2023 (2) TMI 466 - HC - Income Tax

Court invalidates Income Tax Act notice for reassessment as a mere change of opinion without new material

The Court held that the notice issued under Section 148 of the Income Tax Act for reopening the assessment was unsustainable as the reassessment ... Reopening of assessment under section 147/148 - failure to disclose fully and truly all material facts - reason to believe - change of opinion - reassessment beyond four yearsFailure to disclose fully and truly all material facts - reason to believe - change of opinion - reopening of assessment under section 147/148 - reassessment beyond four years - Validity of notice issued under Section 148 read with Section 147 for reopening assessment year 2015-16 on the ground of alleged non-disclosure of advance payment - HELD THAT: - The assessing officer recorded reasons to reopen the assessment on the premise that an advance payment to Nancy Builders remained unexplained because there was no agreement between the assessee and the original owner and that the MOU was a colourable device, treating the sum as unexplained investment. The Court examined whether any new information or material emerged after completion of the scrutiny assessment (order dated 29-12-2017) which would satisfy the jurisdictional pre-condition of a 'reason to believe' that income had escaped assessment. The records demonstrate that the loans/advances issue was specifically raised during the scrutiny proceedings, and the assessee furnished detailed explanations and supporting material (including schedule in audited balance sheet and communications dated 5-6-2017, 16-8-2017 and 22-12-2017) which were available to the AO when the regular assessment was completed. The AO's subsequent conclusion rested on the absence of a separate agreement between the assessee, Nancy Builders and the original owner and on an inference of a colourable device; no fresh material or information obtained after the assessment was pointed out in the reasons. In these circumstances the formation of belief amounted to a mere change of opinion by the AO rather than a reassessment founded on new tangible material; consequently the jurisdictional foundation required for reopening beyond four years was absent. Applying the principle that reassessment cannot be a cloak for review and that mere disagreement or reappreciation of the same record does not constitute 'reason to believe', the notice issued under Section 148/147 was held to be unsustainable. [Paras 8, 9, 10]Notice dated 30-03-2021 under Section 148 and all connected proceedings are set aside as based on change of opinion and lacking jurisdictional foundation under Section 147.Final Conclusion: The petition is allowed; the reassessment notice under Section 148/147 for AY 2015-16 is quashed because the AO had no fresh material and the action amounted to a change of opinion rather than a valid reopening. Issues Involved:1. Validity of the notice under Section 148 of the Income Tax Act, 1961 for reopening the assessment.2. Whether there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment.3. Whether the reassessment proceedings constitute a mere change of opinion.Detailed Analysis:1. Validity of the Notice under Section 148:The Petitioner challenged the notice dated 30th March 2021, issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the year 2015-16. The notice was based on the Assessing Officer's (A.O.) belief that the Petitioner had not fully disclosed an advance payment of Rs. 17,76,08,505/- to M/s Nancy Builders and Developers Pvt. Ltd. The A.O. considered this transaction as an unexplained investment under Section 69, necessitating reassessment.2. Failure to Fully and Truly Disclose Material Facts:The Petitioner argued that there was no omission in disclosing material facts. During the original assessment, the Petitioner had provided details of the advance payment through various communications and submissions, including the audited balance sheet and replies to notices under Section 142(1). The A.O. had considered these details before passing the assessment order on 29th December 2017.The Respondents contended that the Petitioner had not properly disclosed the material facts, specifically highlighting that M/s Goel Ganga Developers (India) Pvt. Ltd. was not a party to the MOU between the Petitioner and M/s Nancy Builders, and had not consented to the transfer of development rights. This, according to the Respondents, justified treating the transaction as unexplained investment.3. Reassessment Proceedings as a Change of Opinion:The Court referred to the Supreme Court's decision in Commissioner of Income-tax, Delhi Vs. Kelvinator of India Ltd., which distinguished between the 'power to review' and 'power to reassess.' The Court emphasized that reassessment should be based on tangible material and not a mere change of opinion. The Court also cited the Full Bench decision of the Delhi High Court in Commissioner of Income-tax Vs. Kelvinator of India Ltd., which upheld that an assessment order passed under Section 143(3) implies application of mind by the A.O.In the present case, the Court noted that the issue of 'Large Loans/Advances' was raised and addressed during the original scrutiny assessment. The Petitioner had provided specific responses and clarifications, which were considered by the A.O. before passing the order under Section 143(3). The Court found no new information or material that had come to light between the original assessment order and the notice for reassessment. The absence of an agreement between the Petitioner, Goel Ganga Developers Pvt. Ltd., and M/s Nancy Builders was not new information but was known during the original assessment.The Court concluded that the reassessment proceedings were based on a mere change of opinion, which does not satisfy the jurisdictional foundation under Section 147 of the Act.Conclusion:The Court held that the notice dated 30th March 2021, issued under Section 148, and all connected proceedings were unsustainable. The Petition was allowed, and the impugned notice and proceedings were set aside. No costs were awarded.