2024 (12) TMI 1175 - HC - Income Tax

Reopening of assessment u/s 147 - Reasons to believe - tangible material - HELD THAT - On perusal of the reasons recorded, it is apparent that there is no failure on part of the petitioner to disclose fully and truly all the material facts for the assessment. Considering the show-cause notice issued during the regular assessment and the replies filed by the petitioner as well as the details provided, it is apparent that the issues which are raised in the reasons recorded for re-opening of the assessment are duly covered in the details provided by the petitioner along with the Significant Accounting Policies referred to in the Audited Accounts. Undisputed facts of all the details being provided during the course of the regular assessment and on perusal of the reasons recorded, we are of the opinion that the impugned notice was issued only on mere change of opinion which is not permissible as per the settled legal position as held in case of Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT held after 1st April, 1989, AO has power to re-open, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147. However, on receipt of representations from the Companies against omission of the words reason to believe , Parliament re-introduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the AO. In view of the above conspectus of law, the impugned notice dated 31st March, 2021 is hereby quashed and set aside and accordingly, the petition succeeds. The impugned notice is hereby quashed and set aside and accordingly, the petition succeeds.

Summary

Issues:
Challenge to jurisdiction of respondent-authority to issue notice for re-opening under Section 148 of the Income Tax Act, 1961 for Assessment Year 2015-16.

Analysis:
The petitioner challenged the legality and validity of the assumption of jurisdiction by the respondent-authority to issue a notice for re-opening under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2015-16. The petitioner contended that the Assessment Order was passed after considering all details and there was no failure to disclose material facts. The petitioner argued that the proposed re-opening was merely a change of opinion by the respondents as all necessary details were provided during the regular assessment. The petitioner emphasized that no income chargeable to tax had escaped, and therefore, the jurisdiction to re-open the assessment was lacking.

The respondent, on the other hand, argued that the Assessing Officer had formed a prima facie belief to re-open the assessment based on relevant material available on record. The respondent pointed out specific discrepancies such as the investment made in a partnership firm and the incorrect method of accounting for land cost, which were not adequately addressed during the regular assessment. The respondent relied on legal precedents to support their argument that the re-opening was justified.

The court analyzed the reasons recorded by the Assessing Officer and concluded that there was no fresh material to support the belief that income had escaped assessment. It was observed that all issues raised in the re-opening notice were adequately covered in the details provided by the petitioner during the regular assessment. The court cited legal precedent to emphasize that re-opening assessments based on a mere change of opinion is impermissible. The court referred to the requirement of tangible material to establish income escapement and highlighted the importance of a live link between reasons recorded and belief formed. Ultimately, the court quashed and set aside the impugned notice, ruling in favor of the petitioner based on the settled legal position established by the Supreme Court.

In summary, the judgment revolved around the challenge to the jurisdiction of the respondent-authority to re-open the assessment for the Assessment Year 2015-16 under Section 148 of the Income Tax Act, 1961. The court found that the re-opening was based on a mere change of opinion without tangible material to establish income escapement, leading to the quashing of the notice. The judgment underscored the importance of a valid reason to believe income had escaped assessment and highlighted the need for a live link between reasons recorded and belief formed.