2022 (7) TMI 1601 - HC - Income Tax

Reopening beyond four years under proviso to s.147 held invalid; assessing officer lacked jurisdiction to issue s.148 notice

HC held the reopening invalid and decided for the assessee. The court found the assessee had truly and fully disclosed all material facts and that the ... Validity of Reopening of assessment - Reasons to believe - notice beyond a period of four years - AO to assume the jurisdiction to issue notice u/s 148 - addition in respect of the additional depreciation claimed by the petitioner u/s 32(1)(a) - HELD THAT:- On perusal of the reasons recorded, it is apparent that the petitioner has disclosed truly and fully all material facts necessary for assessment. The alleged excess depreciation allowed to the petitioner was already considered during the course of regular assessment. AO relying upon the provisions of section 32(1) (iia) of the Act held that additional depreciation on assets acquired or installed in the business of generation and distribution of power would be applicable with effect from 1.04.2013 whereas the claim of the assessee is for the Financial Year 2010-2011, i.e. for Assessment Year 2011- 2012. Such issue is already considered in regular assessment by the Assessing Officer after scrutiny of the books of accounts as well as explanation tendered by the assessee in respect of additional depreciation claimed under section 32(1)(iia) of the Act. There is no failure on part of the petitioner assessee to disclose truly and fully all material facts during the course of regular assessment, failure of which would enable the Assessing Officer to assume the jurisdiction to issue notice under section 148 of the Act beyond a period of four years from the completion of assessment year as per the proviso to section 147 of the Act. When the AO has issued the notice without jurisdiction in view of the fact that there is no failure on part of the assessee to disclose truly and fully all material facts, the AO would not have any jurisdiction to reopen the assessment as per the proviso to section 147 as there is no fresh material available on record with the A- to form a reason to believe that income has escaped assessment. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether a reassessment notice under section 148 read with section 147 of the Income Tax Act can be validly issued beyond four years where the original assessment was completed under section 143(3) and the assessee had disclosed all material facts during scrutiny. 2. Whether issuance of notice under section 148 in the present facts constitutes mere change of opinion by the Revenue or is founded on a bona fide 'reason to believe' that income has escaped assessment. 3. Whether the materials available to the Assessing Officer at the time of original assessment (including tax audit report, bills for additions, statements and explanations on additional depreciation under section 32(1)(iia)) constituted full and true disclosure precluding reassessment beyond four years. 4. Whether the consequential assessment order passed after issuance of the impugned notice (including alleged dispatch/serving after an interim order of the Court) requires independent adjudication where the foundational notice is held without jurisdiction. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reopening beyond four years where original assessment under section 143(3) was completed Legal framework: The proviso to section 147/section 149 governs reopening beyond four years where an assessment under section 143(3) has been completed; reopening is permissible only if income chargeable to tax has escaped assessment by reason of failure to disclose fully and truly all material facts or in certain other specified situations. Precedent treatment: The Court applied established principles that 'reason to believe' must be an honest and reasonable belief based on relevant material and that mere change of opinion on the same materials is impermissible. Interpretation and reasoning: The Court examined the record of the original scrutiny assessment (notice under section 142(1), tax audit annexures, statements, bills, and specific explanations furnished regarding additional depreciation). The Court found that the Assessing Officer had considered and accepted the materials at the time of framing assessment on 11.10.2013 and that no fresh material, not previously available, was brought to the AO's attention before issuance of the 19.02.2018 notice. Ratio vs. Obiter: Ratio - where full and true disclosure of material facts has been made and the AO has considered those facts in a section 143(3) assessment, a reopening beyond four years cannot be sustained in the absence of fresh material or a valid ground under the proviso to section 147. Obiter - general observations on the content of 'reason to believe' insofar as it reiterates settled law. Conclusion: The reopening notice dated 19.02.2018 (and the consequent reassessment) was issued without jurisdiction because there was no failure to disclose fully and truly all material facts during the original assessment; reopening beyond four years was therefore impermissible. Issue 2 - Change of opinion versus bona fide 'reason to believe' Legal framework: The words 'reason to believe' require the AO to form a belief based on material and not merely to change an earlier opinion formed after considering the same material; reopening cannot be founded on mere reconsideration or difference of view. Precedent treatment: The Court relied on authority recognizing that change of opinion is not a valid basis for reassessment and on prior decisions that audit objections or subsequent review may, in specified circumstances, justify reopening if new material or information comes to light (distinguished on facts where no new material existed). Interpretation and reasoning: On facts, the AO had previously issued statutory queries (section 142(1)) and the assessee answered with detailed documentary material and explanations. The AO, while framing the original assessment, did not disallow additional depreciation. The Court held that the subsequent reopening was based on the same materials and amounted to a change of opinion by the Revenue rather than a bona fide belief arising from fresh material. Ratio vs. Obiter: Ratio - reopening cannot be sustained where the assessing authority acts on the same material previously considered and forms a different opinion; such action is a change of opinion and not a valid 'reason to believe.' Obiter - discussion of what may constitute fresh material (left general, not applied to facts beyond the present record). Conclusion: The reassessment in the present case was impermissible as it amounted to a change of opinion and lacked any fresh material to justify a bona fide belief that income had escaped assessment. Issue 3 - Sufficiency of disclosure of material facts regarding claim of additional depreciation under section 32(1)(iia) Legal framework: Disclosure of material facts in original assessment must be full and true; where specific claim (additional depreciation) has been put forth with supporting documents and considered in scrutiny assessment, the proviso to section 147 cannot be invoked unless there was nondisclosure. Precedent treatment: The Court applied the established test of disclosure, and distinguished situations where legal interpretation of statutory provisions (e.g., retrospective application or subsequent change in law) might create a legitimate ground for reopening. Interpretation and reasoning: The assessee had placed before the AO the tax audit report, annexed depreciation schedules, bills for additions above Rs.10 lakhs, a justification statement, and a compliance chart for section 32(1)(iia). The AO examined these documents in 143(3) proceedings and chose not to disallow the additional depreciation. The later conclusion by the AO that section 32(1)(iia) (as amended by Finance Act, 2012, effective 01.04.2013) precluded the claim for FY 2010-11 was not supported by any new material and was therefore an impermissible reassessment basis. Ratio vs. Obiter: Ratio - where documentary evidence and specific explanations were furnished during scrutiny and considered by the AO, reassessment on the same issue without fresh material is invalid. Obiter - comments on the applicability/timing of statutory amendments (the Court noted the AO's legal position but rejected reassessment for lack of jurisdiction rather than resolving the substantive legal issue). Conclusion: The petitioner had disclosed fully and truly the material facts relevant to the claim of additional depreciation; accordingly the reopening and consequential disallowance could not be sustained. Issue 4 - Validity/effect of the consequential assessment order passed after interim Court order Legal framework: If a foundational notice is without jurisdiction, consequent assessments and demands founded upon it may be set aside; procedural questions of dispatch/serving may be examined, but primary jurisdictional validity is determinative. Precedent treatment: The Court noted previous analyses of 'issue' dates for notices but treated the dispatch/serving chronology as secondary to the principal jurisdictional defect. Interpretation and reasoning: The Court observed that the assessment order was dated 20.11.2018 but was allegedly dispatched after the interim order restraining finalization without leave. The Court held that where the notice under section 148 is itself without jurisdiction, the consequent assessment order need not be separately adjudicated - the invalidity of the notice renders the assessment order of no consequence. Ratio vs. Obiter: Ratio - when a reopening notice is quashed for lack of jurisdiction, consequential assessment orders based on that notice must also be set aside; no separate factual inquiry into dispatch mechanics was necessary for disposition. Obiter - remarks on suspected circumvention of interim orders did not form the basis of the decision. Conclusion: The consequential assessment order dated 20.11.2018 was quashed along with the impugned notice, on the ground that the notice was issued without jurisdiction. Final Disposition The Court concluded that the notice under section 148 dated 19.02.2018 and the assessment order dated 20.11.2018 were without jurisdiction and accordingly quashed and set aside; no order as to costs.