2023 (2) TMI 974 - HC - Income Tax

Reopening of assessment u/s 147 - Reasons to believe - Change of opinion - reasons can neither be added nor substituted by pleadings - assessment reopened beyond the period of four years - HELD THAT - Since this is a case where an order u/s143(3) of the Act had been passed for the relevant assessment year, AO in addition to satisfying the jurisdictional conditions of reason to believe that income chargeable to tax had escaped assessment, had to show that there was failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment during the original assessment proceedings. A reference to the reasons recorded would clearly show that not a whisper has been made by the AO that there was any such failure on the part of the assessee. The consequence is clear that the AO had not satisfied himself on this important jurisdictional aspect and therefore must be deemed to have arbitrarily proceeded to initiate the reassessment proceedings by issuing the notice impugned, which makes it unsustainable. Material which was referred to in the reasons recorded in the shape of transactions, securities, etc. do not reflect that the said material was not available with the AO during the scrutiny assessment proceedings. AO appears to have relied solely upon the said information obtained from the Investigation Wing of the department without, in the least, verifying as to whether the said issue had been gone into or disclosed by the assessee during the scrutiny assessment proceedings. The petitioner, on the other hand, has placed on record details of notices and the replies submitted thereto, as referred to in the preceding paragraphs which would show that the information with regard to all transactions had been sought for and supplied by the petitioner. Since an order under section 143(3) had been passed after eliciting various information from the petitioner, which was responded to by the petitioner, it must be presumed that the Assessing Officer, while passing the order under section 143(3) of the Act, had considered all issues pertaining to the queries raised as also issues in regard to which the information was sought and therefore, if the matter is deemed to have been considered, any subsequent reassessment on the same issue would be nothing but a change of opinion . Decided in favour of assessee.

Issues Involved:
1. Validity of the notice under section 148 of the Income Tax Act, 1961.
2. Jurisdictional requirements for reopening an assessment.
3. Presence of new tangible material for reassessment.
4. Allegation of change of opinion by the Assessing Officer.

Detailed Analysis:

1. Validity of the notice under section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 31st March 2021 issued under section 148 for reopening the assessment for the year 2014-15, alleging that the Assessing Officer (AO) had reasons to believe that the income chargeable to tax had escaped assessment. The petitioner also contested the order dated 8th February 2022, which rejected their objections to the notice.

2. Jurisdictional requirements for reopening an assessment:
The petitioner argued that the jurisdictional requirement for reopening the assessment had not been satisfied. Specifically, the AO did not state in the recorded reasons that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. This is a critical jurisdictional precondition that was not met, rendering the reassessment proceedings unsustainable.

3. Presence of new tangible material for reassessment:
The petitioner contended that there was no new tangible material with the AO to support his 'reason to believe.' The reassessment proceedings were deemed a change of opinion since the AO had already scrutinized the transactions during the original assessment. The AO relied on information from the Investigation Wing without verifying whether the issue had been previously addressed or disclosed by the assessee.

4. Allegation of change of opinion by the Assessing Officer:
The court noted that the validity of reassessment proceedings must be tested based on the reasons recorded by the AO, which cannot be supplemented by subsequent pleadings. The assessment was sought to be reopened beyond four years from the end of the relevant assessment year, necessitating the AO to show that there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. The recorded reasons did not indicate any such failure, leading to the conclusion that the AO had arbitrarily initiated the reassessment proceedings.

The court referenced the judgment in Hindustan Lever Ltd. v. R. B. Wadkar, which emphasized that the reasons recorded must be clear, unambiguous, and based on evidence, establishing a vital link between the reasons and the evidence. The court found that the AO had not satisfied this requirement.

Additionally, the court cited Aroni Commercials Ltd. v. Deputy Commissioner of Income-tax, which held that once a query is raised and replied to during the assessment proceedings, it is presumed that the AO has considered the issue. Any subsequent reassessment on the same issue would constitute a change of opinion, which is not a valid ground for reopening an assessment.

The Supreme Court's decision in Commissioner of Income Tax v. Kelvinator of India Ltd. was also referenced, which stated that the AO has no power to review but can reassess based on tangible material indicating escapement of income. The reasons must have a live link with the formation of the belief, which was missing in this case.

Conclusion:
The court concluded that the jurisdictional conditions were not met, and the reassessment proceedings were based on a change of opinion. Consequently, the petition was allowed, and the impugned order dated 8th February 2022 and the notice dated 31st March 2021 under section 148 were set aside. No order as to costs was made.

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