2010 (9) TMI 1065 - HC - Income Tax

Writ of certiorari - quashing the notice issued u/s 148 - period of limitation - HELD THAT - The complete details have been furnished along with the return and during the course of assessment proceedings. More so, during the course of assessment proceedings, a notice was issued on 7-8-1998 by the assessing authority asking the petitioner to furnish the details of share income as shown in the computation of income and to furnish the details of the new investment made either in the immovable or in the movable property during the year, apart from the other queries. In pursuance thereof, the petitioner had furnished the details of the share income and the details of the new investment in the property. The assessment order has been passed after the proper enquiry and due consideration of the relevant materials relating to the sales of the shares. On these facts, we are of the view that there was no failure on the part of the assessee in disclosing fully and truly all material facts relating to sales of shares, expenses incurred, interest received and computation of capital gains. A notice was issued on 29-3-2003 beyond the period of four years. The AY involved is 1996-97. The four years expired on 31-3-2001. We have already held that it is not the case of the failure on the part of the assessee in disclosing fully and truly all material facts necessary for assessment. we are of the view that the impugned notice issued u/s 148 is barred by limitation being issued beyond the period of limitation inasmuch as no case of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the assessment year is made out. The writ petition is accordingly allowed and notice dated 28-3-2003 issued u/s 148 for the AY 1996-97 is hereby quashed.

Issues Involved:
1. Validity of the notice issued under section 148 of the Income-tax Act, 1961.
2. Alleged failure of the assessee to disclose fully and truly all material facts necessary for assessment.
3. Limitation period for issuing a notice under section 148 of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income-tax Act, 1961:
The petitioner challenged the notice dated 28-3-2003 issued under section 148 of the Income-tax Act, 1961, for the assessment year 1996-97. The petitioner argued that the notice was invalid as it was issued beyond the prescribed limitation period and there was no failure on their part to disclose fully and truly all material facts necessary for assessment.

2. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts Necessary for Assessment:
The petitioner, an assessee under the Act, contended that they had disclosed all necessary material facts in their return for the assessment year 1996-97. This included details of the sale of 75,000 shares of M/s. Kothari Products Ltd., the expenses incurred, the net consideration, and the investment in a residential house, claiming exemption under section 54F. The petitioner argued that they had provided complete details along with the return and during the assessment proceedings, and the assessment order was passed after due consideration of these details.

The respondent, however, argued that the petitioner had failed to disclose fully and truly all material facts, particularly the interest income of Rs. 28,84,943 received from the bank on the temporary deposit of application money. This interest income was deducted from the overall expenses of sale of shares, which the respondent claimed should have been taxed under section 56 as 'income from other sources.'

3. Limitation Period for Issuing a Notice Under Section 148 of the Income-tax Act, 1961:
The petitioner argued that since there was no failure on their part to disclose fully and truly all material facts, the limitation period for issuing a notice under section 148 was four years. The notice issued on 28-3-2003 was beyond this period and thus barred by limitation.

The respondent countered that since the escaped income exceeded Rs. 1 lakh, the limitation period was six years under section 149(1)(b) of the Act, making the notice issued within this period valid.

Court's Findings:

On Disclosure of Material Facts:
The court examined the return, details furnished, the assessment order, and the averments made in the counter-affidavit. It found that the petitioner had disclosed all necessary material facts, including the number of shares sold, sale proceeds, expenses, interest received, and the investment in the residential house. The court noted that the assessment order was passed after proper inquiry and due consideration of these details. Therefore, it concluded that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

On Limitation Period:
The court held that both sections 147 and 149 of the Act must be read together. The proviso to section 147 prohibits taking action beyond four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts. Since the court found no such failure, the limitation period for issuing the notice remained four years. The court rejected the respondent's argument that the six-year limitation period under section 149(1)(b) applied irrespective of the proviso to section 147.

Conclusion:
The court concluded that the notice issued under section 148 was barred by limitation as it was issued beyond the period of four years, and no case of failure on the part of the assessee to disclose fully and truly all material facts was made out. Consequently, the court quashed the notice dated 28-3-2003 issued under section 148 for the assessment year 1996-97. The writ petition was allowed, and there were no orders as to costs.

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