No Disclosure of Material Facts: Madras HC Invalidates Action for Reopening Income Tax Assessment Notice issued u/s 148 [Read Order]

The Madras High Court has held the reopening of assessment by the Income Tax Department under Section 148 of the Income Tax Act, 1961 to be invalid observing that reassessment cannot be made when there is no failure on the part of the assessee in disclosing the facts of the case.

The petitioner company, Anantara Solutions Private Limited, initially assessed under scrutiny for which an assessment order was passed on 29 December 2017. Subsequently, the Income Tax Department issued a notice under Section 148 on 29 March 2021 to reopen the already completed assessment.

The reassessment was initiated on the basis of issues relating to the set-off of losses, the undervaluation of shares and the payment to shareholders due to the reduction of share capital. The petitioner company responded to the notice and submitted explanations along with the documents to prove that all the information had already been disclosed in the initial scrutiny assessment.

Despite the objections raised by the petitioner company the Assessing Officer rejected them and issued further notices.

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The petitioner argued that the reassessment was initiated after a lapse of more than four years from the end of the relevant assessment year. The reassessment could be valid only in circumstances of a failure of the assessee to fully and truly disclose all material facts necessary for assessment.

The petitioner case was that in the course of the original scrutiny assessment specific queries were raised by the Assessing Officer in respect of reduction of share capital remittance of funds to shareholders and setting off of losses.

The petitioner had given explanations in writing supported by relevant documents including financial statements and computation of income etc. There was therefore, a full and true disclosure of all primary facts.

The petitioner’s case was that the reasons for reassessment did not reflect any new material coming into the possession of the Assessing Officer after completion of the original assessment. The reassessment was based only on a re-examination of the same material that was already scrutinized in the course of the original assessment .

Justice Senthilkumar Ramamoorthy observed that the Assessing Officer had raised certain questions during the assessment and the petitioner had replied in detail. Hence, it cannot be said that the assessee had failed to disclose certain facts for assessment.

It was further held that the reason for reassessment was either on the basis of information received from the investigation wing or change of opinion, which is not valid in law.

Therefore, the Madras High Court quashed the notice for reassessment issued under Section 148 of the Income Tax Act and held that the jurisdictional requirements for reassessment were not fulfilled.

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