2011 (8) TMI 1276 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Legality of the reassessment proceedings initiated after the expiry of four years from the end of the relevant assessment year.
3. Alleged failure of the assessee to disclose fully and truly all material facts necessary for assessment.
4. Jurisdiction of the Assessing Officer to reopen a completed assessment based on a change of opinion.
5. Impact of judicial decisions on the reopening of assessments.
6. Breach of interim orders and its consequences.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner challenged the validity of the notice dated 31st March 2009, issued under Section 148 of the Income Tax Act, claiming it was issued without any reason. The court noted that the reasons recorded for reopening the assessment must indicate that the assessee failed to disclose fully and truly all material facts necessary for the assessment. The court found no such indication in the reasons recorded, rendering the notice invalid. The court emphasized that the reasons cannot be supplemented later and must be recorded before issuing the notice.

2. Legality of Reassessment Proceedings Initiated After Four Years:
The court examined the proviso to Section 147, which stipulates that no action can be taken after four years from the end of the relevant assessment year unless there is a failure on the part of the assessee to disclose fully and truly all material facts. The court found that the reasons recorded did not show any failure on the part of the assessee, making the reassessment proceedings initiated after four years illegal and barred by limitation.

3. Alleged Failure to Disclose Material Facts:
The petitioner argued that there was no failure to disclose material facts, as all necessary information was provided during the original assessment. The court agreed, noting that the reasons recorded for reopening the assessment did not allege any failure to disclose material facts. The absence of such an allegation meant that the conditions for reopening the assessment after four years were not met.

4. Jurisdiction of the Assessing Officer Based on Change of Opinion:
The court reiterated that the wide powers of the Assessing Officer to reopen assessments are circumscribed and do not extend to reopening based on a mere change of opinion. The court found that the reasons recorded for reopening the assessment were based on a change of opinion, which is not permissible. The court cited several precedents, including the Supreme Court's decision in Commissioner of Income Tax Vs. Kelvinator of India Ltd., to support this view.

5. Impact of Judicial Decisions on Reopening Assessments:
The court addressed the reliance on the Supreme Court's decision in Hyundai Heavy Industries Co. Ltd. as a basis for reopening the assessment. The court held that a judicial decision does not constitute new information that justifies reopening an assessment, especially when there is no failure on the part of the assessee. The court cited the decision in McDermott International Inc. Vs. Additional Commissioner of Income Tax, which held that a judicial decision is not grounds for reopening an assessment if there was no failure to disclose material facts.

6. Breach of Interim Orders and Its Consequences:
The court noted that the final assessment order and notice of demand issued by the Assessing Officer were in gross violation of the interim order dated 1st July 2010, which restrained the Assessing Officer from passing a final assessment order. The court held that any action taken in violation of an interim order is a nullity and unenforceable. The court emphasized that a party to litigation cannot take unfair advantage by breaching an interim order and must face the consequences of such actions.

Conclusion:
The court quashed the notice issued under Section 148 and the subsequent reassessment proceedings, declaring them illegal and without jurisdiction. The final assessment order and notice of demand issued in violation of the interim order were also declared nullities. The writ petition was allowed, and the court cautioned the petitioner to bring subsequent proceedings on record in future cases.