The Bombay High Court quashed the notice dated 27 March 2021 under Section 148 and the assessment order dated 29 March 2022, holding that: The reopening of assessment beyond the four-year period was illegal as there was no failure on the part of the petitioner to disclose material facts. (Para 29, 42) The reassessment was based on a change of opinion, which is impermissible under the law. (Para 33, 37) The failure to dispose of the petitioner’s objections violated the principles of natural justice and the mandate of Section 144B of the Income Tax Act, 1961. (Para 34, 35)

Reopening Beyond Four Years: Under the first proviso to Section 147 of the Income Tax Act, 1961, no action can be taken after four years from the end of the relevant assessment year unless there is a failure to disclose material facts. In this case, the petitioner had fully disclosed all material facts, and the reopening was based on the same material, making it illegal. (Para 29, 42)

Change of Opinion: The Supreme Court in Kelvinator of India Ltd. held that reopening based on a change of opinion is impermissible unless there is fresh tangible material. In this case, the reassessment was based on the same material, indicating a change of opinion. (Para 37)

Natural Justice and Section 144B: The failure to dispose of the petitioner’s objections to the reopening violated the principles of natural justice and the procedural requirements under Section 144B of the Income Tax Act, 1961. (Para 34, 35)

Major Acts:

• Income Tax Act, 1961 (IT Act) – Sections 147, 148, 143(3), 144B, 142(1), 151, 56(2)(v).

Subjects:

• Reopening of Assessment – Change of Opinion – Jurisdictional Error – Natural Justice – Tangible Material – Income Escaping Assessment – Section 147 IT Act – Section 148 IT Act – Section 144B IT Act – GKN Driveshafts Case – Kelvinator of India Case.

Facts:

1. Nature of the Litigation: The petitioner, Crystal Pride Developers, challenged the reopening of its income tax assessment for the Assessment Year (A.Y.) 2014-15 by the Income Tax Department under Section 147 of the Income Tax Act, 1961, beyond the four-year limitation period.

2. Who is Asking the Court and for What Remedy?: The petitioner sought to quash the notice dated 27 March 2021 under Section 148 and the subsequent assessment order dated 29 March 2022, arguing that the reopening was based on a change of opinion and lacked fresh tangible material.

3. Reason for Filing the Case: The petitioner contended that the reopening was illegal as it was initiated after the four-year period and without any failure on its part to disclose material facts. The petitioner also argued that the objections to the reopening were not disposed of, violating the principles of natural justice.

4. What Has Already Been Decided Until Now?: The original assessment for A.Y. 2014-15 was completed on 29 June 2016, where the petitioner’s income was assessed as NIL. The reassessment was initiated based on an internal audit, and the petitioner’s objections were not addressed.

Issues:

1. Whether the reopening of assessment under Section 147 of the Income Tax Act, 1961, beyond the four-year period, was valid in the absence of fresh tangible material? (Para 2, 29)

2. Whether the reassessment was based on a change of opinion, which is impermissible under the law? (Para 12, 33)

3. Whether the failure to dispose of the petitioner’s objections to the reopening violated the principles of natural justice and the mandate of Section 144B of the Income Tax Act, 1961? (Para 34, 35)

Submissions/Arguments:

• Petitioner:
  a. The notice under Section 148 was issued beyond the four-year period, and there was no failure to disclose material facts. (Para 12)
  b. The reopening was based on a change of opinion, which is impermissible under the law. (Para 12, 19)
  c. The objections to the reopening were not disposed of, violating the principles laid down in the GKN Driveshafts case. (Para 13, 15)
  d. The addition of Rs. 7.64 crores under Section 56(2)(v) was erroneous as no interest income was received by the petitioner. (Para 20)

• Respondents:
  a. The petitioner had an alternate remedy by way of an appeal under the Income Tax Act, and the writ petition was not maintainable. (Para 21)
  b. The reopening was justified as the petitioner did not provide sufficient evidence to prove that the debit balance was from interest-free funds. (Para 22)
  c. The reopening was based on an internal audit, which constituted valid information for reassessment. (Para 27)