2004 (3) TMI 22 - HC - Income Tax

Notice u/s 148 - powers of AO to issue notice u/s 148, especially, when the revisional authority has already reopened the assessment in exercise of revisional powers u/s 263 and on remand the assessment is pending - submission of Revenue that the petitioner should be asked to raise all its objections to the validity of the notice before the AO does not survive in view of our finding that the powers under sections 147 and 148 could not have been invoked by the AO in the peculiar facts of this case - If the AO has taken a wrong decision that by itself cannot be a ground to reopen the assessment that too beyond the period of four years. In this case, no reasons are to be found alleging any failure on the part of the assessee to fully and truly disclose all material for the assessment. On this count also, invocation of the powers u/s 147 and issuance of notice u/s 148 are absolutely bad in law - impugned notice u/s 148 and the reasons recorded in support thereof u/s 147 are quashed and set aside.

Summary

Issues:
1. Whether the Assessing Officer is denuded of his powers under sections 147 and 148 of the Act when the order setting aside the assessment with order of remand has become final and conclusive and the assessment proceedings pursuant to such order passed under section 263 are pending with the Assessing Officer for assessment in accordance with law?
2. Whether, in the facts and circumstances of the case, can it be said that there was a failure on the part of the petitioner/assessee to fully and truly disclose all the material facts necessary for determination of claim of depreciation on "Tin Packaging Unit" of the petitioner?

Issue 1: Powers of the Assessing Officer under Sections 147 and 148
The primary issue is whether the Assessing Officer can invoke sections 147 and 148 of the Income-tax Act to reopen an assessment when the Commissioner of Income-tax has already set aside the original assessment under section 263 and remanded the matter for reassessment. The court examined the statutory provisions, particularly sections 147, 148, and 263, and concluded that both the Commissioner and the Assessing Officer have independent powers to reopen assessments. However, once the Commissioner has set aside the assessment and the matter is pending reassessment, the Assessing Officer cannot invoke sections 147 and 148 on the premise that income has escaped assessment. The court emphasized that the concept of "reason to believe" that income has escaped assessment cannot apply when reassessment proceedings are still pending. The court cited various judicial precedents, including the Supreme Court's decisions in Sheo Nath Singh v. AAC of I.T. and ITO v. Lakhmani Mewal Das, which clarified that the belief must be based on reasonable grounds and not mere suspicion. The court held that during the pendency of reassessment proceedings, the income cannot be said to have escaped assessment, and therefore, the Assessing Officer's invocation of sections 147 and 148 was invalid, ab initio void, and illegal.

Issue 2: Disclosure of Material Facts by the Assessee
The court also addressed whether the assessee had failed to fully and truly disclose all material facts necessary for determining the claim of depreciation on the "Tin Packaging Unit." The court found that the assessee had disclosed all necessary documents, including the certificate of the chartered engineer and the statement of claim, during the original assessment proceedings. The court noted that the assessee's representative had attended the hearings and provided all relevant evidence. Therefore, the court concluded that there was no failure on the part of the assessee to disclose fully and truly all material facts. The court reiterated that a wrong decision by the Assessing Officer does not justify reopening the assessment beyond the period of four years, especially in the absence of any specific reasons alleging failure on the part of the assessee. Consequently, the court held that the invocation of powers under section 147 and the issuance of notice under section 148 were bad in law.

Conclusion:
The court quashed and set aside the impugned notice dated March 28, 2003, issued by the Assessing Officer under section 148 and the reasons recorded in support thereof under section 147. The petition was allowed, and the rule was made absolute in terms of prayer clauses (a) and (b) with no order as to costs.