2023 (5) TMI 281 - HC - Income Tax

Court quashes notice for reopening assessment due to lack of fresh material or disclosure failure.

M/s. Aditi Constructions Versus Deputy Commissioner of Income Tax, Central Circle – 1 (3) Mumbai Asst. Commissioner of Income Tax 24 (1), Mumbai, Union of India,

The High Court quashed the notice under section 148 of the Income-tax Act, 1961 for reopening the assessment for AY 2008-09. The court found that all ... Reopening of assessment u/s 147 - reason to believe - whether Petitioner has failed to ‘fully and truly’ disclose material facts in the original assessment? - Whether department had to only make out a ‘prima facie case’ on the basis of which the Department could reopen the case and the ‘sufficiency and correctness’ of the material was not a thing to be considered at this stage? - HELD THAT:- We find that the jurisdictional conditions for invoking section 147 – 148 are not satisfied as there is no failure to disclose material facts fully and truly. It is not in dispute that by the letter the Petitioner have submitted all the particulars along with supporting documents to the Respondent No. 1. Hence the reasons to believe and a presumption based on the statement of Shri Bhanwarlal Jain (a third party) in the course of a search, that the loans of the entities were bogus or accommodation entries was clearly dispelled. Moreover, the specific provisions of S. 153C would prevail over the general provisions of section 147 in the case of search on 3rd party. Once the Petitioner provided the bank statements and details of parties as sought for, the AO must necessarily carefully examine the material and then give particulars and reason/s to believe otherwise, whilst rejecting the objections, more so, when there is an assessment order u/s 143(3). This process would be in tune with the principles of ‘shifting of onus’ under the evidence act. The criteria for reopening of assessment after a period of four years are no longer res integra in view of the judgement of this Court in the case of Ananta Landmark P. Ltd v Dy. CIT [2021 (10) TMI 71 - BOMBAY HIGH COURT] wherein this Court held where primary facts necessary for assessment are fully and truly disclosed the AO is not entitled to reopen the assessment on a change of opinion. It is held that while considering the material on record, one view is conclusively taken by AO, it would not be open for the AO to reopen the assessment based on the very same material and take another view. Petitioner has by production of bank statements and supporting documents shown that the reasonable belief of the AO was unfounded and consequently the presumption that the Petitioner was one of the beneficiary of the accommodation entries based on the statement of the third party was disproved. Consequently, the onus would be on the AO to provide reasons to disbelieve the bank statements and supporting documents for reopening the assessment. That in our view has not been spelled out and therefore, the reassessment sought to be initiated deserves to be stalled. There is no tangible material mentioned in the recorded reasons to conclude that income had escaped assessment, so also the nature of information is also not disclosed.AO has acted in excess of the limit of his jurisdiction to reopen the assessment in the exercise of powers under section 147 read with section 148 - Decided in favour of assessee. Issues involved:The judgment involves challenging a notice under section 148 of the Income-tax Act, 1961 for reopening of assessment for assessment year 2008-09 and the rejection of objections raised by the petitioner to the notice.Facts:The petitioner, a partnership firm, filed its income tax return for AY 2008-09 and underwent scrutiny with notices issued under sections 143(2) and 142(1). An assessment order was passed under section 143(3). Four years later, a notice was issued to reopen the assessment, which was objected to by the petitioner citing full disclosure of material facts, completion of original assessment, lack of fresh material, and change of opinion. The objections were rejected, leading to the petitioner challenging the notice and order.Decision and Reasoning:The court found that the jurisdictional conditions for invoking sections 147-148 were not satisfied as there was no failure to disclose material facts fully and truly. The petitioner had submitted all particulars and supporting documents, dispelling the reasons to believe based on a third party statement. The court emphasized that the assessing officer must carefully examine the material provided before rejecting objections, especially when an assessment order under section 143(3) exists. The court cited legal precedents to support the requirement of a rational connection between reasons recorded and the belief formed.The court noted that the reasons recorded did not mention primary undisclosed facts as required by law and failed to consider a similar case where reopening was quashed due to lack of tangible material. Referring to a previous judgment, the court stated that reopening based on a change of opinion without new material was not justified. The court emphasized that when primary facts are fully disclosed, the assessing officer cannot reopen based on a change of opinion.The court observed that the reasons relied on by the respondent were disputed, and the petitioner had shown the unreasonable belief of the assessing officer through bank statements and documents. As there was no tangible material or disclosure of information in the recorded reasons, the court held that the AO exceeded the jurisdiction to reopen the assessment. Consequently, the court quashed the notice and order, ruling in favor of the petitioner.In conclusion, the court quashed the impugned notice and order, stating that the assessing officer had acted beyond the limit of jurisdiction in reopening the assessment. The petitioner succeeded in the proceeding, and the court passed the order accordingly.