2025 (2) TMI 168 - HC - Income Tax

Reopening of assessment - reason to believe - review v/s reopening - notice issued after four years - change of opinion - addition u/s 14A - HELD THAT - As contrary to the first proviso of section 147 of the Income Tax Act 1961 the said impugned notice of the 1st respondent dated 30.03.2021 (Impugned Notice-1) notice of the 3rd respondent dated 29.11.2021 (Impugned Notice-2) and the impugned order of the 3rd respondent dated 22.112.2021 were issued without there being any fresh information / material available on record and in the absence of any valid reasons / grounds to allege that certain income chargeable to tax has escaped from assessment which came to the notice of the respondent department subsequently for the purpose of reopening of reassessment proceedings by way of the impugned action which is not permissible under law. It is a case where the assessee disclosed the full details in the Return of Income as discussed above. AO has no power to review. Hence the impugned action of the respondents is nothing but mere change of opinion on the assessment made already which cannot be per se reason to reopen the earlier assessment order to reassess contrary to the law. There is no tangible material to come to the conclusion that there is escapement of income from the assessment. It is the AO who needs to assess any disallowance under section 14A based on the information provided by the petitioner. Onus to make an appropriate determination of amount of expenditure in terms of section 14A of the Act lies on the assessing officer and when there is no failure on the part of the assessee in making available all the relevant account books materials and documents the assessing officer cannot assume jurisdiction under section 147 of the Act and more specifically cannot do so in an attempt to reopen the assessment after expiry of 4 years from the relevant assessment year when original assessment was made under Section 143 (3) of the Act - Decided in favour of assessee.

Summary

The Court was tasked with determining the legality of several notices and an order issued by the Income Tax Department concerning the reopening of assessment for the Assessment Year (AY) 2015-2016. The petitioner challenged the notices and order on the grounds that they were issued without jurisdiction, were arbitrary, and violated principles of natural justice and constitutional rights under Articles 14 and 19(1)(g) of the Constitution of India.

The primary issue was whether the reopening of the assessment was justified under Section 147 of the Income Tax Act, 1961. The petitioner argued that the reopening was based on a mere change of opinion, which is impermissible under law, especially after the expiry of four years from the end of the relevant assessment year. The petitioner contended that there was no new or tangible material to justify the reopening, and the impugned order was a non-speaking order, violating principles of natural justice.

The legal framework for reopening an assessment is governed by Section 147 of the Income Tax Act, which allows the Assessing Officer to reassess income if they have reason to believe that income chargeable to tax has escaped assessment. However, this is subject to the condition that no action can be taken after four years from the end of the relevant assessment year unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

The Court examined the petitioner's claim that all necessary disclosures were made during the original assessment under Section 143(3) of the Act, which was completed on 28.12.2018. The petitioner argued that the reopening notice dated 30.03.2021 was based on previously available information and did not introduce any new material. The petitioner also highlighted that the assessment was reopened based on a change of opinion, which is not a valid reason for reassessment.

The respondents, representing the Income Tax Department, argued that there were valid reasons for reopening the assessment, even in the absence of fresh material. They claimed that the reassessment was necessary to determine if any income chargeable to tax had escaped assessment.

The Court considered precedents, including the Supreme Court judgments in the cases of ICICI Securities Primary Dealership Ltd. and Kelvinator of India Ltd., which established that a mere change of opinion cannot justify the reopening of an assessment. The Court emphasized that there must be tangible material to support the belief that income has escaped assessment, and the reasons for reopening must have a live link with this belief.

Upon reviewing the facts, the Court found that the petitioner had disclosed all relevant information during the original assessment, and there was no new material to justify the reopening. The Court observed that the impugned notices and order were based on a change of opinion, which is insufficient grounds for reassessment. The Court also noted that the impugned actions failed to establish any failure by the petitioner to disclose material facts fully and truly.

The Court concluded that the reopening of the assessment was not permissible under law, as it was based on a change of opinion without any new tangible material. The Court held that the impugned notices and order were issued without jurisdiction and violated principles of natural justice.

Accordingly, the Court set aside the impugned notices and order, allowing the writ petition. The Court reiterated that the Assessing Officer has no power to review an assessment based on a mere change of opinion, and the onus lies on the Assessing Officer to make appropriate determinations based on the information provided by the assessee.