2006 (1) TMI 59 - HC - Income Tax

Reassessment upheld under s.147; reopening valid where prior order didn't address relied aspect, not mere change of opinion

Consolidated Photo And Finvest Ltd. Versus Assistant Commissioner Of Income-Tax.

HC dismissed the writ petition, upholding reopening under s.147. The court held that reassessment was permissible even where reasons arose from records ... Validity of a notice issued u/s 148 proposing to reopen the assessment on the ground that income exigible to tax for the said year has escaped assessment - change of opinion - whether or not the material necessary for taking a decision was available to the Assessing Officer either generally or in the form of a reply to the questionnaire served upon the assessee - petitioner originally declared a loss and had received interest-free advances which were used for gainful activities, earning interest income. HELD THAT:- It is common ground that in the present case the Assessing Officer had not received any additional information from any outside source or quarter but the fact that there was no such information did not make any material difference. Action under section 147 was permissible even if the Assessing Officer gathered his reasons to believe from the very same record as had been the subject-matter of the completed assessment proceedings. What Mr. Vohra argued was that the Assessing Officer could not, on the basis of the very same material as was available to him at the time of assessment, initiate action under section 147, for doing so, would constitute action based entirely on a change in his opinion. The contention is that if the material was available to the Assessing Officer and if an assessment order based on that material is passed by him, a reassessment using the very same material or inferences available from that material should tantamount to a mere change of opinion, which cannot, according to the petitioner, constitute a valid ground for reassessment. As noticed earlier, the proviso to section 147 envisages action in the ordinary course within a period of four years from the end of the relevant assessment year. That limitation does not, however, apply to cases where income chargeable to tax has escaped assessment on account, inter alia, of the failure of the assessee to disclose fully and truly all material facts. The argument that production of the account books and other documentary evidence relevant for assessment must imply a full and true disclosure of all material facts must be rejected out of hand in the light of the provisions of Explanation 1, according to which mere production of the books of account or other evidence from which the Assessing Officer could have, with due diligence, discovered the material evidence does not necessarily amount to a disclosure within the meaning of the proviso. The action initiated by the respondent does not in that view suffer from any error of jurisdiction to warrant interference from this court in exercise of its writ jurisdiction. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it has drawn, it can well be said that the authority has not applied its mind to the issue before it nor formed any opinion. The principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment, as is the position in the present case. It is in that view inconsequential whether or not the material necessary for taking a decision was available to the Assessing Officer either generally or in the form of a reply to the questionnaire served upon the assessee. What is important is whether the Assessing Officer had based on the material available to him taken a view. If he had not done so, the proposed reopening cannot be assailed on the ground that the same is based only en a change of opinion. In the result, this writ petition fails and is hereby dismissed. Issues Involved:1. Validity of the notice issued under section 148 of the Income-tax Act, 1961.2. Alleged failure to disclose fully and truly all material facts necessary for assessment.3. Reopening of assessment based on a change of opinion.4. Limitation period for initiating reassessment under section 147 of the Act.Detailed Analysis:1. Validity of the notice issued under section 148 of the Income-tax Act, 1961:The petitioner questioned the validity of the notice issued under section 148, proposing to reopen the assessment for the assessment year 1998-99 on the grounds that income exigible to tax had escaped assessment. The petitioner had originally declared a loss and had received interest-free advances which were used for gainful activities, earning interest income. The Assessing Officer had completed the assessment under section 143(3) but later issued a notice under section 148, alleging that the income had escaped assessment.2. Alleged failure to disclose fully and truly all material facts necessary for assessment:The Assessing Officer contended that the petitioner had failed to disclose fully and truly all material facts necessary for assessment, which resulted in the escapement of income. The notice under section 148 highlighted that expenses amounting to Rs. 16,48,23,292 were claimed under 'Import agency expenses,' which were deemed irrelevant to the sources of income declared by the assessee. Additionally, administrative and personal expenses amounting to Rs. 7,27,000 were incurred to earn dividend income claimed as exempt under section 10(33), which were not disallowed in the original assessment.3. Reopening of assessment based on a change of opinion:The petitioner argued that the reopening of the assessment was based on a mere change of opinion, which is legally impermissible. The petitioner emphasized that all material facts and information were disclosed during the original assessment, and the Assessing Officer had applied his mind to the details provided. The respondent, however, argued that the mere production of account books or evidence does not amount to disclosure within the meaning of section 147 and that the Assessing Officer had not critically examined the claims during the original assessment.4. Limitation period for initiating reassessment under section 147 of the Act:The court examined whether the proposed reassessment was within the period of limitation prescribed under the proviso to section 147. The proviso stipulates a period of four years from the end of the relevant assessment year for initiating reassessment unless the escapement of income is due to the failure of the assessee to disclose fully and truly all material facts. The court noted that mere production of account books does not necessarily amount to disclosure and that the action initiated by the respondent did not suffer from any jurisdictional error.Conclusion:The court held that the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment and that the reopening of the assessment was not based on a mere change of opinion. The court emphasized that the sufficiency of the grounds for the belief is not a justiciable issue and that the action initiated by the Assessing Officer was competent and proper. The writ petition was dismissed without any order as to costs.