2024 (7) TMI 445 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - unexplained gold u/s 69 as petitioner could not offer any explanation with documentary evidence and failed to furnish the source of purchase of gold - HELD THAT - It cannot be said that the AO came in possession of any new and / or tangible material. We say so because the very said ornaments were already recorded in the books of account of the petitioner. More so, while scrutiny u/s 143 (3) of the Act, the petitioner has submitted all the details such as quantity of gold ornaments, details of closing stock along with relevant documents, details of opening stock purchase, consumption, yield and sale both with respect to raw material as well as with respect to finished goods on 2nd January 2016, meaning thereby, forming of reason to believe is merely based on the information so received by the AO. Thus, it cannot be said that the AO has recorded its independent satisfaction, but only relied upon the information received from the Investigation Unit, which is nothing, but said to be borrowed satisfaction. Since no tangible and / or new material has come in possession of the Assessing Officer, the reassessment proceedings can also be said on the basis of the change of opinion, which, according to our considered opinion, is not permissible in the eye of law.

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of the order rejecting the petitioner’s objections.
3. Adequacy of the petitioner’s disclosure of material facts.
4. Whether the reassessment proceedings were based on new and tangible material or merely a change of opinion.
5. Compliance with procedural requirements for reopening the assessment.

Detailed Analysis:

1. Legality of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 29th March 2021 issued under Section 148 of the Income Tax Act, 1961, arguing that no new information had been received by the Assessing Officer for reopening the assessment. The court noted that the petitioner had already submitted all relevant details during the original scrutiny assessment, and the same information was used to issue the notice under Section 148. The court found that the Assessing Officer did not come into possession of any new or tangible material, making the notice legally untenable.

2. Validity of the Order Rejecting the Petitioner’s Objections:
The petitioner also challenged the order dated 9th February 2022, which rejected their objections to the reassessment proceedings. The court observed that the objections were not adequately addressed and that the reasons for reopening the assessment were based on information already available during the original assessment. This made the order rejecting the objections invalid.

3. Adequacy of the Petitioner’s Disclosure of Material Facts:
The petitioner argued that there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The court agreed, noting that the petitioner had provided comprehensive details about the gold ornaments, including quantity, closing stock, opening stock, purchase, consumption, yield, and sale. These details were considered during the original assessment, and no additions were made on account of the purchase of gold ornaments.

4. Whether the Reassessment Proceedings Were Based on New and Tangible Material or Merely a Change of Opinion:
The court found that the reassessment proceedings were based on the same information that was already available during the original assessment. The Assessing Officer's "reason to believe" was merely based on information received from the Investigation Unit, without any new or tangible material. This constituted a change of opinion, which is not permissible under the law for reopening an assessment.

5. Compliance with Procedural Requirements for Reopening the Assessment:
The court examined whether the procedural requirements for reopening the assessment were met. It was noted that the Assessing Officer did not record independent satisfaction and relied solely on information from the Investigation Unit. This lack of independent inquiry and reliance on borrowed satisfaction rendered the reassessment proceedings procedurally flawed.

Conclusion:
The court concluded that the notice dated 29th March 2021 issued under Section 148 and the order dated 9th February 2022 rejecting the petitioner’s objections were both invalid. The reassessment proceedings were based on a change of opinion without any new or tangible material, and the procedural requirements for reopening the assessment were not met. Consequently, the petition was allowed, and the impugned notice and order were quashed and set aside.

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