2022 (5) TMI 59 - HC - Income Tax

Reopening of assessment u/s 147 - Unexplained cash deposits - identity, creditworthiness and genuineness of the depositors were not verified during the course of assessment proceedings and the A.O. had made an addition of merely 25% of the deposits on presumptive basis without verification of the depositors and this had led to escapement of income as per the audit objection raised by the audit party - HELD THAT - Examining the reasons for reopening of the assessment we find that the petitioner had not made full and true disclosure of all the material facts and on the basis of the audit objection, the A.O. has formed reason to believe that income had escaped assessment and this, in our opinion, was sufficient reason for initiating reassessment proceedings under Section 147 Change of opinion - As in the present case all material facts relating to identity, creditworthiness and genuineness of the investors relevant for the assessment on the issues under consideration were not produced during the assessment proceedings and, therefore, in absence of the entire relevant material, the A.O. could not have examined the issues and could not have formed appropriate opinion regarding the same during the original assessment proceedings. Therefore, it is not a case of change of opinion and challenge to the notice under Section 148 of the Act on the ground that it seeks to initiate reassessment on the ground of change of opinion, cannot be accepted. Issue of presumptive income is purely a question of law on which no reassessment could have been done on the basis of audit objection - It is not the petitioner s case that its total turnover or gross receipts in the previous year did not exceed the amount of one crore rupees and, therefore, it does not fall within purview of an eligible assessee engaged in an eligible business and, therefore, Section 44 AD does not apply to the petitioner.Section 44 BBB of the Act contains Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects. Undisputedly, the petitioner is not a foreign company and, therefore, Section 44 BB would also not apply to it. Therefore, we are unable to accept the submission made on behalf of the petitioner that presumptive income is purely a question of law and has to be decided as per provisions contained in Section 44 AD and 44 BBB. As we have already held that the petitioner had failed to disclose fully and truly all material facts necessary for the assessment, the bar of four years would not apply. We find that there is no need for the paper containing approval being received physically before issuing the notice and the A.O. can proceed to issue a notice under Section 148 of the Act if the approving authority has granted his approval and the approval has been communicated to the A.O. in any manner including by uploading the approval on the portal of the Department. The notice under Section 148 of the Act is not vitiated on the ground that the paper containing approval under Section 151 was received by the A.O. after issuing the notice. Thus we are of the considered opinion that the petitioner did not make a true and full disclosure of all the material facts and the A.O. had reason to believe that the petitioner s income for the relevant year had escaped assessment.- Decided against assessee.

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act.
2. Whether the reassessment was based on a change of opinion.
3. Applicability of the four-year limitation period for reopening the assessment.
4. Adequacy of approval for issuing the notice under Section 148.
5. Full and true disclosure of material facts by the petitioner.

Detailed Analysis:

1. Validity of the Notice under Section 148:
The court examined whether the notice issued under Section 148 of the Income Tax Act was valid. The petitioner challenged the notice dated 22.03.2021, arguing it was barred by limitation and based on an internal audit objection, which is not permissible under the Act. The court referred to Section 147 and 148 of the Act, which allow reassessment if the Assessing Officer has reason to believe that income has escaped assessment. The court cited Supreme Court judgments, including *Raymond Woolen Mills Ltd. v. ITO* and *CIT v. P.V.S. Beedies (P) Ltd.*, to establish that reopening based on factual errors pointed out by the audit party is valid. The court concluded that the notice was valid as the audit objection pointed out a factual error leading to the belief that income had escaped assessment.

2. Reassessment Based on Change of Opinion:
The petitioner argued that the reassessment was based on a mere change of opinion, which is not permissible. The court referred to the Supreme Court's judgment in *CIT v. Kelvinator of India Ltd.*, which distinguishes between the power to review and reassess. It emphasized that reassessment must be based on tangible material indicating income escapement. The court found that the petitioner had not disclosed all material facts during the original assessment, and the Assessing Officer had reason to believe that income had escaped assessment. Therefore, it was not a case of change of opinion.

3. Four-Year Limitation Period:
The petitioner contended that the notice was issued beyond the four-year limitation period stipulated in the proviso to Section 147 of the Act. The court noted that the limitation period does not apply if the assessee failed to disclose fully and truly all material facts necessary for the assessment. The court held that the petitioner had not made a full and true disclosure, and thus, the bar of four years did not apply.

4. Adequacy of Approval for Issuing the Notice:
The petitioner argued that the notice was issued without the necessary approval from the Principal Commissioner of Income Tax (PCIT). The court found that the PCIT had granted approval on 20.03.2020, and the approval was uploaded on the portal of the Department. The court held that there is no need for the physical receipt of the approval paper before issuing the notice, and the notice was not vitiated on this ground.

5. Full and True Disclosure of Material Facts:
The court examined whether the petitioner had made a full and true disclosure of all material facts necessary for the assessment. The petitioner had collected deposits from 2,37,83,732 persons but furnished KYC documents of only 1051 persons. The court found that the petitioner had not disclosed all material facts, leading to the belief that income had escaped assessment. The court cited several Supreme Court judgments, including *Phool Chand Bajrang Lal v. ITO* and *Srikrishna (P) Ltd. v. ITO*, to emphasize the obligation of the assessee to disclose all material facts fully and truly.

Conclusion:
The court concluded that the petitioner did not make a true and full disclosure of all material facts, and the Assessing Officer had reason to believe that the petitioner's income for the relevant year had escaped assessment. The notice dated 22.03.2020 issued under Section 148 of the Act and the subsequent proceedings, including the order dated 25.01.2022, were valid. The writ petition was dismissed with no order as to costs.

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