Bombay High Court: Onus Lies on AO to provide reasons to disbelieve bank statements & supporting documents to reopen assessment

Bombay High Court: Onus Lies on AO to provide reasons to disbelieve bank statements & supporting documents to reopen assessment

The Bombay High Court by its coram comprising of Justices Kamal Khata and Dhiraj Singh Thakur observed that, onus lies on the Assessing Officer (AO) to provide reasons to disbelieve the bank statements and supporting documents for reopening the assessment.

In the present case, the petitioner- M/s. Aditi Constructions r a partnership firm filed its return of income for AY 2008-09 on 15th September 2008. Its case was selected for scrutiny and a Notice under Section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was issued on 19th August 2009. Thereafter, by a notice under Section 142(1) dated 12th July 2010 a questionnaire seeking details regarding loans and advances of secured and unsecured loans with names /address details, interest payment, loan confirmation details of unsecured loans, details of source and capacity of creditor, complete address of creditor with PAN and bank statements were sought.

All queries were answered with particulars and supporting documents. An assessment order under Section 143(3) was passed on 29th October 2010.

After four years, Respondent No.1 issued a notice dated 9th March 2015 under section 148 of the Act to reopen the assessment which was responded by letter dated 8th April 2015.

Petitioner filed its objections on 11th September 2015 and pointed out that:

(a) all material facts were fully and truly disclosed in the original assessment,

(b) original assessment was completed under Section 143(3),

(c) no fresh or tangible material for re-opening beyond 4 years was found,

(d) re-opening was based on mere change of opinion,

(e) information, which was the basis for, ‘reasons recorded’ was not made available.

The respondent contended that the petitioner had failed to ‘fully and truly’ disclose material facts in the original assessment and contended that the department had to only make out a ‘prima facie case’ on the basis of which the Department could reopen the case and the ‘sufficiency and correctness’ of the material was not a thing to be considered at this stage.

The Court held that once the Petitioner provided the bank statements and details of parties as sought for, the AO must necessarily carefully examine the material and then give particulars and reasons to believe otherwise, whilst rejecting the objections, more so, when there is an assessment order under Section 143(3). This process would be in tune with the principles of ‘shifting of onuses under the evidence act, opined the bench.

Further, the bench held that the criteria for reopening of assessment after a period of four years was no longer res integra in view of the judgement in the case of Ananta Landmark P. Ltd vs. Dy. CIT wherein the Court held that where assessment was not sought to be reopened on the reasonable belief that income had escaped assessment on account of failure of assessee to disclose truly and fully all material facts that were necessary for computation of income but was a case wherein assessment was sought to be reopened on account of change of opinion of AO the reopening was not justified.

It was further held that where primary facts necessary for assessment are fully and truly disclosed the AO is not entitled to reopen the assessment on a change of opinion. It was further held that while considering the material on record, one view conclusively taken by AO, it would not be open for the AO to reopen the assessment based on the very same material and take another view.

The Court observed, “In our view, the Petitioner has by production of bank statements and supporting documents shown that the reasonable belief of the AO was unfounded and consequently the presumption that the Petitioner was one of the beneficiary of the accommodation entries based on the statement of the third party was disproved. Consequently, the onus would be on the AO to provide reasons to disbelieve the bank statements and supporting documents for reopening the assessment.”

There was no tangible material mentioned in the recorded reasons to conclude that income had escaped assessment, so also the nature of information was also not disclosed, noted the bench.

Therefore, the bench concluded that the AO had acted in excess of the limit of his jurisdiction to reopen the assessment in the exercise of powers under section 147 read with section 148 of the Act and set aside the order.