2022 (3) TMI 785 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - amount which petitioner received against new unsecured non-convertible redeemable debentures was actually the sale consideration received in respect of sale of flats and that has escaped assessment within the meaning of Section 147 - HELD THAT - In our view, this issue has been the subject matter for discussion and consideration by the Assessing Officer before the assessment order dated 26th April, 2010 was passed. Moreover, since the proposed reopening is after expiry of four years from the end of the relevant assessment years, Revenue has to show that there was failure on the part of petitioner to disclose truly and fully all material facts required for assessment. We cannot make out, from the reasons for re-opening, that there has been any such failure. The entire basis for re-opening is relying upon the balance sheet filed by petitioner. The statement of Revenue that there has been failure on the part of petitioner to disclose fully and truly all material facts is only to get over restrictions imposed in Section 147 of the Act. On this ground alone the notice has to be quashed and set aside. Moreover, since the issue of debentures has been a subject of consideration of assessment proceedings, re-opening on the same basis relying on the same primary facts disclosed based on change of opinion is not permissible. Revenue submission that issue of debentures has not been disclosed in the assessment order would not help Revenue because it is settled law that it is not necessary that the assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. Once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that a query raised was a subject of consideration of the Assessing Officer while completing the assessment. We have to note that the order rejecting petitioner s objections does not even deal with petitioner s objections on merits.

Summary

Issues:
Reopening of assessment based on debentures issuance and alleged non-disclosure of material facts.

Analysis:
1. The petitioner, engaged in construction, issued redeemable debentures recouping construction costs. The return for A.Y. 2008-09 declared negative income. The assessment was completed accepting the declared income.

2. The Assessing Officer sought notes on business activity and debenture issuance during assessment. The AO later alleged that debenture receipts were sale proceeds of flats, escaping assessment under Section 147.

3. The High Court found the AO's reasons for reopening lacked evidence of petitioner's failure to disclose material facts. Relying solely on the balance sheet was insufficient to justify reopening after the four-year limitation period.

4. The Court held that as the debenture issue was previously considered in assessment, reopening based on the same facts was impermissible. The AO's attempt to reopen based on a change of opinion was dismissed.

5. The Court emphasized that the assessment order need not explicitly discuss all issues raised during proceedings. Once a query is addressed by the assessee, it is deemed considered by the AO. The Court cited a precedent where a similar issue was raised and addressed during assessment.

6. The Court noted that the order rejecting the petitioner's objections did not address the objections on merits, leading to the quashing of the notice and rejection order.

7. Consequently, the Court quashed the notice and rejection order, concluding the petition.

In conclusion, the High Court ruled in favor of the petitioner, finding the AO's reasons for reopening the assessment lacking in evidence of non-disclosure of material facts. The Court emphasized that the assessment need not explicitly discuss every issue raised during proceedings, as long as they were addressed by the assessee. The Court held that the reopening based on a change of opinion was unjustified, leading to the quashing of the notice and rejection order.