Mere change of opinion cannot be a ground for reopening of assessment of income in proceedings under the income Tax Act 1961

Full disclosure, in the context of financial documents, would means that all material or significant information should be disclosed. Therefore, the meaning of ‘full and true disclosure’ is the voluntary filing of a return of income that the assesse earnestly believes to be true. Production of books of accounts or other material evidence that could ordinarily be discovered by the assessing officer does not amount to a true and full disclosure.

The conditions which would have to satisfied for reopening of assessment are:-

1. The first condition is that the income tax officer must have reason to believe that income, profits or gains chargeable to income tax had been under-assessed.

2. The second condition is that he must have also reason to believe that such under-assessment had occurred by reason of either (i) omission or failure on the part of the assessee to make a return of his income or (ii) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year.

Both these were conditions precedent to be satisfied before the income tax officer could have jurisdiction to issue a notice for the assessment / reassessment.

The expression reason to believe would mean that some fresh document / evidence has been discovered subsequently which gives reason to the belief that income chargeable to income tax has escaped assessment due to the failure on the part of assesse to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings and any part of his income, profit or gains chargeable to income tax has escaped assessment.

The Supreme Court has dealt with the aforesaid / similar issue in the case titled M/S MANGALAM PUBLICATIONS, KOTTAYAM VERSUS COMMISSIONER OF INCOME TAX, KOTTAYAM (CRIMINAL APPEAL No. 8580 / 2011).

The relevant paragraphs of the aforesaid judgment have been reproduced below:

“42. We may also mention that while framing the initial assessment orders of the assessee for the three assessment years in question, the assessing officer had made an independent analysis of the incomings and outgoings of the assessee for the relevant previous years and thereafter had passed the assessment orders under Section 143(3) of the Act. We have already taken note of the fact that an assessment order under Section 143(3) is preceded by notice, enquiry and hearing under Section 142(1), (2) and (3) as well as under Section 143(2). If that be the position and when the assessee had not made any false declaration, it was nothing but a subsequent subjective analysis of the assessing officer that income of the assessee for the three assessment years was much higher than what was assessed and therefore, had escaped assessment. This is nothing but a mere change of opinion which cannot be a ground for reopening of assessment.

43. There is one more aspect which we may mention. Admittedly, the returns for the three assessment years under consideration were not accompanied by the regular books of account. Though under sub-section (9)(f) of Section 139, such returns could have been treated as defective returns by the assessing officer and the assessee intimated to remove the defect failing which the returns would have been invalid, however, the materials on record do not indicate that the assessing officer had issued any notice to the assessee bringing to its notice such defect and calling upon the assessee to rectify the defect within the period as provided under the aforesaid provision. In other words, the assessing officer had accepted the returns submitted by the assessee for the three assessment years under question. At this stage, we may also mention that it is the case of the assessee that though it could not maintain and file regular books of account with the returns in the assessment proceedings for the three assessment years under consideration, nonetheless it had prepared and filed the details of accounts as well as incomings and outgoings of the assessee etc. for each of the three assessment years which were duly verified and enquired into by the assessing officer in the course of the assessment proceedings which culminated in the orders of assessment under subsection (3) of Section 143. Suffice it to say that a return filed without the regular balance sheet and profit and loss account may be a defective one but certainly not invalid. A defective return cannot be regarded as an invalid return. The assessing officer has the discretion to intimate the assessee about the defect(s) and it is only when the defect(s) are not rectified within the specified period that the assessing officer may treat the return as an invalid return. Ascertaining the defects and intimating the same to the assessee for rectification, are within the realm of discretion of the assessing officer. It is for him to exercise the discretion. The burden is on the assessing officer. If he does not exercise the discretion, the return of income cannot be construed as a defective return. As a matter of fact, in none of the three assessment years, the assessing officer had issued any declaration that the returns were defective.”