2011 (1) TMI 942 - HC - Income Tax

Invalidity of Income Tax reassessment notice under Section 148

The court found the reassessment notice under Section 148 of the Income Tax Act, 1961, and subsequent proceedings invalid as they were based on a mere ... Reopening of assessment - Notice Under Section 148 - Held that:- Reasons for reopening of the assessment recorded that audit scrutiny had indicated that interest was not charged, though interest on loans taken was allowed as a deduction. It is clear from the correspondence exchanged, questionnaire raised and the answers given by the petitioner No.1 that the question of interest received as well as the charge was specifically examined by the Assessing Officer before passing of the first/original assessment order. This question did not escape the notice of the Assessing Officer. He raised the issue and applied his mind as is clear from the questionnaire and the answers given. He accepted the assessee's contention. In the present case there is also no allegation that there was fault or failure on the part of the assessee to disclose true and full facts. The questionnaire and answers given have been mentioned above. True and full facts were given and furnished to the Assessing Officer. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period. In favour of assessee. Issues Involved:1. Validity of the reassessment notice under Section 148 of the Income Tax Act, 1961.2. Whether the reassessment proceedings were initiated based on a mere change of opinion.3. Compliance with the statutory requirements for reassessment after four years from the end of the relevant assessment year.4. Full and true disclosure of material facts by the assessee during the original assessment.Detailed Analysis:1. Validity of the reassessment notice under Section 148 of the Income Tax Act, 1961:The petitioner filed a writ petition challenging the notice under Section 148 of the Income Tax Act, 1961, and the subsequent reassessment proceedings. The notice was issued on 28th March 2008, and the petitioner argued that it was based on a mere change of opinion. The court examined whether the notice was issued with the proper jurisdiction and compliance with the statutory requirements.2. Whether the reassessment proceedings were initiated based on a mere change of opinion:The petitioner contended that the reassessment was initiated due to a mere change of opinion, as the issue of interest received and interest paid had been examined during the original assessment proceedings. The court noted that the Assessing Officer (AO) had specifically examined the issue during the original assessment, as evidenced by the detailed questionnaire and responses provided by the petitioner. The court held that a mere change of opinion does not confer jurisdiction to reopen an assessment, even after the amendment of Section 147/148 of the Act effective from 1st April 1989. The court cited the case of Jindal Photo Films Ltd. Vs. Commissioner Income Tax (1998) 234 ITR 170, which established that reopening an assessment based on a mere change of opinion is not permissible.3. Compliance with the statutory requirements for reassessment after four years from the end of the relevant assessment year:The court emphasized that for reassessment proceedings initiated after four years from the end of the relevant assessment year, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court referred to the first proviso to Section 147 and Explanation 1, which clarifies that mere production of books of accounts does not amount to disclosure. The court found that the petitioner had fully and truly disclosed all material facts during the original assessment, as evidenced by the detailed questionnaire and responses. Therefore, the conditions for reopening the assessment after four years were not met.4. Full and true disclosure of material facts by the assessee during the original assessment:The court examined whether the petitioner had disclosed all material facts necessary for the assessment during the original proceedings. The court found that the petitioner had provided detailed information regarding interest received and paid, investments, and loans, which were thoroughly examined by the AO. The court held that there was no failure on the part of the petitioner to disclose material facts. The court cited several judgments, including Calcutta Discount Co. Ltd. Vs. CIT (1961) 41 ITR 191 and Income Tax Officer, Calcutta and Ors. Vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), which established that reassessment proceedings cannot be initiated based on a mere change of opinion or without a failure to disclose material facts.Conclusion:The court concluded that the reassessment notice under Section 148 and the subsequent proceedings were invalid as they were based on a mere change of opinion and did not meet the statutory requirements for reassessment after four years. The court allowed the writ petition, quashing the notice dated 28th March 2008 and the order dated 15th July 2008, and nullified the reassessment proceedings for the assessment year 2001-2002.