2014 (4) TMI 216 - HC - Income Tax

Invalidity of Income Tax reassessment notice and order under Section 148.

City And Industrial Development Corporation of Maharashtra Ltd. Mumbai Versus Assistant Commissioner of Income Tax And Others

The court found the notice issued under Section 148 of the Income Tax Act, 1961 for reassessment of AY 2005-2006 to be invalid as it lacked an allegation ... Validity of reassessment of proceedings u/s 148 of the Act – Held that:- The reasons are recorded by the AO for reopening an assessment are the only reasons which can be considered - No 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 – Relying upon Hindustan Lever Ltd. Vs. R B Wadkar, Asst Commissioner of Income Tax and Others [2004 (2) TMI 41 - BOMBAY High Court ] - all the documents had been filed along with the return of income on 29th August 2006 – all the material facts were disclosed by the assessee in relation to its acting as an agent of the Government of Maharashtra for the Navi Mumbai Project. There can be no doubt that there was no failure on the part of the assessee to disclose fully and truly all material facts in relation to it being appointed as an agent of the Government of Maharashtra for the Navi Mumbai Project - no income chargeable to tax had escaped from assessment for the A.Y. 2005-06 by reason of any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment – the notice and the order are unsustainable and are liable to be set aside - There is no difference between the two – the assessee in several documents stated that it was “acting as an agent of the Government of Maharashtra” with respect to the Navi Mumbai Project - The statements were made to justify the assessee not having made any provision for the income of the Navi Mumbai project - This itself shows that the assessee's assertion was that it acted as an agent and made no provision for the income of the project. The initiation of reassessment proceedings u/s 147 of the Act was only based on a “change of opinion” which is impermissible under the Act - all disclosures were made by the assessee regarding its appointment as an agent of the Government of Maharashtra for developing the new town of Navi Mumbai - Merely because he had about six days, it cannot be presumed that he had not applied his mind to the issue - It would be unfair to the AO who made the Assessment Order, to speculate that he was either incapable of applying, or did not apply his mind to the very aspects in respect of which he sought details within six days - It would also be unfair to the assessee to permit such a contention to be raised in the absence even of any pleading. The Government Resolutions were disclosed - The relevant Government Resolutions were even referred to in the Assessment Order - It is difficult to see how the failure to disclose the judgment case can possibly justify reopening the assessment - The failure to disclose contemplated u/s 147 is of documents or particulars which are or even may be adverse to the assessee - The nondisclosure of such material would adversely affect the assessee and not the Revenue - The provisions of section 147 can operate only where the failure to disclose any material that is or even may be adverse to the assessee and not where it is only advantageous to the assessee – Decided in favour of Assessee. Issues Involved:1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.2. Validity of the reassessment order under Section 148.3. Alleged failure of the petitioner to disclose material facts.4. Allegation of reassessment based on a change of opinion.Detailed Analysis:1. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:The petitioner sought to quash the notice dated 17th January 2012 issued under Section 148 of the Income Tax Act, 1961, for reassessment of AY 2005-2006. The petitioner argued that the notice was issued after the expiry of four years from the end of AY 2005-2006, and the prerequisites for such a notice were not satisfied. The prerequisites include:- A reason to believe that income chargeable to tax has escaped assessment.- A failure on the part of the assessee to disclose fully and truly all material facts.- The reasons for reopening the assessment should include the allegation of such failure.- The belief must not be based on a change of opinion.The court noted that the reasons recorded by the assessing officer for reopening an assessment are the only reasons that can be considered, and no substitution or deletion is permissible. The court found that there was no allegation in the reasons that the petitioner failed to disclose any material fact. Citing the judgments in Hindustan Lever Ltd. Vs. R B Wadkar and Prashant S. Joshi v/s Income Tax officer, the court held that the reasons recorded must be clear, unambiguous, and based on evidence. Since there was no such allegation in the recorded reasons, the impugned notice was set aside.2. Validity of the Reassessment Order under Section 148:The petitioner argued that the reassessment order dated 22nd January 2013 was invalid as it was based on the view taken by the assessing officer for AY 2006-2007, which was overturned by the ITAT. The ITAT had concluded that the petitioner was an agent of the Government of Maharashtra. The court noted that the order of the ITAT was binding on the assessing officer, and therefore, reliance on the overturned view was incorrect. The reassessment order was set aside on this ground.3. Alleged Failure of the Petitioner to Disclose Material Facts:The court examined whether the petitioner failed to disclose fully and truly all material facts necessary for assessment. The petitioner had disclosed in its return of income, annual report, and tax audit report that it was acting as an agent of the Government of Maharashtra for the Navi Mumbai Project. The court found that the petitioner had made full and true disclosure of all material facts, and the assessing officer had considered these facts before making the assessment order. Therefore, there was no failure on the part of the petitioner to disclose material facts.4. Allegation of Reassessment Based on a Change of Opinion:The petitioner argued that the reassessment was based on a change of opinion, which is impermissible. The court noted that during the original assessment proceedings, the assessing officer had considered the petitioner's claim of being an agent of the Government of Maharashtra and had accepted it. The reassessment was initiated based on the same facts, which constituted a change of opinion. The court held that reassessment based on a change of opinion is not permissible under the law.Conclusion:The court concluded that the impugned notice and the reassessment order were invalid. The notice was set aside due to the absence of an allegation of failure to disclose material facts, and the reassessment order was set aside due to reliance on an overturned view and being based on a change of opinion. The petition was granted in terms of the prayer clauses, and the rule was made absolute.