2023 (2) TMI 716 - HC - Income Tax

Reopening of the assessment u/s 147 - Reason to believe - change of opinion - HELD THAT - No hesitation to hold that there was no failure on the part of the assessee to disclose fully and truly the material facts, nor there was any tangible material with the A.O. which would have otherwise justified the reopening of the assessment by issuing the notice impugned. In the present case, the AO has not specifically mentioned in the order, what was the tangible material, to conclude that there was an escapement of income. The AO has also failed to aver what material fact the assessee has failed to disclose fully and truly. It is evident that based on the case of Milan Saini who had disclosed his income under the head income from salary that the AO sought to reopen the case of the assessee. Apart from different heads on which the assessees have offered their income to be taxed i.e. there is no other ground based on which the AO is seeking to reopen. It is clearly the very same material on which a different view is being taken. The case of Phool Chand Bajrang Lal 1993 (7) TMI 1 - SUPREME COURT relied upon by Mr. Kumar can be differentiated on the facts, in as much as the managing director of the Calcutta company Mr. Surana had made a confession about his business activity being that of a name lender and had not advanced any loan to the assessee in that case. As in the present case there is a full and true disclosure by the petitioner, which transaction has been accepted under the head claimed by the petitioner. Consequently, merely because another director of the same company had disclosed the income received differently, cannot be a ground for reopening and the same is evidently a change of opinion not only based on conjectures and surmises but also a case of blindly relying on information and borrowed satisfaction which is not permitted for reopening - It is an imperative duty of the authorities to be updated with the law and to apply it to the case at hand before taking decisions and passing orders. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice under section 148 of the Income Tax Act, 1961.
2. Justification for reopening the assessment beyond four years.
3. Alleged failure of the petitioner to disclose material facts.
4. Transfer of jurisdiction without a hearing.
5. Borrowed satisfaction and change of opinion.

Issue-Wise Detailed Analysis:

1. Validity of the notice under section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice issued under section 148 dated 31st March 2021, arguing that it was based on borrowed satisfaction from another Assessing Officer (AO) and lacked independent application of mind. The court agreed, stating that the AO must have a "reason to believe" based on tangible material that income has escaped assessment. The court found that the AO had not demonstrated any new material or independent analysis, making the notice invalid.

2. Justification for reopening the assessment beyond four years:
The petitioner argued that the reopening was beyond the four-year limit and lacked evidence of failure to disclose material facts. The court concurred, noting that the original assessment was completed under section 143(3) after due verification of all facts. The court emphasized that reopening beyond four years requires clear evidence of non-disclosure, which was absent in this case.

3. Alleged failure of the petitioner to disclose material facts:
The respondents claimed that the petitioner failed to disclose the initial agreement from 2007, which led to the reassessment. However, the court found that the petitioner had fully disclosed all relevant information during the original assessment. The court highlighted that the AO did not specify any material fact that the petitioner failed to disclose, thereby invalidating the reopening.

4. Transfer of jurisdiction without a hearing:
The petitioner objected to the unilateral transfer of jurisdiction from one AO to another without a hearing. The court noted that such transfers should follow due process, including providing an opportunity for the petitioner to be heard. The court found that the transfer was done without proper procedure, further complicating the reassessment process.

5. Borrowed satisfaction and change of opinion:
The court identified that the reopening was based on information from the case of another director, Milan Saini, who had disclosed similar income under a different head. The court ruled that this constituted a change of opinion and borrowed satisfaction, which is not permissible for reopening assessments. The court emphasized that each case must be independently evaluated, and reliance on another case without substantial new evidence is not justified.

Conclusion:
The court concluded that the reopening of the assessment was based on a change of opinion and borrowed satisfaction, lacking independent application of mind and tangible new material. The court set aside the impugned notice dated 31st March 2021 and the order dated 10th June 2022, stating that there was no failure on the part of the petitioner to disclose material facts. The court also highlighted the importance of following due process in jurisdictional transfers and the necessity for AOs to be updated with the law and apply it correctly. The petition was allowed with no order as to costs.