2004 (2) TMI 41 - HC - Income Tax

Notice for reopening of assessment - Having recorded our finding that the impugned notice itself is beyond the period of four years from the end of the assessment year 1996-97 and does not comply with the requirements of the proviso to section 147 of the Act, the Assessing Officer had no jurisdiction to reopen the assessment proceedings which were concluded on the basis of assessment under section 143(3) of the Act. On this short count alone the impugned notice is liable to be quashed and set aside.

Issues Involved:
1. Jurisdiction and limitation of notice under section 148 of the Income-tax Act, 1961.
2. Full and true disclosure of material facts by the assessee.
3. Merits of including excise and customs duty in the valuation of closing stock.

Detailed Analysis:

1. Jurisdiction and Limitation of Notice Under Section 148:
The petitioners challenged the notice dated November 5, 2002, for reopening the assessment for the assessment year 1996-97, issued under section 148 of the Income-tax Act, 1961. The primary contention was that the notice was barred by limitation as per the proviso to section 147. The proviso stipulates that no action can be taken after four years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment. The assessment year in question was 1996-97, and the four-year period expired on March 31, 2001. Since the notice was issued on November 5, 2002, it was beyond the permissible period. The court held that the notice was issued beyond the four-year limitation period and thus, was without jurisdiction.

2. Full and True Disclosure of Material Facts by the Assessee:
The petitioners argued that they had made a full disclosure of all material facts necessary for the assessment year 1996-97. The return of income was accompanied by a note explaining the accounting policy regarding excise and customs duty on stocks lying in bonded warehouses. This policy was also referenced in the audit report furnished under section 44AB. The court noted that the reasons recorded by the Assessing Officer did not state that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The reasons must be clear, unambiguous, and based on evidence, and should not suffer from vagueness. The court emphasized that no substitution, deletion, or inference is permissible in the reasons recorded by the Assessing Officer. The reasons should disclose the mind of the Assessing Officer and provide a link between the conclusion and the evidence.

3. Merits of Including Excise and Customs Duty in the Valuation of Closing Stock:
The petitioners contended that excise duty and customs duty were paid before the due date of furnishing the return of income. They argued that the proviso to section 147 applied to the facts of this case, and it could not be said that the income had escaped assessment due to their failure to disclose all material facts. The court did not delve into the merits of including excise and customs duty in the valuation of closing stock, as it disposed of the petition on the jurisdictional ground itself. The court held that since the notice was beyond the period of four years and did not comply with the requirements of the proviso to section 147, the Assessing Officer had no jurisdiction to reopen the assessment proceedings.

Conclusion:
The court quashed and set aside the impugned notice dated November 5, 2002, under section 148 of the Income-tax Act, 1961, on the ground that it was issued beyond the permissible four-year period and did not meet the requirements of the proviso to section 147. The rule was made absolute in terms of prayer clause (a) with no order as to costs.

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