Reopening Of Income Tax Assessment Not Invalid Where Notice Is Based On New And Tangible Material: Calcutta High Court
The High Court held that reassessment proceedings cannot be faulted on the ground of change of opinion where the original assessment did not involve a conscious adjudication on the issue and the subsequent notice under Section 148 is founded on new and tangible material.
The Calcutta High Court has held that reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961, cannot be faulted where the notice is founded on new and tangible material.
The Court was hearing a writ petition challenging an order passed under Section 148A(3) of the Act and the consequential notice issued under Section 148 for the relevant assessment year.
A Bench of Justice Raja Basu Chowdhury examined whether the jurisdictional precondition for reopening, namely, the existence of new and tangible material, was satisfied, observed: “...there are two most important conditions which authorise the jurisdictional assessing officer to re-open an assessment proceedings. The first of which being that the jurisdictional assessing officer must have reasons to believe that income, profit or gains chargeable to income tax had been under-assessed and secondly, omission or failure on the part of the assessee to make a return of his income under Section 22, or omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year”.
Background
The petitioner company was subjected to a scrutiny assessment under Section 143(3) of the Income Tax Act. During the course of scrutiny, the Assessing Officer examined information received from the investigation wing alleging certain cash transactions involving coal purchases.
The petitioner denied any such transactions or business relationship. In the assessment order, the Assessing Officer recorded that verification of the alleged transactions could not be undertaken due to a lack of requisite data and non-receipt of information, and consequently, the issue was dropped without any further examination.
Subsequently, based on additional material that came to the notice of the department, proceedings under Section 148A were initiated. After considering the petitioner’s reply, the Assessing Officer passed an order under Section 148A(3) and issued a notice under Section 148, leading to the present challenge.
The petitioner contended that the reopening was impermissible as it amounted to a change of opinion on an issue already examined during the original assessment.
Court’s Observation
The Calcutta High Court reiterated that reassessment proceedings are liable to be interdicted where they are founded solely on a change of opinion. However, it emphasised that a change of opinion presupposes that the Assessing Officer had formed a conscious opinion on the issue during the original assessment.
On examining the assessment order, the Court noted that although the issue was adverted to, the Assessing Officer had expressly recorded his inability to verify the alleged transactions due to lack of material and had therefore dropped the issue without reaching any conclusion on the merits.
The Court held that where an issue is dropped due to the absence of material, it cannot be said that any opinion, express or implied, was formed. In such circumstances, initiation of reassessment proceedings based on subsequently available material would not amount to a change of opinion.
The Court observed that the subsequent notice under Section 148 was not based merely on a reference to the petitioner’s financial statements but took note of new and tangible material which was not available at the time of the original assessment.
Applying settled principles, the Court held that the petitioner had failed to demonstrate any jurisdictional error in the assumption of reassessment powers by the Assessing Officer, while stating that “the subsequent notice issued under Section 148 of the said Act is based on an order, which takes note of new and tangible material”.
Conclusion
Holding that the reopening of assessment was founded on new and tangible material and did not amount to a change of opinion, the Calcutta High Court refused to quash the notice issued under Section 148 of the Income Tax Act.
The writ petition was accordingly disposed of, with the Court permitting the reassessment proceedings to continue in accordance with law.
Cause Title: Mark Steels Limited v. Assistant Commissioner of Income Tax, Circle 1(1), Kolkata & Ors
Appearances
Petitioner: Senior Advocate Abhrotosh Mazumdar, with Advocates Saumya Kejriwal, Ananya Rath, Navin Mittal, Debarghya Banerjee
Respondents: Advocates Aryak Dutt, Amit Sharma, Abhishek Kumar Agrahari