2010 (4) TMI 893 - HC - Income Tax

Reassessment - notice us/ 148 - Deduction u/s 80IB - held that - notice fails to satisfy the ingredients necessary for reopening the assessment under section 147 of the Act after expiry of four years from the end of the relevant assessment year.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961.
2. Compliance with the conditions for claiming deduction under Section 80-IB(4) of the Income-tax Act, 1961.
3. Alleged failure to disclose fully and truly all material facts necessary for assessment.
4. Time-barred nature of the notice under Section 147 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961:
The petitioner challenged the notice dated March 27, 2009, issued under Section 148 of the Income-tax Act, 1961, on the grounds that it was issued beyond the period of four years from the end of the relevant assessment year. The court noted that the notice was issued on March 27, 2009, which is beyond the four-year period for the assessment year 2003-04. The court emphasized that the Assessing Officer must have "reason to believe" that income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for assessment. The court found that the reasons recorded for reopening the assessment did not satisfy these conditions, rendering the notice invalid.

2. Compliance with the conditions for claiming deduction under Section 80-IB(4) of the Income-tax Act, 1961:
The petitioner claimed a deduction under Section 80-IB(4) for its unit in Silvasa, a backward area. The Assessing Officer contended that the petitioner had not fulfilled all conditions precedent to the allowance of the deduction, particularly the requirement to file the audit report in Form No. 10CCB along with the return. The court noted that the audit report was furnished during the assessment proceedings, which is sufficient compliance with the provisions of the Act. The court also observed that the petitioner had excluded profit on the sale of assets while calculating the profit of the industrial undertaking, indicating full compliance with the conditions for claiming the deduction.

3. Alleged failure to disclose fully and truly all material facts necessary for assessment:
The Assessing Officer argued that the petitioner had failed to disclose fully and truly all material facts necessary for assessment, particularly regarding other income such as interest and FDR interest. The court found that all material particulars were disclosed at the time of scrutiny assessment, and the Assessing Officer had considered these details while framing the assessment order under Section 143(3). The court concluded that there was no failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment.

4. Time-barred nature of the notice under Section 147 of the Income-tax Act, 1961:
The petitioner argued that the notice under Section 148 was time-barred as it was issued beyond the period of four years from the end of the relevant assessment year. The court reiterated that for the notice to be valid, the Assessing Officer must demonstrate that income chargeable to tax had escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court found that the Assessing Officer failed to establish this, rendering the notice time-barred and invalid.

Conclusion:
The court quashed and set aside the impugned notice dated March 27, 2009, under Section 148 of the Income-tax Act, 1961, along with the subsequent notice dated September 25, 2009, and the order dated September 22, 2009. The court held that the entire proceedings initiated under the notice were vitiated and could not be sustained. The petition was allowed, and the rule was made absolute with no order as to costs.