2024 (11) TMI 435 - HC - Income Tax

Validity of reassessment proceedings u/s 147 - reasons to believe - Requirement of fresh tangible material for reopening assessment - disallowance of expenditure incurred on DAP and production and translation expenses - HELD THAT - The existence of failure on the part of the assessee to disclose fully and truly should not only be integral to the reasons but it must also be spelt out in the reasons as to what was to be disclosed but had not been disclosed. The absence of such averments in the reasons renders the whole exercise nugatory. Such lapse on the part of the AO cannot be regarded as a mere procedural irregularity but is a defect which goes to the root of the matter. The purported reasons that prompted the AO to reassess and disallow the expenditure incurred on DAP and production and translation expenses only demonstrate a change of opinion on the part of the AO, which cannot form the basis of reopening the assessment. In order to assume jurisdiction under Section 147, the stand of the AO was that DAP expenditure was allowed owing to a mistake , whereas, production and translation expenses were allowed without any verification. Even if, such an argument is to be accepted, the appropriate remedy in such a situation may lie under Section 263 of the Act. Consequently, one of the essential ingredients for reopening the assessment beyond the period of four years has not been satisfied in the present case. Reassessment proceedings are therefore bad in law. Reasons to believe - Quite apart from above, it is also important to note that the details regarding DAP and production and translation expenses were placed before the AO in AY 2012-13 and on consideration of material so placed on record, the claim of DAP expenses as well as production and translation expenses were allowed by the AO. Order of assessment for AY 2012-13 has attained finality as on date. We also take note of the undisputed position as brought to our notice during arguments that the claim of deductibility of the said expenses was not only allowed in AY 2012-13 but also in AY 2013-14. Thus, identical expenditure has been claimed by the petitioner year after year and there has been no disallowance. Since there has been no disallowance of the deductions in the subsequent AYs, we agree with the submission of learned counsel for the petitioner that the basis for the reasons to believe do not survive any more. Decided in favour of assessee.

Issues Involved:
1. Validity of reopening assessment under Section 148 of the Income Tax Act, 1961.
2. Requirement of fresh tangible material for reopening assessment.
3. Alleged failure to disclose material facts by the assessee.
4. Change of opinion as a basis for reassessment.
5. Applicability of the first proviso to Section 147 of the Act.
6. Procedural irregularities and jurisdictional errors in reassessment proceedings.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 148:
The core issue was whether the notice issued under Section 148 for reopening the assessment for AY 2011-12 was valid. The petitioner challenged the notice on the grounds that it was issued beyond the four-year period stipulated under the first proviso to Section 147. The court emphasized that for reopening an assessment beyond four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found no such failure on the part of the petitioner, rendering the notice invalid.

2. Requirement of Fresh Tangible Material:
The petitioner argued that there was no fresh tangible material to justify the reopening of the assessment. The court agreed, noting that the material for reopening was gathered from the assessment record of a subsequent year (AY 2012-13) and not from any new evidence or information. The absence of fresh tangible material indicated that the reopening was unjustified.

3. Alleged Failure to Disclose Material Facts:
The court examined whether there was any failure by the petitioner to disclose material facts necessary for the assessment. It was noted that the reasons for reopening did not specify any such failure. The court highlighted that the reasons must clearly indicate which material facts were not fully and truly disclosed by the assessee. In this case, the court found no such indication, leading to the conclusion that the reopening was not justified.

4. Change of Opinion as a Basis for Reassessment:
The court reiterated the principle that a mere change of opinion cannot be a valid ground for reassessment. The petitioner contended that the reassessment was based on a change of opinion regarding the deductibility of certain expenses. The court agreed, citing precedents that emphasized the distinction between reassessment and review, and the necessity of avoiding reassessment based solely on a change of opinion.

5. Applicability of the First Proviso to Section 147:
The first proviso to Section 147 stipulates that no action can be taken after four years unless there is a failure to disclose material facts. The court found that this proviso was applicable in the present case, as the notice was issued beyond the four-year period and there was no failure on the part of the petitioner to disclose necessary facts. Consequently, the reopening was deemed invalid.

6. Procedural Irregularities and Jurisdictional Errors:
The court identified procedural irregularities in the reassessment process, particularly the lack of a clear basis for the belief that income had escaped assessment. The court noted that the reasons for reopening did not specify any failure by the petitioner to disclose material facts, but rather pointed to a mistake or lack of verification by the Assessing Officer (AO). Such procedural lapses were deemed to undermine the jurisdictional validity of the reassessment proceedings.

Conclusion:
The court concluded that the reassessment proceedings were invalid due to the absence of fresh tangible material, the lack of any failure by the petitioner to disclose material facts, and the improper basis of a change of opinion. The notice under Section 148 and the subsequent reassessment proceedings were set aside, and the writ petition was allowed with no order as to costs.

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