Mere review of the same documents that had been submitted during the original assessment does not warrant reopening of assessment: Bombay HC
Imperial Consultants and Securities vs. Deputy CIT (Writ Petition No. 1783 of 2022)
Facts:
1. The petitioner, Imperial Consultants and Securities, engaged in the trading and investment of shares and securities, had submitted all relevant documents during the original assessment proceedings, including its Profit and Loss account, balance sheets, tax audit report, loan, interest details and other financial records.
2. The AO had initially made a disallowance under Section 14A of the Income Tax Act pertaining to interest paid on borrowings used for making investments yielding exempt income.
3. Despite this, the AO issued a notice under Section 148 five years later, initiating reassessment on the grounds that the funds had been diverted to interest-free loans to related parties, a claim the petitioner disputed. The reassessment was initiated even though there was no allegation of the petitioner failing to disclose any material facts.
4. On the other hand, the Revenue, represented by the Deputy Commissioner of Income Tax, contended that the reassessment was necessary because the petitioner had not fully disclosed the nature of its business transactions, particularly the diversion of funds for interest-free loans to related parties, which they argued could lead to income escaping assessment.
5. The Revenue claimed that this was a new issue that had come to light after the original assessment and justified the reopening of the case under Section 147 of the Income Tax Act. They further argued that the assessee’s failure to disclose all material facts warranted the reassessment and that the AO was within his jurisdiction to review the previous assessment.
Hon Bombay HC held as below:
1. The AO had reviewed the same documents that had been submitted during the original assessment and had not discovered anything new that would warrant the reopening of the case.
2. Tax authorities cannot reopen an assessment merely to reconsider their earlier conclusions or to review the case, as this would be a violation of the principles governing reassessment proceedings under Section 147.
3. The reassessment should only be triggered by new material facts or when the assessee has failed to disclose material facts during the initial assessment.
4. Consequently, the reassessment proceedings ought to be quashed
The Copy of the order is as under:
