The Bombay High Court ( HC ) in its recent judgment has held that re-opening of assessment based on mere change of opinion is not allowable.
Devkant Synthetics India Pvt. Ltd., the petitioner challenged the reassessment proceedings initiated under a notice, dated 31st March 2022 issued under section 148 of the Income Tax Act,1961 (‘the Act’) leading to the final order of reassessment.
The petitioner is a company engaged in the business, interalia, of trading in shares and securities. During the previous year relevant to the assessment year 2013-14, shares and securities amounting to Rs.36,04,65,386/- were traded. It is stated that after considering the purchase costs and other business expenditures, the petitioner reported a profit before tax of Rs.63,68,739/- in its Profit and Loss account for the year ending 31st March 2013.
A return of income for the assessment year 2013-14 was filed declaring a total income of Rs.23,16,530/-, which included the income earned from the sale of shares and securities under the head of ‘Profits and Gains from Business and Profession’.
The petitioner stated that it was only after the Assessing Officer had satisfied itself thoroughly on all the issues which had been identified during the proceedings that a final order of assessment, dated 29th March 2016 came to be passed under section 143(3) of the Act assessing the petitioner’s income at Rs.37,36,365/-.
Respondent No.3 found that the disallowance under section 14(A) made was erroneous and prejudicial to the interest of revenue, and therefore, took steps to revise the original assessment order to that extent while the assessment order on the other issues was not interfered with.
The assessee has filed a copy of the annual report and P & L account and balance sheet along with the return of income where various information/materials were disclosed. Objections were filed to the reopening of the assessment and the order of re-assessment, dated 26th March 2022 was passed.
It was contended that there was no failure on the part of the petitioner to disclose any material fact fully and truly, which was a condition precedent for the exercise of jurisdiction beyond the period of four years in terms of the first proviso to section 147 of the Act.
It was observed that to exercise jurisdiction in terms of section 147 of the Act, in a case, where reassessment proceedings were sought to be initiated beyond the period of four years, besides the requirement of having reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer has to further be satisfied that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment during the original assessment proceedings.
Justice Dhiraj Singh Thakur & Justice Kamal Khata held that “there was no basis to hold that there was any failure on the part of the assessee to disclose any material facts fully and truly during the regular assessment proceedings and further that reassessment proceedings are nothing but a change of opinion.” The Court set aside and quashed the impugned notice and the order of reassessment which are without jurisdiction.
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