2024 (1) TMI 916 - HC - Income Tax

Validity of reopening of assessment u/s 147 - admissibility of deduction u/s 80-IA - reason to believe - whether the jurisdictional conditions for reopening assessment are satisfied in the present case? - HELD THAT - Admittedly, the financial statements relating to the relevant AY mentions the amount received by Petitioner as compensation towards damages to its wharf. The reasons to believe escapement of income reveals that the reopening of assessment is based on the examination of financial statements furnished by Petitioner. There is nothing on record to indicate that Petitioner has failed to discharge its duty of disclosure. In fact, the reasons themselves are based on disclosure by Petitioner. AO had within his possession all the primary facts and it was for him to make necessary inquiry and draw proper inferences. The AO has not discharged his duty and in fact has relied upon financial statements and other documents furnished by Petitioner itself for his reason to believe escapement of income. It cannot be said that income chargeable to tax for the AY under consideration has escaped assessment by reason of the omission or failure on the part of Petitioner to disclose fully and truly all material facts. Thus, it can safely be held that the reopening of assessment of income is clearly on the basis of change of opinion without availability of any tangible new information. Consequently, notice u/s 148 rejecting the objections of Petitioner to the reasons to believe notice and the draft assessment order are quashed. Petition allowed.

Summary

Issues Involved:
1. Validity of notice under Section 148 of the Income Tax Act, 1961.
2. Reassessment based on change of opinion.
3. Compliance with procedural requirements for reopening assessment.
4. Adequacy of disclosure by the assessee.

Summary:

Validity of Notice under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 23rd March 2021 issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for AY 2013-14. The petitioner argued that the notice was issued after the expiry of the four-year limitation period, which ended on 31st March 2018, making the notice beyond limitation.

Reassessment Based on Change of Opinion:
The petitioner contended that the reopening of the assessment was based on a change of opinion. The financial statements and all relevant information were disclosed during the original assessment, and the Assessing Officer (AO) had accepted the deduction claim under Section 80-IA of the Act. The reopening was argued to be without any new tangible material and solely based on previously verified facts.

Compliance with Procedural Requirements for Reopening Assessment:
The petitioner argued that the AO did not clarify the basis for concluding that material facts were not disclosed and did not obtain the necessary satisfaction from the sanctioning authority as required by Section 151 of the Act. Additionally, the reasons to believe were recorded after the notice was issued, violating the jurisdictional preconditions of Section 148.

Adequacy of Disclosure by the Assessee:
The petitioner highlighted that all primary facts were disclosed in the financial statements, including the compensation received for loss of profit and damages to the wharf. The AO's reasons for reopening were based on these disclosed facts, indicating no failure on the part of the petitioner to disclose fully and truly all material facts.

Court's Findings:
The court noted that the financial statements for the relevant AY disclosed the compensation received, and the AO's reasons for reopening were based on these disclosed facts. The court emphasized that the AO had all primary facts and should have made necessary inquiries and drawn proper inferences. The reopening was deemed to be based on a change of opinion without any new tangible information.

Conclusion:
The court quashed the notice dated 23rd March 2021 under Section 148, the order rejecting the petitioner's objections dated 14th February 2022, and the draft assessment order dated 16th March 2022. The petition was allowed, and the rule was made absolute with no order as to costs.