2021 (12) TMI 650 - HC - Income Tax

Court Invalidates Tax Assessment Re-Opening Based on Change of Opinion

The court found that the reasons provided for re-opening the assessment under Section 147 of the Income Tax Act 1961 were based on a change of opinion ... Reopening of assessment u/s 147 - depreciation that was applied on cylinders and the second is a gift petitioner had received from one Fazle Rehaman - HELD THAT:- Depreciation on cylinders, petitioner had claimed @ 80% whereas according to the AO, who wanted to reopen, the correct rate of depreciation was only @60%. In the assessment order originally passed on 9th March 2015, it says “the case is selected under CASS on the issue of depreciation at higher rate” - assessee has claimed higher rate of depreciation @ 80% and it is verified and allowed. Therefore, even if the correct rate of depreciation was only @ 60%, still there was no failure on the part of the assessee to fully and truly disclose the rate of depreciation claimed. On this point, there cannot be re-opening. Gift from Fazle Rehaman in the reasons of re-opening itself it is stated 'as per material available on record'. The assessee has received the gift amounting to ₹ 42,25,000/- but no details of gift deed is available on record. It is true that the original assessment order does not discuss this item of gift but the indisputable fact is in the balance sheet as on 31st March 2012 filed by petitioner, petitioner has disclosed in his capital account a sum of ₹ 42,25,000/- received from Fazle Rehaman. AO, who passed the earlier assessment order after selecting the case under Computer Aided Scrutiny Selection (CASS) would have certainly considered right on the face of the balance sheet this disclosure by petitioner. In the circumstances, as the reasons do not disclose any material that has not been fully and truly disclose by petitioner, in our view, respondents could not have validly reopened petitioner's case for A.Y.-2012-2013. Issues:Challenge to notice under Section 148 of the Income Tax Act 1961 and rejection of objections, validity of re-opening of assessment under Section 147 of the Act, failure to disclose material facts for assessment, legality of re-opening based on reasons provided, rate of depreciation and gift amount in question, consideration of balance sheet disclosure, validity of re-opening based on reasons provided.Analysis:The petition challenged a notice dated 31st March 2019 under Section 148 of the Income Tax Act 1961 and the order dated 14th November 2019 rejecting the objections. Later, the petition was amended to challenge the order dated 27th March 2021 under Section 147 of the Act, concluding the proceedings post re-opening of assessment. The court examined whether the notice to reopen dated 31st March 2019 was valid, considering the reasons provided for re-opening on 6th August 2019. The proviso to Section 147, applicable at the time, stated that action cannot be taken after 4 years from the end of the relevant assessment year unless there was a failure to disclose material facts necessary for assessment. The court analyzed if there was any undisclosed material fact that warranted re-opening.The reasons for re-opening did not disclose any material fact that had not been previously disclosed. The reasons were deemed to be a change of opinion, which is impermissible. The two points for re-opening were the rate of depreciation on cylinders and a gift received. Regarding the rate of depreciation, even if the correct rate was lower, there was no failure to disclose the rate claimed. As for the gift, although the original assessment did not discuss it, the petitioner had disclosed it in the balance sheet, indicating that it was not a material fact omitted from disclosure. Consequently, the court held that the re-opening was not valid as there was no failure to disclose material facts.The petition was allowed, and a writ of certiorari was issued to quash the notice under Section 148 dated 31st March 2019 and the order rejecting objections dated 14th November 2019. Another writ was issued to quash the order under Section 147 dated 27th March 2021. The petition was disposed of with no order as to cost, emphasizing the invalidity of the re-opening based on the reasons provided and the failure to disclose material facts necessary for assessment.