice of assessee before the order on objection was passed so that assessee could have suitably dealt with those judgments/orders. Therefore, we would add that there is also breach of principles of natural justice on the part of the Assessing Officer, who as a quasi judicial authority had an obligation to adhere strictly to the principles of natural justice. In the order disposing the objections, the JAO has gone beyond the reasons recorded for reopening inasmuch as according to him no bank statements or work contract receipts were inquired or submitted during the original assessment proceedings based on which the actual amount and the nature and genuineness of the work done by assessee for SECPL could have been verified. It is settled law that reasons cannot be improved upon and/or supplemented as held in First Source Solutions Limited 2021 (9) TMI 248 - BOMBAY HIGH COURT In any event, the Assessing Officer is not correct inasmuch as petitioner, as recorded earlier, has provided the details regarding contract with SECPL. - Decided in favour of assessee.

Summary

Issues Involved:
1. Impugning notice under Section 148 of the Income Tax Act, 1961 and order disposing off petitioner's objections.

Analysis:
1. The High Court considered the impugned notice dated 31st March, 2019, and the order dated 16th October, 2019. The reopening of the assessment after four years from the relevant assessment year was challenged. The Court noted that the proviso to Section 147 of the Act applies when the assessment under Section 143(3) has been completed, shifting the onus to the respondents to disclose the material fact that the petitioner failed to disclose fully and truly.

2. The Court analyzed the reasons recorded for reopening and found that they did not establish a failure on the part of the petitioner to disclose all material facts. Merely stating a failure to disclose in the reasons without clear indication is insufficient to justify reopening under Sections 147 and 148 of the Act. The Court referred to a judgment emphasizing the necessity of a clear indication of non-disclosure in the reasons supplied.

3. The Court expressed confusion over the reasons recorded, which were based on a survey conducted before the assessment order for the relevant year. The Court highlighted discrepancies in the amounts mentioned in the reasons for reopening and the actual contract details provided by the petitioner during the assessment proceedings. The petitioner had disclosed all relevant details during the assessment process, making the reopening unjustified.

4. It was observed that the Assessing Officer did not verify the facts independently but relied on information from another source, leading to a lack of direct, correct, and relevant material for reopening. The Court cited a case emphasizing that reopening notices must be based on the assessing officer's own satisfaction, not borrowed satisfaction.

5. The Court also noted a breach of guidelines in matters of reopening assessments, as directed by the Delhi High Court. The failure to enclose relevant documents along with the reasons for reopening was highlighted. Additionally, the Assessing Officer's reliance on judgments without providing copies to the assessee breached principles of natural justice.

6. The Court allowed the petition, quashing the impugned notice and order, citing the lack of justification for the reopening and the failure to adhere to legal principles during the assessment process.

This detailed analysis of the judgment from the Bombay High Court showcases the thorough examination of the issues involved and the legal principles applied in determining the validity of the impugned notice and order under the Income Tax Act, 1961.