2023 (12) TMI 216 - HC - Income Tax

Reassessment under Section 147 beyond four years invalid without finding of non-disclosure of material facts

HC allowed assessee's appeal regarding reassessment under Section 147 beyond four years. Court held that finding of failure to disclose material facts ... Reopening of assessment u/s 147 - Reason to believe - notice beyond four years - change of opinion - whether there is change of opinion or otherwise is a question of fact which ought to be examined by the statutory authority? - assessee sold two land properties and received the sale consideration by way of cash and has offered the same under short term capital gains - HELD THAT:- Whether absence of a finding that the income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment would vitiate / prove fatal to a reassessment invoking the extended period of limitation under Section 147 of the Act is no longer res-integra. It has been decided by the Division Bench of this Court in the case of ACIT vs. Seshasayee paper and Board Ltd. [2023 (3) TMI 1111 - MADRAS HIGH COURT] and Durr India (P.) Ltd. [2022 (8) TMI 1340 - MADRAS HIGH COURT] that finding as to failure on the part of the assessee to disclose fully truly material particulars is a condition precedent for invoking extended period and in the absence of such finding, initiation of invoking extended period would stand vitiated. Thus finding that income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment is a sine qua non and a condition precedent to invoke power of reassessment under Section 147 read with Section 148 of the Act beyond 4 years from the relevant assessment year and failure to render such a finding would prove fatal to the validity of such proceeding. Assessee appeal allowed. Issues Involved:1. Whether the absence of a finding that the income chargeable to tax has escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for assessment vitiates the reassessment invoking the extended period of limitation under Section 147 of the Income Tax Act.2. Whether the reassessment is based on a mere change of opinion, which is not permissible under Section 147 read with Section 148 of the Income Tax Act.Summary:Issue 1: Absence of Finding on Failure to Disclose Material FactsThe petitioner challenged the notice dated 20.03.2020 on the grounds that it lacked a specific finding that the income chargeable to tax had escaped assessment due to the assessee's failure to fully and truly disclose all material facts necessary for assessment. The High Court noted that this issue is no longer res-integra and has been settled by previous judgments, including ACIT vs. Seshasayee Paper and Board Ltd. and Durr India (P.) Ltd. vs. ACIT. These cases established that such a finding is a condition precedent for invoking the extended period of limitation under Section 147 of the Act. The Court emphasized that the absence of this finding vitiates the reassessment proceedings, as the extended period of six years can only be invoked under specific circumstances, including the failure to disclose material facts. The Court referred to several judgments, including Arun Kumar v. Union of India and ITW Signode India Ltd. v. CCE, which underscored the necessity of jurisdictional facts for the exercise of reassessment powers.Issue 2: Change of OpinionThe petitioner argued that the reassessment was based on a mere change of opinion, as the same documents (computation statement of income and return of income) were available during the original assessment under Section 143(3) of the Act. The Court agreed, stating that the reassessment on the same grounds without new material constitutes a change of opinion, which is not permissible. The Court highlighted that the original assessment had already considered the petitioner's disclosures regarding the sale of properties and the claim of exemption under Section 54F.Conclusion:The High Court concluded that the absence of a finding that the income chargeable to tax had escaped assessment due to the failure to disclose material facts vitiated the reassessment proceedings. Additionally, the reassessment was based on a mere change of opinion, which is not permissible under the Act. Consequently, the impugned notice was set aside, and the writ petition was allowed.