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TMI Blog2024 (8) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... granted u/s 151 for the reassessment, along with reasons put up for securing the sanction. These reasons are near-identical to what was eventually provided to the Petitioner on 6th August, 2021, with one paragraph of comments missing. We find that the jurisdictional fact necessary to invoke Section 147 for reassessment is absent. Considering that the reassessment is admittedly being undertaken after the four-year period, it is necessary to show that during the original assessment, there had been a failure 0n the part of the Petitioner to disclose fully and truly, the material facts necessary for the assessment. The original assessment had been conducted pursuant to scrutiny proceedings. It entailed active examination and thorough engagement between the Petitioner and the AO - The scrutiny proceedings led to the Assessment Order, which increased the total income from the level computed in the returns. Each of the four aspects set out in the reasons for reassessment, related to facts fully disclosed by the Petitioner in the course of the original assessment. During the original assessment, a notice u/s 143 (2) had been served on the Petitioner. A notice u/s 142 (1) had also been ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckground and Context: 3. The original assessment was made pursuant to an order dated 22nd December, 2017 ( Assessment Order ) after scrutiny of the returns filed by the Petitioner. The Petitioner had originally declared a total income of Rs. 95.14 Crores. Pursuant to a notice for scrutiny under Section 143 (2) dated 29th July, 2016. Another notice dated 27th November, 2017 was issued under Section 142 (1), along with a questionnaire. Eventually, an Assessment Order was passed computing total income of Rs. 105.14 Crores, after disallowance of a deduction in the sum of Rs. 10 Crores. 4. Five years after the end of the Assessment Year, the Impugned Notice was issued. On the Petitioner seeking reasons underlying the Impugned Notice, reasons were communicated to the Petitioner vide letter dated 6th August, 2021. The relevant contents are extracted below:- 2. On perusal of records, it is seen that the assessee in its computation of income has claimed deduction with a narration Leasehold improvement cost of Rs.49,78,007/-. Explanation-1, to section 32 (1), which required that the capital expenditure incurred on leasehold building not owned by assessee qualifies for depreciation @10% presc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Petitioner during the original assessment. The Petitioner asserted that under Section 147, when reassessment is sought to be initiated after the expiry of four years from the end of the relevant assessment year, without a demonstration of such failure to disclose material facts, reassessment would not be permissible. 6. The Revenue, by an order dated 25th February, 2022 ( Impugned Order ) rejected the objections. In a nutshell, the decision to conduct reassessment was stoutly defended. The Petitioner was told that all its objections could well be raised in the course of the reassessment proceedings. Consequently, this Writ Petition was filed seeking to quash the Impugned Notice, the Impugned Order, and a notice dated 11th November, 2021 under Section 143 (2) read with Section 147 of the Act, calling upon the Petitioner to participate in the reassessment proceedings. 7. A Division Bench of this Court, by an order dated 14th March, 2022, granted ad-interim relief, directing the Respondent-Revenue to furnish a copy of the sanction for reassessment accorded under Section 151 of the Act, and also restraining all further proceedings in the matter. The ad-interim restraint on c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition for invoking Section 147 of the Act after the expiry of four years from the end of the relevant assessment year, is that during the original assessment, the assessee ought to have failed to fully and truly disclose all material facts necessary for the assessment. It is evident from the face of the record that the reassessment was initiated in March 2021, which is five years after the end of the Assessment Year 2015-16. Contentions of the Parties: 11. Mr. Percy Pardiwala, learned Senior Counsel representing the Petitioner, pointed out that on the face of it, the Impugned Notice and the reasons in support of it, do not make out a case for the reassessment being valid. Since the reassessment is proposed after the four-year period referred to in Section 147, it was vital for the Revenue to show at least on a prima facie basis, that the Petitioner had failed to disclose fully and truly, all material facts necessary for the original assessment. 12. Apart from a bald statement claiming that the Petitioner has not disclosed all material facts fully and truly, there is nothing in the Impugned Notice and in its supporting reasons to even suggest such failure, learned Senior Counsel wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he very jurisdictional fact necessary for initiating proceedings under Section 147 read with Section 148 i.e. failure to disclose material facts, was missing. In relation to none of the aforesaid facts, has the Revenue sought to introduce any new evidence it has unravelled or chanced upon. 14. Instead, Mr. Pardiwala would submit that the Revenue, having conducted an informed assessment in 2017, is now seeking to change its opinion on well-disclosed facts, and yet, purporting to invoke Section 147 of the Act. In the absence of a failure by the Petitioner to fully and truly disclose material facts, four years having passed since the end of the Assessment Year, the returns simply cannot be reassessed. Therefore, he submitted, the proposed reassessment is blatantly illegal, arbitrary and constitutionally invalid, rendering the proceedings liable to be quashed, necessitating intervention by this Court in exercise of its jurisdiction under Article 226 of the Constitution of India. 15. Mr. Suresh Kumar, Learned Counsel on behalf of Revenue, submitted that the affidavit-in-reply dated 7th July, 2023 ( Reply Affidavit ) and the material already forming part of the record, would show that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e original assessment. The following analysis would make this clear:- A) The treatment of revenue expenditure given in the tax returns to the amount of Rs. 49.78 lakhs incurred towards improvement to leasehold property is writ large in the statement of computation of income and in the financial statements provided by the Petitioner to the Assessing Officer; B) The amortisation of investments to the tune of Rs. 23.63 crores, being taken to the profit and loss account is admittedly a facet now being commented upon by the Revenue from a perusal of the profit and loss account . While this is the most sizable element in the proposed reassessment, the fact of treating this as revenue expenditure was clearly disclosed by the Petitioner and examined by the Assessing Officer. The Petitioner s reply dated 11th December, 2017 in the scrutiny proceedings, clearly disclosed and explained the workings of the amortisation; C) The total donation amount of Rs. 44.13 lakhs, and the mere Rs. 6.15 lakhs claimed and allowed as a deduction under Section 80G, was also evidently disclosed in more than one place in the financial statements and computation of income statement. Not only was this fact fully d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is unfounded and in direct conflict with Section 147 of the Act. Therefore, the sanction for reassessment under Section 151 could simply not have been given. 22. The requirement for sanction by a high-ranking official under Section 151, is an inherent check and balance in the statutory scheme of the Act. Such officers are expected to apply their mind to the facts and the applicable law and then accord sanction. In the instant case, the proposed reassessment was sanctioned by the Principal Commissioner of Income-tax, with the following remarks:- Yes, I am satisfied with the reasons recorded by the A.O. for issuance of Notice u/s 148 of the I.T.Act, 1961. [Emphasis Supplied] 23. The power to sanction reassessment under Section 151, is coupled with a duty to exercise such power reasonably, and not arbitrarily. It is trite law that absence of valid reasons constitutes arbitrariness. In the instant case, the entire process of according sanction demonstrates non-application of mind to the ingredients of Section 147, rendering the sanction to be arbitrary, calling for intervention by a writ court. Evidently, the proposal, the recommendation and the approval in the instant case was mech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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