2023 (2) TMI 534 - HC - Income Tax

Reopening of assessment u/s 147 - reason to belive - reopening beyond period of four years - reliance on internal audit objection - HELD THAT - As gone through the reasons, it is clear that on account of the internal audit objection that a remedial action of reopening the assessment by an action u/s 148 of the Act was taken with a view to settle the audit objection as more particularly stated in reply. The basic facts that were canvassed and brought on record by the petitioner were neither disputed / controverted in the reasons recorded. The position in law as contended by the Petitioner is not in dispute. By virtue of a proviso to section 147, no action can be taken for reopening after four years unless the AO has reason to believe that income has escaped assessment by reason of the failure on the part of the assess to disclose fully and truly all material facts necessary for assessment. The affidavit clearly evinces that the department has purported to reopen the assessment only on the basis of change of opinion. The reasons do not spell out failure on the part of the assessee to disclose fully and truly all material facts. The Petitioner has disclosed all primary facts. We are required to consider whether the pre-condition for issue of a valid notice u/s 148 has been fulfilled or not. We are satisfied that the reopening is sought on the basis of change of opinion as apparent from the reply and there is nothing in the reasons to indicate that reopening is sought on the ground of failure on the part of the Petitioner to disclose truly and fully all material facts. This case is clearly covered by the judgement of this Court in the case of Ananta Landmark Pvt. Ltd 2021 (10) TMI 71 - BOMBAY HIGH COURT and we are in agreement with the same. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 read with Section 147 of the Income Tax Act.
2. Whether the approval granted by the Principal Commissioner of Income Tax under Section 151 was justified.
3. Legality of the rejection of the petitioner's objections to the reopening of the assessment.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued under Section 148 read with Section 147 of the Income Tax Act:
The petitioner sought to set aside the notice dated 31st March 2021 issued under Section 148 read with Section 147 of the IT Act. The court examined whether the conditions stipulated under Section 147 prior to its amendment on 1st April 2021 were fulfilled. These conditions include the Assessing Officer (AO) having a "reason to believe" that income chargeable to tax has escaped assessment, this belief being based on tangible material, and the necessity of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found that the reasons for reopening were based on an internal audit objection and did not indicate any failure on the part of the assessee to disclose material facts fully and truly. The court concluded that the reopening was sought on the basis of a change of opinion, which is not permissible under the law, especially after four years from the end of the relevant assessment year.

2. Whether the Approval Granted by the Principal Commissioner of Income Tax under Section 151 was Justified:
The petitioner argued that the approval granted by the Principal Commissioner of Income Tax (PCIT) under Section 151 was not justified as there was no new tangible material to support the reopening of the assessment. The court noted that the sanction accorded by the PCIT was not placed on record and that the initiation of reassessment was primarily on account of an audit objection. The court emphasized that for reopening after four years, the AO must have a reason to believe that income has escaped assessment due to the failure of the assessee to disclose all material facts. Since the reasons recorded did not specify any such failure, the court held that the approval under Section 151 was not justified.

3. Legality of the Rejection of the Petitioner's Objections to the Reopening of the Assessment:
The petitioner contended that all relevant details and documents were submitted during the original assessment, and there was no failure to disclose material facts. The court observed that the reasons for reopening did not spell out any specific material facts that were not disclosed by the petitioner. The court also noted that the original assessment was completed after due examination of the issues, and the reassessment was initiated merely on account of a change of opinion. The court concluded that the rejection of the petitioner's objections was not legally sustainable as the preconditions for a valid notice under Section 148 were not fulfilled.

Conclusion:
The court found merit in the petition and held that the notice issued under Section 148 was based on a change of opinion and not on any failure by the assessee to disclose material facts. Consequently, the court set aside the impugned notice and made the writ petition absolute, with no order as to costs.