2024 (12) TMI 1217 - HC - Income Tax

Reopening of assessment u/s 147 - reasons to believe - Notice issued beyond period of four years - HELD THAT - AO in issuing the impugned notice u/s 148 has clearly acted without jurisdiction. AO was reopening an assessment beyond the period of four years and in such context the first proviso to Section 147 was strictly applicable inter alia to the effect that when the petitioner/assessee had not defaulted in fully and truly disclosing all material facts necessary for his assessment for the assessment year in question, AO would not have jurisdiction to reopen the concluded assessment. Reasons as furnished to the petitioner, in no manner whatsoever make out a case on the failure on the part of the petitioner to fully and truly disclose all the materials. Reasons demonstrate that the entire basis for such reopening is on the materials which was already available with the AO in finalizing the petitioner s assessment u/s 143 (3). If this be so, the AO was acting on a complete change of opinion on the same material and / or intending to have a review of the assessment order passed by him. This was certainly not permissible applying the settled principles of law as discussed by us hereinabove. It was, hence, clearly not permissible for the AO to reopen the assessment on the very material on which the assessment order was passed. The law does not permit such course of action and if permitted, it would not only fall foul of the mandate of the first proviso below Section 147 but also it would amount to manifest arbitrariness and illegality resulting in drastic and unwarranted consequences being brought about to unsettle settled/concluded assessments, which the law would certainly not recognize. This is certainly not a case where on the materials which are already produced before the AO, AO has gathered or discovered further material evidence so as to construe that there was failure on the part of the assessee to make a disclosure of such materials. Moreover, there is no further tangible material which has been gathered on due diligence from the existing material and hence it is quite futile for the respondents to take recourse to this provision. When the impugned reopening itself lacks compliance of the jurisdictional requirements, as ordained by the provisions of Section 147 considering the settled principles of law, such Writ Petition under Article 226 of the Constitution certainly needs to be entertained and adjudicated. Courts have exercised its power of judicial review, to interfere in the cases of reopening of assessment. We accordingly reject such contention as urged on behalf of the revenue.

Issues Involved:

1. Legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Approval under Section 151 of the Income Tax Act for reopening of assessment.
3. Alleged failure of the petitioner to disclose fully and truly all material facts necessary for assessment.
4. Whether the reopening of assessment was based on a change of opinion.
5. Jurisdictional requirements for reopening assessment beyond four years.
6. Applicability of Explanation 1 to Section 147 of the IT Act.
7. Availability of alternate remedy and the appropriateness of invoking writ jurisdiction.

Detailed Analysis:

1. Legality and Validity of Notice under Section 148:
The petitioner challenged the notice dated 31 March 2021, issued under Section 148 of the IT Act, for reopening the assessment for the year 2013-14. The court noted that the reopening was initiated after the expiry of four years from the end of the relevant assessment year. The court emphasized that under the first proviso to Section 147, no action should be taken after four years unless there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The court found that the reasons for reopening were based on records like the Balance Sheet and Profit & Loss Account, which were already submitted by the petitioner during the original assessment proceedings. There was no indication that the petitioner failed to disclose material facts, rendering the reopening notice invalid.

2. Approval under Section 151:
The petitioner sought a copy of the approval obtained under Section 151 for reopening the assessment. The court noted that the respondents failed to furnish this approval to the petitioner initially, which was a procedural lapse. The court had previously granted an interim relief directing the respondents to provide the approval, which was complied with later. However, the court found that the procedural compliance did not rectify the substantive issue of lack of new tangible material for reopening.

3. Alleged Failure to Disclose Material Facts:
The court examined whether there was any failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. It was established that during the original assessment, the petitioner had provided all necessary details, including those related to interest-free funds and borrowings. The court found that the reopening was based on the same material already available during the original assessment, indicating no failure in disclosure by the petitioner.

4. Reopening Based on Change of Opinion:
The court reiterated the principle that reassessment cannot be initiated on the basis of a mere change of opinion. The original assessment had already considered the issues related to interest expenses and borrowings. The court found that the reopening was an attempt to review the assessment on the same material, which is not permissible under the law. The court cited several judgments, including the Supreme Court's decision in Kelvinator of India Ltd., to support this position.

5. Jurisdictional Requirements for Reopening Beyond Four Years:
The court emphasized that for reopening an assessment beyond four years, the first proviso to Section 147 mandates that there must be a failure on the part of the assessee to disclose fully and truly all material facts. The court concluded that the Assessing Officer did not meet this jurisdictional requirement, as the reopening was based on a change of opinion rather than new tangible material.

6. Applicability of Explanation 1 to Section 147:
The revenue argued that Explanation 1 to Section 147 justified the reopening. However, the court rejected this argument, stating that Explanation 1 does not dilute the requirement of the first proviso. The court found no new material evidence discovered by the Assessing Officer that would justify the reopening under Explanation 1.

7. Availability of Alternate Remedy and Writ Jurisdiction:
The revenue contended that the petitioner had an alternate remedy of filing an appeal against the reassessment order. The court, however, held that when the reopening itself lacks jurisdictional compliance, the writ petition is maintainable. The court exercised its power of judicial review to quash the reopening notice, citing precedents where courts have intervened in similar circumstances.

Conclusion:
The court allowed the writ petition, quashing the notice issued under Section 148 of the IT Act for reopening the assessment. It held that the reopening was based on a change of opinion without any new tangible material, and there was no failure on the part of the petitioner to disclose fully and truly all material facts. The court emphasized the importance of adhering to the jurisdictional requirements set out in Section 147, particularly when reopening assessments beyond four years.

← Previous Next →