Reassessment based on change of opinion without any tangible new information unsustainable

Ashraf Chitalwala Vs DCIT (Bombay High Court)

Bombay High Court held that the reopening of the assessment order based on change of opinion without surfacing of any tangible new information is unsustainable in law and liable to be set aside.

Facts- The Petitioner has assailed notice dated 26^th March 2021 issued by the Deputy Commissioner of Income Tax u/s. 148 of The Income Tax Act 1961 seeking to reopen the assessment for the assessment year 2015-16, order dated 24^th March 2022 disposing the objections of the Petitioner and the assessment order dated 24^th March 2022 u/s. 147 of the Act read with Section 143(3) read with Section 144(B) of the Act. Petitioner also seeks an order restraining the Respondents from taking any action pursuant to the assailed orders.

Conclusion- Held that the reopening of the assessment order is clearly on the basis of a change of opinion and that too without surfacing of any tangible new information.

Held that the Petitioner had fully and truly disclosed all material facts necessary for the purpose of assessment. The AO issued the first assessment order after carefully scrutinizing the material furnished by the Petitioner. The Respondents have failed to furnish any reasons for reopening as mandated by law. There is not even a whisper in the entire communication trail as to what was not disclosed. In our view, thus, this is not a case where assessment should be permitted to be reopened on the reasonable belief that income has escaped assessment on account of failure of the assessee to disclose truly and fully or material information necessary for computation of income. Consequently, the notice dated 26^th March 2021, the order disposing objections dated 24^th March 2022, the impugned assessment order and the impugned notice of remand dated 24^th March 2022 as well as the impugned show cause notice for levy of penalty dated 24^th March 2022 are quashed and set aside.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Rule. Rule is made returnable forthwith. Heard parties by consent.

2. The Petitioner has assailed notice dated 26^th March 2021 issued by the Deputy Commissioner of Income Tax under section 148 of The Income Tax Act 1961 (“the Act”) seeking to reopen the assessment for the assessment year 2015-16, order dated 24^th March 2022 disposing the objections of the Petitioner and the assessment order dated 24^th March 2022 under Section 147 of the Act read with Section 143(3) read with Section 144(B) of the Act. Petitioner also seeks an order restraining the Respondents from taking any action pursuant to the assailed orders.

3. The facts of the case in brief are as follows:

The Assessment Year (‘AY’) under consideration is 2015-16. The Petitioner an individual resident of India filed his original return of income on 27^th September 2015 and later a revised return on 7th December 2015. A notice dated 1^st February 2017 issued under Section 143(2) of the Act initiated a scrutiny assessment. A specific query was raised regarding details of sale and purchase transactions of immovable property in the Assessment Year under consideration. By reply dated 13^th February 2017 and 22^nd February 2017, the Petitioner furnished all required details. Assessment order dated 25^th May 2017 was passed after considering the submissions of the Petitioner.

4. A notice dated 26^th March 2021 under section 148 of the Act was issued to reopen the AY 2015-16 assessment. Another Notice under Section 142(1) of the Act was also issued requiring the Petitioner to file return of income in response to notice under Section 148 of the Act. The Petitioner filed the return of his income by replies dated 31^st July 2021 and 2^nd August 2021. The Petitioner sought the reasons recorded by the AO to issue notice under Section 148 of the Act but it is the case of the Petitioner that a copy of the recorded reasons has not been furnished to him till date. Once again by notice of 12^th December 2021 followed by a reminder dated 24^th January 2022, the Petitioner was specifically asked to explain the claim of deduction under Section 54(F) of the Act. The Petitioner brought to the attention of the AO that he had already furnished the details but resubmitted the details required and once again placed on record that the reasons recorded have not been communicated to him despite innumerable requests. The Petitioner was required to show cause as to why the claim of deduction under Section 54(F) of the Act should not be disallowed by a notice in the form of a Draft assessment order of 16^th March 2022.

5. Despite detailed submissions given by the Petitioner, the impugned order dated 24^th March 2022 was passed by the Respondent No.4 disposing his objections in the proposed Assessment. The assessment order dated 24^th March 2022 as well as notice for levy of penalty dated 24^th March 2022 were also issued. All these are impugned in this Petition.

6. Mr. Gandhi learned Counsel appearing for the Petitioner assails the orders mainly on four grounds:-

i. There is no failure on the part of the Petitioner to disclose truly and fully material facts;

ii. The re-assessment is purely on the basis of change of opinion;

iii. There is no new tangible material; and

iv. Even on merits, there is no income that has escaped assessment.

7. At the very outset, Mr. Gandhi places reliance on the decision of the Supreme Court in the matter of GKN Driveshafts (India) Ltd. v D.C.I.T.¹ to canvas his case that the reasons recorded are to be conveyed to the assessee, on the basis of which he gets an opportunity to file his objections. He reiterates the chronology of events to indicate the lapse of the AO in complying with the mandate of law.