Section 147: Reassessment – Notice issued after four years – Original assessment u/s 143(3) – Reopening is based on change of opinion – Reassessment was held to be not valid

7.  Sutra Ventures
Private Limited vs. The Union of India and others [Writ Petition No. 2386 of
2019] Date of order: 9^th October, 2019 (Bombay High Court)

Section 147: Reassessment – Notice issued after four
years – Original assessment u/s 143(3) – Reopening is based on change of
opinion – Reassessment was held to be not valid

The
assessee is a company engaged in the business of providing marketing support
services and consultancy in sports. For the A.Y. 2012-13, it filed a return of
income declaring total income of Rs. 6,44,390. The AO issued a notice for
scrutiny assessment. The assessee company replied to the queries; the scrutiny
proceedings were concluded and the assessment order was passed on 13^th
March, 2015; the AO accepted the return of income filed by the assessee without
making any disallowance or additions.

After
the scrutiny assessment for the A.Y. 2012-13 was concluded, the Income Tax
Department conducted audit and certain objections were raised regarding purchases.
The assessee company filed its reply to the audit objections, submitting its
explanations. On 28^th March, 2019 the assessee company received a
notice from the AO u/s 147 of the Act on the ground that there was reason to
believe that income chargeable to tax for the A.Y. 2012-13 had escaped
assessment. The AO provided the reasons to which the assessee company filed
objections. The objections raised by the assessee company were rejected by the
AO.

Being
aggrieved by the order of the AO, the assessee filed a Writ Petition before the
High Court. The Court held that in this case assessment is sought to be
reopened after a period of four years. The significance of the period of four
years is that if the assessment is sought to be reopened after a period of four
years from the end of the relevant assessment year, then as per section 147 of
the Act an additional requirement is necessary, that is, there should be
failure on the part of the assessee to fully and truly disclose material facts.
The reason of reopening was that the assessee company, in the profit and loss
account has shown sale of services at Rs. 1,87,56,347 under the head revenue
from operations and an amount of Rs. 20,46,260 was debited as purchase of
traded goods / stock-in-trade. The AO had opined that the goods were neither
shown as sales nor as closing stock because of which the income had escaped
assessment because of the omission on the part of the assessee.

The
Court observed that the assumption of jurisdiction on the basis of the reasons
given by the AO is entirely unfounded and unjustified. In the original
assessment the petitioner was called upon to produce documents in connection
with the A.Y. 2012-13, namely, acknowledgment of return, balance sheet, profit
and loss account, tax audit report, etc. The petitioner was also called upon to
submit the return of income of the directors along with other documents such as
shareholding pattern, bank account details, etc. The assessment order dated 13^th
March, 2015 pursuant to the production of profit and loss account and other
documents referred to these documents. In the assessment order dated 13^th
March, 2015 it is stated that the assessee company produced all the material
that was called for and it remained present through its chartered accountant to
submit the documents. The total income of the assessee company was computed
with reference to the profit and loss account. Therefore, the profit and loss
account was called for, was submitted by the assessee and was scrutinised.

Thus,
it cannot be said that there was any failure on the part of the assessee
company to produce all the material particulars. After considering the entire
material the assessment order was passed. The AO is now seeking to proceed on a
mere change of opinion. All these factors and the need for jurisdictional
requirement were brought to the notice of the AO by the assessee company. Yet,
the AO ignored the same and proceeded to dismiss the objections and reiterated
his decision to reopen the assessment. In these circumstances, the impugned
notice and the impugned order issued / passed by the AO were quashed and set
aside.