2009 (8) TMI 1021 - HC - Income Tax

Reopening of assessment challenged - Held that - This court is constrained to hold that even if any income in the assessment year 1983-84 has escaped assessment, it is not on account of failure of the petitioner company to disclose facts, material for assessment, truly and fully. The assessing authority thus lacked jurisdiction to reopen assessment that had been concluded, over four years having elapsed from the end of the relevant assessment year. The writ application is thus allowed. The impugned notice and the impugned order of assessment are set aside and quashed.

Issues Involved:
1. Validity of the notice under section 148 of the Income-tax Act, 1961, issued for reopening the assessment after the expiry of the statutory period.
2. Whether the loan from Mimec (Sikkim) Investment Pvt. Ltd. could be treated as income from undisclosed sources.
3. Jurisdiction of the Assessing Officer to reopen the assessment after the statutory period based on the alleged failure to disclose material facts.

Detailed Analysis:

1. Validity of the Notice under Section 148:
The petitioners challenged the notice dated May 13, 1992, issued under section 148 of the Income-tax Act, 1961, for reopening the assessment of taxable income for the assessment year 1983-84. The court noted that as per the proviso to section 147, no action for reassessment could be taken after four years from the end of the relevant assessment year unless there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court emphasized that the petitioner had duly filed the return of income and disclosed the loan from Mimec (Sikkim) Investment Pvt. Ltd. in the return. The court found no failure on the part of the petitioner to disclose material facts, thus invalidating the notice under section 148 issued after the statutory period.

2. Loan from Mimec (Sikkim) Investment Pvt. Ltd. as Income from Undisclosed Sources:
The Assessing Officer treated the loan of Rs. 25,49,300 from Mimec (Sikkim) Investment Pvt. Ltd. as income from undisclosed sources, citing that the loan was interest-free and remained outstanding for several years. The court observed that the loan had been disclosed in the income-tax return for the assessment year 1983-84, and the Assessing Officer had accepted the loan during the original assessment. The court referred to the Supreme Court's ruling in Calcutta Discount Co. Ltd. v. ITO, which held that the duty of the assessee is to disclose fully and truly all primary relevant facts, and it is for the Assessing Officer to draw the necessary inferences. The court concluded that the petitioner had disclosed all primary facts, and the failure of the Assessing Officer to investigate further could not be attributed to the petitioner.

3. Jurisdiction of the Assessing Officer:
The court examined whether the Assessing Officer had jurisdiction to reopen the assessment after the expiry of the statutory period based on the alleged failure to disclose material facts. The court reiterated that the extended period of limitation under section 147 could only be invoked if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The court found that the petitioner had disclosed the loan in the return, and the Assessing Officer had accepted it during the original assessment. The court held that the Assessing Officer lacked jurisdiction to reopen the assessment after the statutory period, as there was no failure on the part of the petitioner to disclose material facts.

Conclusion:
The court allowed the writ application, set aside, and quashed the impugned notice and the order of assessment. The court emphasized that the petitioner had disclosed all primary facts, and the failure of the Assessing Officer to draw the correct inferences could not justify the reopening of the assessment after the statutory period. The court refused the Department's prayer for a stay of the operation of the order.

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