2022 (12) TMI 459 - HC - Income Tax

Reopening of assessment u/s 147 - reasons to believe - reopening after four years - HELD THAT - In Titanor Components Ltd. 2011 (6) TMI 138 - BOMBAY HIGH COURT the Division Bench of this Court pointed out that there is a notable difference between a wrong claim by an Assessee after disclosing the true and material facts and the wrong claim made by the Assessee by withholding material facts fully and truly. Only in the latter case would the AO be entitled to re-open the assessment after four years. As contended that since only the issue of the year of taxability/deductibility was involved and the tax rate was the same or lower, the Revenue ought not to agitate such an issue and that too by seeking to re-open the assessment after four years. He relied upon several decisions in support of this contention - As in our judgment, this issue need not be decided because the impugned notice will have to be set aside for the other reasons discussed above. For all such reasons, we are satisfied that the impugned notice is liable to be quashed and set aside. The rule is accordingly made absolute without costs in terms of prayer which read as Hon'ble Court may be pleased to issue a Writ of Certiorari or a writ in the nature of Certiorari or any other appropriate writ, Order or direction under Article 226 of the Constitution of India calling for the records of the Petitioner's case, and after examining the legality and validity thereof, quash and set aside the notice dated 29th March 2019 (EXHIBIT A) issued by the Respondent No. 1 u/s 148 of the Act, seeking to re-open the assessment for the Assessment Year 2012-13; and the Order rejecting objections (EXHIBIT AAN) dated 2nd November 2019. Hon'ble Court may be pleased to issue a Writ of Mandamus or a writ in the nature of Mandamus or any other appropriate writ, Order or direction under Article 226 of the Constitution of India ordering and directing the Respondents to forthwith withdraw and cancel the notice issued by the Respondent No. 1 under section 148.

Summary

Issues Involved:
1. Validity of re-opening the assessment after four years.
2. Alleged failure to disclose material facts fully and truly.
3. Applicability of Explanation (1) to Section 147 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of re-opening the assessment after four years:
The Petitioner challenged the re-opening of the assessment for AY 2012-13, arguing there was no failure to disclose all necessary material facts. The Assessing Officer (AO) issued a notice under Section 148 of the Income Tax Act, 1961, after the expiry of four years from the end of the relevant AY. The Petitioner contended that since all material facts were disclosed in the audit report, annual accounts, and tax audit report filed with the return of income, the notice was without jurisdiction and null and void. The court noted that the AO failed to specify which material facts were not disclosed, thus denying the Petitioner an adequate opportunity to object, rendering the notice invalid.

2. Alleged failure to disclose material facts fully and truly:
The AO claimed that the Petitioner did not account for the e-auction receipts of Rs. 129.716 crores, which were accrued but not brought to tax. The Petitioner argued that the amount was neither accrued nor received during the relevant AY and was taxed in the subsequent year at a higher rate. The court found that the AO did not specify the material facts that were allegedly not disclosed, leading to the conclusion that there was no failure on the Petitioner's part. The court emphasized the importance of clear and unambiguous reasons for re-opening assessments, as established in Hindustan Lever Ltd. V/s. R.B. Wadkar.

3. Applicability of Explanation (1) to Section 147 of the Income Tax Act:
The AO invoked Explanation (1) to Section 147, stating that the production of account books or other evidence does not necessarily amount to disclosure. However, the court noted that the Petitioner had disclosed all material facts in the annual accounts and audit reports filed with the returns, which were statutorily required. Therefore, Explanation (1) did not apply. The court referenced 3i Infotech Ltd. and Bombay Stock Exchange Ltd., which held that disclosures made in statutorily required documents do not fall within the interdict of Explanation (1) to Section 147.

Conclusion:
The court quashed the impugned notice and the order rejecting the Petitioner's objections, holding that the AO failed to specify the material facts not disclosed by the Petitioner, thus denying the Petitioner an adequate opportunity to object. The court emphasized the need for clear and unambiguous reasons for re-opening assessments and held that the disclosures made by the Petitioner were sufficient, rendering Explanation (1) to Section 147 inapplicable.