2011 (7) TMI 53 - HC - Income Tax

Reopen assessment - Since, during the course of assessment proceedings for assessment year 200304 all material facts relating to the transfer of shares of Hatch Investments by Nedcor Bank Limited to Dimension, as well as the fact that the effective shareholding of Nedcor Bank Limited in the assessee Company has been reduced from 76.25% to 38.125% as on 31st March 2003 was disclosed to the assessing officer - Thus, the fact that the effective shareholding of Nedcor Bank Limited in the assessee company has gone down below 51% was specifically brought to the notice of the assessing officer by the assessee - It cannot be said that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment - If there is no failure to disclose fully and truly all material facts necessary for the purpose of assessment, then, as per the proviso to Section 147 of the Act reopening of the assessment beyond four years from the end of the relevant assessment year cannot be sustained.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for assessment year 2003-2004; Objection rejection by the assessee; Shareholding changes affecting loss set-off under Section 79 of the Act; Disclosure of material facts by the assessee during assessment proceedings.

Analysis:

1. The petition challenges a notice issued under Section 148 of the Income Tax Act, 1961 to reopen the assessment for the assessment year 2003-2004. The petitioner, a private limited company engaged in software development, contests the notice and the rejection of objections raised against the reopening of the assessment.

2. The key issue revolves around the application of Section 79 of the Act concerning changes in shareholding affecting the set-off of losses. The notice to reopen the assessment cites a reduction in shareholding below 51%, triggering the disallowance of loss set-off for the assessment year in question.

3. The Revenue argues that the petitioner failed to disclose the reduction in shareholding, leading to the invocation of Section 79. However, the petitioner contends that all relevant facts were disclosed during the assessment proceedings for the relevant year, thereby challenging the validity of the reopening beyond the statutory limit.

4. The petitioner's disclosure of material facts, including the transfer of shares and the consequent reduction in effective shareholding, during the assessment proceedings is crucial. Such disclosure negates any failure to provide necessary information for assessment, rendering the reopening of the assessment beyond the statutory limit unsustainable.

5. As the assessment for the relevant year was sought to be reopened beyond the permissible timeframe and in the absence of any failure to disclose material facts, the court quashes the notice under Section 148 and the order rejecting the objections raised by the petitioner.

6. The judgment emphasizes the importance of full and truthful disclosure of material facts by the assessee during assessment proceedings to prevent unwarranted reopening of assessments beyond the statutory limit, safeguarding their rights in the assessment process.