2022 (11) TMI 253 - HC - Income Tax

Reopening of assessment u/s 147 - notice is challenged is that it has been initiated after the expiry of four years from the end of the relevant AY on a mere change of opinion without any tangible new material - vehicle expenses and hire charges without deducting TDS on the hiring charges paid to the service provider - contention of the Assessee that the matter regarding non-deduction of TDS while paying to the service provider was already the subject matter of the original assessment proceedings before the AO during the scrutiny assessment - HELD THAT - As the original assessment was on the basis of a complete and careful examination of the books of accounts produced by the Assessee. There was application of mind by the ITO to the materials produced by the Assessee. As regards the reasons for reopening the assessment, it is stated to be based simply on information available on record. There is no indication that there was any failure by the Assessee to make a full and true disclosure of all the material particulars. The notice records mechanically that the ITO had reasons to believe that income chargeable to tax has escaped assessment. In other words, there is no reference to any new and tangible material forming the basis for the above belief about escapement of income from tax. In short, the same material already available on record was re-examined by the ITO to come to the conclusion that there was an escapement of income. Notwithstanding the explanation to Section 147 of the Act that production of books of accounts by itself will not amount to a full disclosure, the reasons communicated should still have to indicate that there was a failure to make a full disclosure although the accounts were produced before the AO. In the instant case, there is no such statement anywhere on the record, which could have formed the basis for the belief of the ITO that income had escaped assessment. In the present case, it appears that the reopening of the assessment was based on the same material already available before the AO and without any noting, at the time of reopening of the assessment that there was a failure on the part of the assessee to make a full and true disclosure of all material particulars. On the same material already available, the ITO formed reason to believe that income had escaped assessment. This appears to be a textbook example of a reopening of assessment based on a mere change of opinion. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for AY 2014-15.
2. Whether the reopening was based on a mere change of opinion without any tangible new material.
3. Approval by the Principal Commissioner of Income Tax (PCIT) for reopening the assessment.
4. Full and true disclosure of material facts by the Assessee during the original assessment.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The challenge in the present petition is to a notice dated 30th March, 2021 issued by the Income Tax Officer (ITO), Bargarh Ward, Bargarh under Section 148 of the Income Tax Act, 1961 seeking to reopen the assessment for the Assessment Year (AY) 2014-15. The main ground on which the notice is challenged is that it has been initiated after the expiry of four years from the end of the relevant AY on a mere change of opinion without any tangible new material.

2. Reopening Based on Mere Change of Opinion:
The Petitioner contended that the matter regarding non-deduction of TDS while paying to the service provider was already the subject matter of the original assessment proceedings before the AO during the scrutiny assessment. This did not amount to new tangible material justifying the reopening of the assessment. The original assessment was a scrutiny assessment under Section 143(3) of the Act, where the assessee had produced the complete books of accounts, which were perused by the ITO. The order of assessment notes that "the books of accounts and other documents as called for are produced for examination" and the case was discussed with the authorized representative of the Assessee.

3. Approval by the Principal Commissioner of Income Tax:
The Petitioner argued that the PCIT (Opposite Party No.4) while approving initiation of the reassessment proceedings did not apply his mind as the reason had been recorded more than three months thereafter i.e. on 30th June, 2021. However, the Court accepted the plea of the Department that the date of communication of reasons was later to the date on which reasons were recorded. The reasons were perhaps recorded earlier i.e. prior to the sanction for the reopening of the assessment by the PCIT on 26th March, 2021.

4. Full and True Disclosure of Material Facts:
It was submitted by the Department that the mere production of books of accounts by the Assessee during the original assessment could not amount to a full and true disclosure of the material particulars. The Supreme Court has held that the reopening of the assessment under Section 147 of the Act cannot be based merely on a change of opinion. The relevant observations read as under: ".....post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen."

Conclusion:
The Court noted that the reopening of the assessment was based on the same material already available before the AO and without any noting, at the time of reopening of the assessment that there was a failure on the part of the assessee to make a full and true disclosure of all material particulars. This appears to be a textbook example of a reopening of assessment based on a mere change of opinion. Consequently, the Court quashed the impugned notice dated 30th March, 2021 and the order dated 4th March, 2022 of the NPAC rejecting the objection of the Petitioner to the reopening, and all proceedings consequent thereto. The writ petition was allowed, but in the circumstance, with no order as to costs.

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