2016 (8) TMI 1235 - HC - Income Tax

Reopening of assessment - reasons to believe - validity of notice - Held that - Revenue would have a difficult choice to make whether to rest on the notice already issued and the reasons recorded for the same which would deprive the revenue of the additional grounds to support reopening or after withdrawing the first notice to issue a fresh notice which would be beyond a period of four years and thereby sacrifice the reasons already recorded, which would not sustain the test of failure on part of the assessee to disclose truly and fully all material facts. However, such difficulty in making a choice, would not govern the interpretation of statutory provisions or would permit us to enlarge the scope of reassessment by holding that the second notice of reopening pending reassessment would also be permissible. We do not discern any concept of alternative or protective notice of reassessment. In the result, impugned notice of reopening is bad in law. This is despite the fact that the first notice came to be quashed on the ground that on the basis of reasons recorded, it cannot be stated that income chargeable to tax had escaped assessment. If it is found that the notice itself is invalid being nonest or ab initio void, it would be no valid notice in eye of law, pursuant to which any valid assessment proceedings would initiate. For example, if the notice is issued by an authority who was simply not competent or was issued without the sanction of the Commissioner when so required, the notice would be void, nonest and having no effect in eye of law. Such a notice would not reopen an assessment, would not commence assessment proceedings and whenever so declared, such a declaration would relate back to the original issuance thereof. In such a situation, if the Revenue has issued a second notice for reopening, the same would not be rendered invalid.

Summary

Issues Involved:
1. Validity of the second notice of reopening during the pendency of the first notice.
2. Failure to disclose truly and fully all material facts.
3. Escapement of income chargeable to tax.

Detailed Analysis:

1. Validity of the Second Notice of Reopening:
The petitioner challenged the second notice of reopening issued on 30.3.2012, arguing that it was not permissible to issue a second notice when the first notice of reopening dated 11.1.2011 was still pending. The court examined various precedents and concluded that once a notice under section 148 is issued, it triggers the initiation of reassessment proceedings. During the pendency of such proceedings, the Assessing Officer cannot issue another notice for reopening based on different reasons. The court held that there cannot be two parallel assessments based on two notices. Until the reassessment pursuant to the first notice is completed, the question of issuing a second notice does not arise. Therefore, the second notice dated 30.3.2012 was deemed invalid.

2. Failure to Disclose Truly and Fully All Material Facts:
The petitioner argued that there was no failure on their part to disclose all material facts truly and fully. The court, however, was not convinced by this argument. It was noted that during the original assessment, there was no direct reference to the transaction of converting shares from stock-in-trade to investment. The court observed that the petitioner had shown only 20,10,198 shares during the earlier proceedings, although they had received redeemable preference shares. The court emphasized that merely because certain data was available in some remote or obscure material, it does not satisfy the requirement of true and full disclosure. The petitioner had withheld the fact that shares were transferred from stock-in-trade to investment on 1.4.2004 while claiming long-term capital gain on the sale of 40,20,396 shares of Sun Pharma. This omission was considered a failure to disclose truly and fully all material facts.

3. Escapement of Income Chargeable to Tax:
The court addressed the issue of whether there was an escapement of income chargeable to tax. The Assessing Officer had alleged that the petitioner had shown 20,10,198 shares on 31.3.2004 but claimed to have converted 40,20,396 shares from stock-in-trade to investment on 1.4.2004. The petitioner had also shown the receipt from the sale of these shares as long-term capital gain instead of business income or short-term capital gain, thereby paying tax at a lower rate. The court noted that the petitioner had provided false information and manipulated accounts to evade taxes. This constituted an escapement of income chargeable to tax. However, since the second notice of reopening was invalid, this issue was left to be decided in the reassessment proceedings if the notice was otherwise valid.

Conclusion:
The court set aside the second notice of reopening dated 30.3.2012, deeming it invalid as it was issued during the pendency of the first notice of reopening. The court emphasized that there cannot be two parallel assessments based on two notices. Additionally, the court found that the petitioner had failed to disclose truly and fully all material facts and had manipulated accounts to evade taxes, leading to an escapement of income chargeable to tax. However, the invalidity of the second notice precluded further action based on these findings.