2025 (3) TMI 1015 - HC - Income Tax

Reopening of assessment u/s 147 - proceedings initiated after a period of 4 years - HELD THAT - It is admitted that the proceedings are based on the records filed during the course of the original assessment proceedings. The reasons recorded also admits that the issue was examined during the course of the assessment proceedings and 1/3rd of the promotional expenses were disallowed and the balance expenses were allowed. If this is an admitted position as per the reasons recorded then we fail to understand how the precondition of failure to disclose fully and truly all material facts necessary for the assessment can at all be satisfied. If at all there is a failure it was on the part of the assessing officer to have not disallowed the entire expenditure and not the failure on the part of the petitioner-assessee. Therefore the pre-condition required by first proviso to Section 147 of the Act based on the admission made in the reasons for reopening are not satisfied and therefore on this short ground itself the impugned notice dated 29 March 2016 is required to be quashed and set aside. Expenses incurred on promotional articles and their allowability - The present proceedings if permitted would amount to the proceedings based on change of opinion and review of the assessment order which power the Act does not confer upon the assessing officer u/s 147. Furthermore third proviso to Section 147 of the Act is clear that if the issue is pending before the Appellate Authority then reassessment proceedings cannot be initiated. The petitioner is justified in relying upon this Court s decision in Abbot India Ltd. 2023 (2) TMI 468 - BOMBAY HIGH COURT in which on a similar fact situation reassessment proceedings were quashed. In the instant case the issue was already concluded by the CIT(A) before the initiation of the impugned proceedings and therefore even on this count the impugned proceedings are without jurisdiction.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

1. Whether the reopening of the assessment under Section 148 of the Income-tax Act, 1961, for the Assessment Year 2009-10, was justified given the original assessment was completed under Section 143(3) of the Act.

2. Whether there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment, as required by the first proviso to Section 147 of the Act.

3. Whether the reassessment proceedings amounted to a change of opinion, which is impermissible under the Act.

4. Whether the proceedings were barred by the third proviso to Section 147 of the Act, given that the issue was already decided by the Commissioner of Income Tax (Appeals) [CIT(A)].

5. Whether the notice was issued on a non-existing entity, rendering the proceedings invalid.

ISSUE-WISE DETAILED ANALYSIS

1. Reopening of Assessment under Section 148:

The legal framework for reopening assessments is governed by Section 147 of the Income-tax Act, which allows for reassessment if the Assessing Officer has reason to believe that income has escaped assessment. However, if four years have passed since the end of the relevant assessment year, the first proviso to Section 147 requires a failure to disclose fully and truly all material facts necessary for the assessment.

The Court found that the reopening was based on the same records considered during the original assessment. The Assessing Officer had already examined the issue of promotional expenses and made a partial disallowance. Thus, the Court concluded that there was no failure on the part of the petitioner to disclose material facts, and the reopening was not justified.

2. Failure to Disclose Material Facts:

The Court examined whether the petitioner failed to disclose material facts necessary for the assessment. It was noted that during the original assessment, the petitioner had provided detailed submissions and evidence regarding promotional expenses, including the applicability of CBDT Circular No. 5 of 2012. The Court determined that the petitioner had disclosed all relevant facts, and any failure was on the part of the Assessing Officer, not the petitioner.

3. Change of Opinion:

The Court addressed whether the reassessment proceedings were based on a change of opinion. It was emphasized that the original assessment involved a detailed inquiry into the promotional expenses, and the Assessing Officer had made a conscious decision to disallow only a portion of those expenses. The Court held that reopening the assessment on the same grounds constituted a change of opinion, which is not permissible under Section 147.

4. Bar by Third Proviso to Section 147:

The third proviso to Section 147 bars reassessment if the issue is pending before an appellate authority. In this case, the issue of promotional expenses had already been decided by the CIT(A) before the initiation of reassessment proceedings. The Court concluded that the proceedings were barred by this proviso, rendering them without jurisdiction.

5. Notice Issued on Non-Existing Entity:

The petitioner argued that the notice was issued on a non-existing entity. However, the Court did not make a specific finding on this issue, as the proceedings were quashed on other grounds.

SIGNIFICANT HOLDINGS

The Court's significant holdings include:

"If at all, there is a failure, it was on the part of the assessing officer to have not disallowed the entire expenditure and not the failure on the part of the petitioner-assessee."

The Court established that reopening an assessment based on a change of opinion is not permissible under Section 147 of the Income-tax Act.

The Court determined that the preconditions for reopening an assessment after four years, as per the first proviso to Section 147, were not satisfied in this case.

The Court quashed the notice dated 29 March 2016 and set aside the impugned proceedings, making the rule absolute in terms of the prayer clause (a).

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