2011 (1) TMI 477 - HC - Income Tax

Under section 148 - The clauses of the partnership is clear that the payment to the retired partner is made for relinquishing/discharge of all the above rights and interest which includes non-competing with the firms professional activities for three years - Therefore the receipt of Rs. 21, 65, 625 received from the firm on retirement is to be assessed as income under the Income-tax Act. The reasons to believe that income chargeable to tax has escaped assessment to the extent of amount received at Rs.21, 65, 625 from the firm on the assessee s reason coming within the meaning of section 147 of the Income-tax Act by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for this assessment year - The Revenue states that in the case Balkrishna Hiralal Wani v. ITO (2010 -TMI - 75605 - BOMBAY HIGH COURT) assessment sought to be reopened on similar grounds is held to be bad in law - Decided in favor of the assessee

Summary

Issues:
Challenge to notice under section 148 of the Income-tax Act, 1961 for reopening assessment for the assessment year 2004-05.

Analysis:
The petitioners challenged a notice dated March 25, 2010, issued under section 148 of the Income-tax Act, 1961, seeking to reopen the assessment for the assessment year 2004-05. The notice was based on the petitioner being a partner in a solicitor firm, receiving a substantial amount on retirement, which was not declared as taxable income. The notice contended that the amount received on retirement was to be assessed as income under the Income-tax Act, as it was payment for relinquishing various rights and interests as per the partnership deed. The notice alleged that the income chargeable to tax had escaped assessment due to the petitioner's failure to disclose all material facts necessary for assessment. The time limit for issuing the notice was March 31, 2011.

The counsel for the Revenue cited a previous case where a similar assessment reopening was held to be bad in law. Based on the precedent set in the case Balkrishna Hiralal Wani v. ITO [2010] 321 ITR 519 (Bom), where the assessment reopening was deemed invalid, the High Court quashed and set aside the impugned notice dated March 25, 2010, issued under section 148 of the Income-tax Act, 1961. The court made the rule absolute and decided not to award any costs in the matter.

In conclusion, the High Court of Bombay, in this judgment delivered by the judges Devadhar J. P. and Mridula Bhatkar Mrs. JJ, addressed the challenge to a notice under section 148 of the Income-tax Act, 1961, for reopening the assessment for the assessment year 2004-05. The court relied on a previous case precedent to rule in favor of the petitioners, quashing the impugned notice. The judgment highlights the importance of disclosing all material facts necessary for assessment to avoid income escaping taxation and emphasizes the legal requirements for issuing such notices under the Income-tax Act.