2012 (3) TMI 211 - HC - Income Tax

Court quashes reassessment order for lack of valid grounds under Section 147, deeming it illegal.

The court set aside the notice of reassessment and the order issued by the Assessing Officer, finding that the conditions for reopening the assessment ... Reopening of assessment under section 147 - notice under section 148 - reason to believe - tangible material - change of opinion - failure to disclose fully and truly all material factsReopening of assessment under section 147 - notice under section 148 - tangible material - change of opinion - failure to disclose fully and truly all material facts - Validity of the notice under section 148 and the reasons recorded for reopening assessment under section 147 - HELD THAT: - The Court examined the reasons recorded by the Assessing Officer and the materials placed before the original scrutiny assessment. While acknowledging the Explanation inserted to Section 80IB(10) and the Assessing Officer's observations concerning development agreements, permissions and accountal, the Court concluded that the assessee had disclosed the relevant materials at the time of the original assessment and that the Assessing Officer had accepted the claim on those materials. Applying the principles in the precedents cited, including the ratio in Kelvinator, the Court held that post 1989 reopening requires 'tangible material' and a live link between reasons recorded and formation of belief that income escaped assessment. Mere absence of an express finding in the original assessment order or subsequent reliance on the Explanation does not convert full disclosure into non disclosure. The Court treated the reopening as a second thought or change of opinion by the Assessing Officer on the same materials, which is not a permissible basis for reassessment in the absence of fresh tangible material or failure to disclose fully and truly all material facts. Consequently the condition precedent in section 147 was held to be absent and the notice under section 148 and the order disposing objections were quashed. [Paras 18, 19, 22, 23, 24]Notice under section 148 and the reasoned order reopening assessment under section 147 set aside for want of 'tangible material' and because reassessment amounted to impermissible change of opinion.Final Conclusion: Writ petition allowed: the notice of reassessment and the order disposing objections are quashed; reassessment proceedings set aside for lack of jurisdiction to reopen on the disclosed materials. Issues Involved:1. Validity of the notice under Section 148 of the Income Tax Act, 1961.2. Whether the reopening of assessment under Section 147 of the Act is justified.3. Whether there was a mere change of opinion by the Assessing Officer.4. Applicability of the Explanation to Section 80IB(10) of the Act.5. Whether the petitioner failed to disclose fully and truly all material facts necessary for assessment.6. Whether the petitioner was entitled to the deduction under Section 80IB(10) of the Act.Issue-wise Detailed Analysis:1. Validity of the notice under Section 148 of the Income Tax Act, 1961:The petitioner challenged the notice dated 1st March 2011 under Section 148 of the Act, arguing that there was no valid reason for its issuance. The court examined whether the conditions precedent for issuing such a notice were met, focusing on whether the Assessing Officer had 'reason to believe' that income had escaped assessment.2. Whether the reopening of assessment under Section 147 of the Act is justified:The court scrutinized the reasons provided by the Assessing Officer for reopening the assessment. It emphasized that the reopening must be based on 'tangible material' and not merely a change of opinion. The court referred to the Supreme Court's decision in Kelvinator of India Ltd., which clarified that post-1989, the power to reopen is much wider but must still be based on tangible material.3. Whether there was a mere change of opinion by the Assessing Officer:The court found that the reasons recorded for reopening indicated a mere change of opinion on the same issues that were already scrutinized during the original assessment. The court highlighted that having second thoughts on the same material does not justify reopening the assessment.4. Applicability of the Explanation to Section 80IB(10) of the Act:The court noted that the Explanation inserted to Section 80IB(10) by the Finance Act (No.2), Act 2009 with retrospective effect from 01.04.2000, clarified that the deduction shall not be admissible to a contractor in respect of works contracts. However, it found that the petitioner had disclosed all relevant materials, and the original assessment allowed the deduction after thorough scrutiny.5. Whether the petitioner failed to disclose fully and truly all material facts necessary for assessment:The court observed that the petitioner had disclosed all material facts during the original assessment. It rejected the Revenue's contention that the petitioner failed to maintain separate accounts or misrepresented its status as a developer rather than a works contractor. The court concluded that there was no suppression of material facts by the petitioner.6. Whether the petitioner was entitled to the deduction under Section 80IB(10) of the Act:The court held that the petitioner was entitled to the deduction under Section 80IB(10) as all necessary disclosures were made, and the original assessment allowed the deduction after considering all materials. The court found that the reopening was based on a mere change of opinion without any new tangible material.Conclusion:The court set aside the notice of reassessment and the reasoned order issued by the Assessing Officer, finding that the conditions precedent for reopening the assessment under Section 147 were not met. The court emphasized that the reopening was based on a mere change of opinion without any new tangible material, thus acting illegally. The Special Civil Application was allowed, and the reassessment notice and order were quashed.