2012 (10) TMI 1145 - HC - Income Tax

Reopening of assessment - notice issues after four years - Held that - AO in the reasons recorded after relying on the Tribunal s decision in the assessee s own case for a different assessment year has merely made a bald statement that the assessee had failed to disclose truly and fully all legal facts . It is borne out from the record that the assessee had provided in its P&L A/c software expenses as revenue in nature. AO in the original assessment had without any discussion in the assessment order allowed these software expenses as revenue expenditure and this was sought to be disturbed in the reassessment proceedings after expiry of four years. This is a clear case where the primary facts were available before the AO and therefore the assessee cannot be held to have failed to disclose fully and truly all material facts . It was for the AO to draw the appropriate inference. The assessee is/was under no obligation to draw the inference of fact or law based on the primary facts available on record. - Decided against revenue

Summary

Issues:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961 based on alleged escapement of income.
2. Compliance with the conditions for initiating reassessment proceedings.
3. Justifiability of reassessment based on failure to disclose fully and truly all material facts.
4. Applicability of judicial decisions as grounds for reassessment.
5. Interpretation of tangible material for determining escapement of income.
6. Consideration of change of opinion as a ground for reassessment.

Analysis:

Issue 1:
The High Court examined the validity of reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961. The Tribunal quashed the reassessment proceedings based on alleged escapement of income, leading to the revenue challenging the decision.

Issue 2:
The Court assessed whether the conditions for initiating reassessment proceedings were met. It was noted that the AO failed to demonstrate that the assessee had not fully and truly disclosed all material facts necessary for assessment, as required under Section 147.

Issue 3:
The Court analyzed the justifiability of reassessment based on the alleged failure to disclose all material facts. It was concluded that the primary facts were available before the AO, and the assessee cannot be faulted for failing to disclose fully and truly all material facts.

Issue 4:
Regarding the applicability of judicial decisions as grounds for reassessment, the Court deliberated on whether decisions of the Tribunal or High Court could serve as valid reasons for initiating reassessment proceedings.

Issue 5:
The Court considered the concept of tangible material for determining escapement of income. It was highlighted that judicial decisions alone may not constitute tangible material for concluding income escapement.

Issue 6:
The Court addressed the question of change of opinion as a ground for reassessment. It emphasized that reassessment proceedings cannot be initiated solely based on an incorrect application of law or erroneous understanding, as rectification in such cases should be sought through other provisions like Section 263.

In the final analysis, the Court dismissed the revenue's appeal, citing that no substantial question of law arose for consideration. The judgment emphasized the importance of full and true disclosure of material facts by the assessee, and the limitations on reassessment based on mere change of opinion or incorrect application of law.