2021 (2) TMI 427 - HC - Income Tax

Court quashes notice under Income Tax Act Section 148, deeming it a change of opinion.

The court held that the notice issued under Section 148 of the Income Tax Act was not sustainable as the reopening of the assessment was deemed a mere ... Reopening of assessment beyond four years in scrutiny cases - change of opinion - reason to believe - failure to disclose fully and truly all material facts - applicability of section 14A read with rule 8DReopening of assessment beyond four years in scrutiny cases - reason to believe - Sustainability of the notice issued under Section 148 to reopen assessment for A.Y. 2012-13 beyond four years in a case assessed under Section 143(3). - HELD THAT: - The Court examined whether the reassessment notice issued under Section 148, proposing reopening beyond four years in a scrutiny case, was sustainable. Applying the principles in CIT v. Kelvinator India and the statutory scheme, the Court held that reopening under Section 147 post the four year period requires tangible material giving rise to a bona fide 'reason to believe' and must not amount to a mere change of opinion. On the facts, the material relied upon did not furnish a permissible basis to disturb the earlier concluded scrutiny assessment. The reasons recorded did not demonstrate a live link to fresh tangible information sufficient to justify reopening beyond the statutory period in a case where Section 143(3) assessment had been completed. Consequently, the notice under Section 148 was held not sustainable and was quashed. [Paras 16, 19, 20, 21]Impugned notice under Section 148 for reopening A.Y. 2012-13 beyond four years in a scrutiny assessment is not sustainable and is quashed.Change of opinion - failure to disclose fully and truly all material facts - applicability of section 14A read with rule 8D - Whether the reopening was justified on the basis that there was either a mere change of opinion by the Assessing Officer or a failure by the assessee to disclose material facts fully and truly (including non disallowance under section 14A/read with Rule 8D). - HELD THAT: - The Court found that during original assessment the Assessing Officer had specifically queried exempt income and related expenses under Section 14A/read with Rule 8D and the assessee had responded stating no expenditure was incurred to earn the exempt income; those responses were on record. The reassessment attempt essentially sought to revisit that concluded position on the same set of facts, amounting to a change of opinion which, absent new tangible material, cannot justify reopening. Further, the Court held there was no established failure by the assessee to disclose material facts fully and truly that would trigger the proviso to Section 147; mere production of particulars in the original proceedings did not amount to non disclosure. On this basis the Court concluded the reassessment was impermissible. [Paras 17, 18, 19, 20]Reopening was based on an impermissible change of opinion and there was no failure to disclose fully and truly all material facts; reassessment was therefore unjustified.Final Conclusion: The writ succeeds; the notice issued under Section 148 for reopening assessment for A.Y. 2012-13 is quashed. Issues Involved:1. Legality and validity of the notice issued under Section 148 of the Income Tax Act, 1961.2. Alleged failure to disclose fully and truly all material facts necessary for assessment.3. Whether the reopening of the assessment constitutes a mere change of opinion.4. Validity of reopening the assessment based on audit objections.Detailed Analysis:1. Legality and Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:The writ applicant challenged the notice issued by the respondent under Section 148 of the Income Tax Act, 1961, proposing to reopen the assessment for the year 2012-13 under Section 147. The original return was filed on 19th September 2012, and the case was scrutinized with an order under Section 143(3) passed on 26th February 2015. The total income was determined at Rs. 4,81,02,130/-. Later, an order under Section 154 was passed, determining the total income at Rs. 4,81,18,350/-. The reasons for reopening included the non-disallowance of Rs. 8,20,952/- under Section 14A read with Rule 8D(2)(iii).2. Alleged Failure to Disclose Fully and Truly All Material Facts Necessary for Assessment:The respondent argued that the assessee failed to disclose fully and truly all material facts necessary for the assessment. The writ applicant contended that all details, including the exempt income and related expenses, were disclosed during the original assessment. The court noted that a specific query was raised by the Assessing Officer regarding Section 14A, which was appropriately replied to by the writ applicant. The court observed that there was no failure on the part of the assessee to fully and truly disclose all material facts.3. Whether the Reopening of the Assessment Constitutes a Mere Change of Opinion:The writ applicant argued that the reopening was based on a mere change of opinion, which is not permissible in law. The court agreed, noting that the issue of disallowance under Section 14A was scrutinized in detail during the original assessment. The court cited the Supreme Court's decision in CIT vs. Kelvinator India, emphasizing that a mere change of opinion does not constitute a sufficient ground to reopen assessment proceedings.4. Validity of Reopening the Assessment Based on Audit Objections:The writ applicant contended that the reopening was based on revenue audit objections, which is not a valid ground for reopening assessment proceedings. The respondent argued that the audit objection constituted information leading to the conclusion that income chargeable to tax had escaped assessment. The court, however, noted that the reopening was not justified merely based on audit objections, especially when the issue had already been scrutinized during the original assessment.Conclusion:The court concluded that the impugned notice under Section 148 of the Act was not sustainable in law. The reopening of the assessment was based on a mere change of opinion and there was no failure on the part of the assessee to disclose fully and truly all material facts. The court quashed the notice, allowing the writ application.