2011 (1) TMI 89 - HC - Income Tax

Re-assessment proceedings under section 147(a) - compulsory acquisition - Long-Term Capital Gains - purchase price of the acquired land as the appellant company made a claim for higher compensation Assessee claimed exemption under section 54E - Assessing Officer held that the assessee company was not entitled to the benefit of exemption under section 54E as it was inserted by the Finance Act 1979 w.e.f. 1-4-1979 - appellant has made the relevant disclosure in the returns for the relevant assessment year when the enhanced compensation was received - amount was invested by the appellant in Bonds which entitles him to certain benefits in view of the provisions of section 54E of the IT Act - benefit is available to the appellant for that year in question which may not have been available for the assessment year 1965-66 cannot be a reason for the assessing authority to reopen the assessment for the year 1965-66 - order of the Tribunal not sustainable and accordingly set aside

Summary

Issues Involved:
1. Justification of re-assessment proceedings under Section 147(a) read with Section 148 of the Income-tax Act, 1961.
2. Validity of approval by the Central Board of Direct Taxes under Section 151(i) for reopening the assessment.

Issue-Wise Detailed Analysis:

1. Justification of Re-assessment Proceedings:

The primary question was whether the Tribunal was justified in holding that re-assessment proceedings under Section 147(a) read with Section 148 of the Income-tax Act, 1961, were rightly initiated against the assessee. The court examined the conditions under Section 147, which necessitate the Income-tax Officer (ITO) to have a reason to believe that income chargeable to tax had escaped assessment due to omission or failure by the assessee to disclose fully and truly all material facts necessary for assessment.

The court found that the assessee had disclosed all relevant facts, including the pending litigation and reference to the Award, as part of the Board of Directors' report filed with the returns. The assessee could not have disclosed the final compensation amount as it was subjudice and subject to modifications by higher courts, culminating in a final decision by the Supreme Court. The court emphasized that the duty of the assessee extends only to making a true and full disclosure of primary facts, and it is the ITO's responsibility to draw the correct inference from these facts.

2. Validity of Approval by the Central Board of Direct Taxes:

The second issue was whether the Tribunal was correct in holding that valid approval had been accorded by the Central Board of Direct Taxes under Section 151(i) for reopening the assessment. The court scrutinized the process of approval, which was indicated by a rubber-stamp endorsement stating "Yes. The Board is satisfied," signed by an Under Secretary. The court found this method insufficient, as it lacked proper application of mind and did not provide a rational nexus between the material considered and the conclusion reached.

The court emphasized that reasons are the link between the material on record and the conclusion, as observed in Union of India v. M.L Capoor. The absence of detailed reasons indicated a mechanical and non-deliberative process, leading the court to conclude that there was no proper application of mind by the Board.

Conclusion:

The court concluded that the impugned order of the Tribunal was not sustainable. It quashed the notice issued under Section 148 dated 15-12-1981 and all subsequent proceedings. The court answered both questions in favor of the appellant/assessee, thereby allowing the appeal and leaving the parties to bear their own costs.