2011 (3) TMI 361 - AT - Income Tax

Reassessment - Time limitation - It is thus evident that for neither of the years has there been any allegation by the AO that the assessee failed to disclose fully and truly all material facts necessary for its assessment for these years - Non-compliance with the first proviso to section 147 therefore renders the reopening of a completed assessment in the absence of any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year void ab initio - Since the reopening of the completed assessment for both the assessment years has been cancelled for the primary reason of there being no allegation against the assessee of not having disclosed fully and truly all material facts for its assessment for both the assessment years 1997-98 and 98-99 there remains nothing further to be adjudicated - Appeals are allowed

Summary

Issues Involved:
1. Legality of reopening completed assessments after four years.
2. Alleged failure to disclose fully and truly all material facts necessary for assessment.

Detailed Analysis:

Issue 1: Legality of Reopening Completed Assessments After Four Years
The primary issue is the challenge to the action of the CIT(A) in upholding the reopening of the completed assessment of the assessee for AYs 1997-98 and 1998-99. The assessee contends that the CIT(A) erred in upholding the issuance of re-assessment notice after the expiry of four years from the end of the relevant assessment year, arguing that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, rendering the notices defective and void ab initio.

The assessee submitted its return of income for AY 1997-98 on 26.11.97, and the assessment was completed u/s 143(3) on 7.2.2000. The CIT(A) granted partial relief, and the Tribunal decided the appeal on 20.3.2009. The AO's satisfaction note for reopening the assessment recorded that the deduction u/s 80-O was claimed on gross receipts without deducting proportionate expenses, and simple interest was credited instead of compound interest as per the memorandum of understanding with APSEB.

The Tribunal noted that the reopening was beyond the prescribed period of four years from the end of the relevant assessment years and emphasized the first proviso to section 147, which mandates that no completed assessment shall be reopened unless income chargeable has escaped assessment due to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment.

Issue 2: Alleged Failure to Disclose Fully and Truly All Material Facts Necessary for Assessment
The Tribunal found no allegation by the AO that the assessee failed to disclose fully and truly all material facts necessary for the assessment for either of the years involved. The satisfaction notes for both years did not contain any allegations of such failure, which is a direct violation of the first proviso to section 147.

The Tribunal relied on the case of "CIT vs. Indian Farmers Fertilizers Cooperative Ltd.", where it was held that action under section 147/148 after four years from the end of the relevant assessment year is not justified if there is no allegation that the assessee failed to disclose fully or truly all material facts necessary for assessment.

The CIT(A) had rejected the assessee's objection by observing that the re-assessment proceedings were within limitation since the notices u/s 148 were issued within six years from the end of the relevant assessment year, after taking approval of the CIT(A) as stipulated in section 151. However, the Tribunal clarified that section 151(1) does not override the first proviso to section 147, which takes precedence.

Conclusion:
The Tribunal concluded that the reopening of the completed assessments for both assessment years 1997-98 and 1998-99 was not justified due to the absence of any allegation that the assessee failed to disclose fully and truly all material facts necessary for the assessment. Consequently, the reopening of the completed assessments was cancelled, and both appeals of the assessee were allowed.