Failure to Prove Non-disclosure and Reasons for Reopening Assessment: Bombay HC quashes Proceedings u/s 148 of Income Tax Act [Read Order]

“There is not even a whisper in the entire communication trail as to what was not disclosed”, the Bombay High Court observed while quashing the penalty proceedings against the assessee under Section 148 of the Income Tax Act.

The Petitioner had assailed the notice issued by the Deputy Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961 seeking to reopen the assessment for the assessment year 2015-16, order disposing the objections of the Petitioner and the assessment order under Section 147 of the Act read with Section 143(3) read with Section 144(B) of the Income Tax Act.

Petitioner also sought an order restraining the Respondents from taking any action pursuant to the assailed orders.

Gandhi, Counsel appearing for the Petitioner assailed 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 reassessment 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.

Citing GKN Driveshafts (India) Ltd. v D.C.I.T., the petitioner counsel went on 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 reiterated the chronology of events to indicate the lapse of the AO in complying with the mandate of law and to show how the assessee had complied with the notice under Section 148 of the Income Tax Act.

He submitted that there was no failure on the part of the Petitioner to disclose fully and truly all material facts necessary for the assessment year under consideration.

The counsel for the revenue Gokhale placed reliance on various CBDT circulars that extended the time-bar for issue of notice. He also contended that the Petitioner had not made a full and true disclosure. Hence, the AO is well within his rights to reopen the subject assessment.

Section 147 of the Act authorizes the reopening of any assessment of a previous year and Section 148 contains conditions for reopening assessments, including the limitation period within which notices can be issued, the High Court Bench observed.

It was noted, by the division bench upon perusin of the facts and submissions of the representatives that, “it cannot be said that the income chargeable to tax for the AY under consideration has escaped assessment by reason of the omission or failure on the part of the Petitioner to disclose fully and truly all material facts. The AO had all the material before him when he made the original assessment”.

It was also 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.”

Upon observing that, “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”, the Division bench of Justices Dr. N K Gokhale and K R Shriram quashed the notice dated 26th March 2021, the order disposing objections dated 24th March 2022, the impugned assessment order and the impugned notice of remand dated 24th March 2022 as well as the impugned show cause notice for levy of penalty dated 24th March 2022.

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