2025 (3) TMI 1016 - HC - Income Tax

Reopening of assessment u/s 147 - proceedings initiated after a period of four years - HELD THAT - We are concerned with the satisfaction of jurisdictional conditions to reopen the case u/s 147 of the Act. Secondly the decision was dealing with the assessment year 1997-1998 but the reference was made to the 2002 medical regulations without discussing how they would apply. Therefore even on this count this decision cannot be made applicable to the facts of the present case. We have not been shown any decision regulation or rules which required Petitioner-Assessee to disclose during the assessment proceedings that the sales promotion expenses were incurred on the doctors. Therefore even on this count in the absence of any obligation there cannot be any failure to disclose fully and truly all material facts necessary for the assessment. Therefore the decision of Kap Scan and Diagnostic Centre (P.) Ltd. 2012 (6) TMI 620 - PUNJAB AND HARYANA HIGH COURT would not assist the Revenue. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the notice issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the Assessment Year (AY) 2008-2009 was valid, given the lapse of more than four years since the original assessment.
• Whether the reopening of the assessment was based on a "change of opinion" rather than on new material facts that were not disclosed during the initial assessment proceedings.
• Whether the reliance on CBDT Circular No. 5 of 2012 and the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, was appropriate in the context of the AY 2008-2009.
• Whether the petitioner failed to disclose fully and truly all material facts necessary for the assessment, justifying the reassessment proceedings.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The legal framework involves Section 148 of the Income Tax Act, which allows for the reopening of assessments if income has escaped assessment. The proviso to Section 147 stipulates that after four years, reopening is permissible only if there is a failure to disclose fully and truly all material facts. The CBDT Circular No. 5 of 2012 and the Indian Medical Council Regulations were also considered, particularly regarding their applicability to the AY 2008-2009.

Court's interpretation and reasoning:

The Court noted that the reopening was initiated based on the CBDT Circular No. 5 of 2012, which was not applicable to the AY 2008-2009 as the circular and the amendment to the Medical Council Regulations were prospective, effective from 14 December 2009. The Court emphasized that the reasons for reopening did not specify any material facts that were not disclosed during the original assessment. The Court found that the reopening was based on a "change of opinion," which is not permissible under Section 147.

Key evidence and findings:

The Court observed that the expenses in question were disclosed in the profit and loss account and were scrutinized during the original assessment proceedings. The Assessing Officer had already disallowed 2% of the expenses on gift articles, indicating that the issue was examined during the original assessment.

Application of law to facts:

The Court applied the principle that reopening of assessments after four years requires non-disclosure of material facts. Since the petitioner had disclosed the relevant expenses and the Assessing Officer had considered them, the Court concluded that there was no failure to disclose material facts. The reliance on the CBDT Circular and the Medical Council Regulations was found to be misplaced as they were not applicable to the AY 2008-2009.

Treatment of competing arguments:

The Court rejected the respondent's argument that the petitioner failed to disclose the recipients of the gifts, noting that the reasons for reopening did not mention this as a basis for reassessment. The Court also distinguished the case from the Punjab and Haryana High Court's decision in Kap Scan and Diagnostic Centre (P.) Ltd., which dealt with different facts and legal issues.

Conclusions:

The Court concluded that the reassessment proceedings were not justified, as there was no failure to disclose material facts and the reopening was based on a change of opinion. The impugned notice and order were quashed.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"The reasons do not disclose what are the material facts that the Petitioner did not disclose during the assessment proceedings... Therefore, in our view, since the contention of Mr. Suresh Kumar is not borne out from the reasons recorded and it is a settled position that jurisdictional conditions have to be tested on the touchstone of reasons recorded and nothing can be improved, the contention raised on this count that there was a failure on the part of the Petitioner to disclose to whom the gifts were made is to be rejected."

Core principles established:

• Reassessment after four years requires a failure to disclose material facts, not merely a change of opinion.
• The applicability of circulars and regulations depends on their effective date, and they cannot be applied retrospectively unless explicitly stated.

Final determinations on each issue:

• The notice under Section 148 was invalid as it was based on a change of opinion and not on any new material facts.
• The reliance on CBDT Circular No. 5 of 2012 and the Indian Medical Council Regulations for the AY 2008-2009 was misplaced.
• The petitioner had disclosed all material facts during the original assessment, and therefore, the reassessment proceedings were unjustified.