2024 (2) TMI 1506 - HC - Income Tax

Assessment reopening under Section 148 invalid due to mechanical recording without applying mind and impermissible change of opinion

The Gujarat HC ruled in favor of the assessee, holding that the reopening of assessment under Section 148 was invalid. The court found that the AO ... Validity of reopening of assessment - Reasons to believe - addition u/s 68 - whether the notice issued u/s 148 and the order passed disposing of the objection can be said to be legal in eye of law? - HELD THAT:- AO has while issuing notice and recording reasons completely gone into oblivion to the fact that in the present case, the assessment order u/s 143(3) was passed keeping in mind all the details available with regard to transaction done through M/s.Divya Commodities on NMCE platform. However, the Assessing Officer has mechanically recorded that the return was processed only under Section 143(1) of the Act which itself goes to suggest that recording of reasons at the instance of Assessing officer was nothing but in a mechanical manner and with no application of mind. Also at the time when the assessment order u/s 143(3) was passed, the then AO was in possession of the transaction details through M/s.Divya Commodities and thereby, the same cannot be made subject matter again to assume jurisdiction under Section 148 of the Act for reopening of assessment, as the same has already been concluded. Thus, reopening on the basis of the same details is nothing but change of opinion and the same is not permissible in the eye of law. Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the court in this judgment are:Whether the notice issued under Section 148 of the Income-Tax Act, 1961, for reopening the assessment is legal and valid.Whether the reopening of the assessment is based on a change of opinion, which is impermissible under the law.Whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.Whether the reopening of assessment is based on borrowed satisfaction and non-application of mind by the Assessing Officer.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legality of the Notice under Section 148Relevant legal framework and precedents: Section 148 of the Income-Tax Act allows for the reopening of an assessment if the Assessing Officer has reason to believe that income has escaped assessment. The court referred to precedents that emphasize the necessity of a valid and justifiable reason to believe.Court's interpretation and reasoning: The court noted that the Assessing Officer recorded reasons for reopening the assessment, but these reasons were based on incorrect assumptions that the original assessment was only processed under Section 143(1) and not scrutinized under Section 143(3).Key evidence and findings: The court found that the original assessment was indeed scrutinized under Section 143(3), and the details of transactions through M/s. Divya Commodities were already considered.Application of law to facts: The court applied the legal requirement that reopening should not be based on a mere change of opinion, especially when the facts were already scrutinized in the original assessment.Treatment of competing arguments: The petitioner argued that the reopening was based on incorrect facts and a change of opinion. The respondent claimed new facts and tangible material justified reopening. The court sided with the petitioner.Conclusions: The notice under Section 148 was deemed invalid as it was based on a change of opinion and incorrect facts.Issue 2: Change of OpinionRelevant legal framework and precedents: The principle that a change of opinion cannot justify reopening an assessment is well-established in tax law. The court cited relevant judgments supporting this principle.Court's interpretation and reasoning: The court concluded that since the original assessment under Section 143(3) considered all relevant facts, the reopening was indeed a change of opinion.Key evidence and findings: The court highlighted that the Assessing Officer was already in possession of all transaction details during the original assessment.Application of law to facts: The court applied the principle that reopening based on the same facts as the original assessment constitutes a change of opinion.Treatment of competing arguments: The court rejected the respondent's argument that new information justified reopening, noting the information was not new.Conclusions: The reopening was not permissible as it was based on a change of opinion.Issue 3: Full and True Disclosure by the AssesseeRelevant legal framework and precedents: The law requires the assessee to disclose fully and truly all material facts necessary for assessment.Court's interpretation and reasoning: The court found no failure on the part of the assessee to disclose material facts, as all relevant details were available during the original assessment.Key evidence and findings: The court noted that the transactions through M/s. Divya Commodities were disclosed and scrutinized in the original assessment.Application of law to facts: The court determined that the assessee had fulfilled their obligation of full disclosure.Treatment of competing arguments: The respondent's claim of non-disclosure was dismissed as the court found the facts were already disclosed.Conclusions: The court concluded there was no failure to disclose on the part of the assessee.Issue 4: Borrowed Satisfaction and Non-application of MindRelevant legal framework and precedents: The court emphasized that reopening must be based on the Assessing Officer's independent satisfaction and not borrowed satisfaction.Court's interpretation and reasoning: The court found that the reasons for reopening were mechanically recorded and lacked independent application of mind.Key evidence and findings: The court highlighted the incorrect assumption that the original assessment was not scrutinized, indicating non-application of mind.Application of law to facts: The court applied the requirement for independent satisfaction and found it lacking in the reopening notice.Treatment of competing arguments: The court rejected the respondent's defense of typographical errors and emphasized the need for accurate and independent reasoning.Conclusions: The court concluded that the reopening was based on borrowed satisfaction and non-application of mind.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The Assessing Officer has mechanically recorded that the return was processed only under Section 143(1) of the Act which itself goes to suggest that recording of reasons at the instance of Assessing officer was nothing but in a mechanical manner and with no application of mind.'Core principles established: Reopening of assessment based on a change of opinion is impermissible; full and true disclosure by the assessee negates the grounds for reopening; reopening must be based on independent satisfaction.Final determinations on each issue: The court quashed the notice under Section 148 and the order disposing of objections, concluding that the reopening was illegal and based on a change of opinion without new material facts.