2010 (11) TMI 542 - HC - Income Tax

Reassessment - Income escaping assessment - Deduction u/s 80HHC - whether the assessee is entitled to challenge validity of initiation of reassessment proceedings under Section 147 of the Act after expiry of four years on the ground of lack of jurisdiction with the Assessing Officer even where the assessee had produced the entire material during assessment proceedings though there was no specific reference to that material during original assessment proceedings. - Held that - No decided against the assessee Full and true disclosure before AO - Held that - Once it is held that mere production of account books and the documents where from the Assessing Officer could have gathered the details of sale of scrap would not amount to true and full disclosure within the meaning of Section 147 of the Act necessarily it is to be held that the action taken by the Assessing Officer in the present case shall be within limitation.

Summary

Issues:
1. Validity of initiation of reassessment proceedings under Section 147 of the Income Tax Act beyond the period of limitation.
2. Disclosure of material facts by the assessee during original assessment proceedings.
3. Interpretation of Explanation 1 to Section 147 regarding disclosure of material evidence.

Analysis:

Issue 1: Validity of initiation of reassessment proceedings beyond the period of limitation
The petitioner sought quashing of the notice and order passed by the respondent under Section 148 of the Income Tax Act, 1961. The petitioner argued that the reassessment notice issued beyond the four-year limitation period was unlawful. The petitioner relied on judgments from various High Courts and the Supreme Court to support this contention. However, the court rejected this argument, stating that the Explanation 1 to Section 147 clarifies that mere production of account books or evidence does not constitute full disclosure. The court held that the Assessing Officer can initiate reassessment proceedings even if the truth could have been deduced from the documents produced by the assessee.

Issue 2: Disclosure of material facts by the assessee
The court emphasized that the duty of the assessee to disclose all material facts is not fulfilled by merely producing account books or documents. The court noted that the Assessing Officer must be able to deduce the truth from the evidence presented. In this case, the court found that there was no true and full disclosure by the assessee regarding the sale of scrap, as the assessment order did not address this issue. Therefore, the court concluded that the reassessment proceedings were valid.

Issue 3: Interpretation of Explanation 1 to Section 147
The court referred to a judgment by the Allahabad High Court, which highlighted that the assessee must disclose specific items or portions of documents that are relevant, not just produce voluminous records. The court reiterated that the Assessing Officer cannot be expected to deduce material facts from extensive records without specific pointers from the assessee. The court concluded that the judgments cited by the petitioner did not apply to the present case, as they did not consider the implications of Explanation 1 to Section 147.

In conclusion, the court dismissed the writ petition, stating that there was no merit in the petitioner's arguments. The court upheld the validity of the reassessment proceedings initiated by the Assessing Officer beyond the four-year limitation period, based on the lack of true and full disclosure by the assessee as required under Section 147 of the Income Tax Act.