2011 (5) TMI 364 - HC - Income Tax

Reopening - Notice u/s 148 - disclosure of facts / documents - Held that - mere production may not amount to disclosure within the meaning of aforesaid provision. - In the present case however the AO had specifically taken note of the documents on record. - The assessment order itself mentions that the return was accompanied by statutory audit report in Form 3 CD. The AO also applied his mind while examining the details in respect of various items as indicated above. Therefore it cannot be said that it was a case of non disclosure. - Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of notice under Section 148 of the Income-Tax Act.
2. Whether the reopening of assessment under Section 147 of the Income-Tax Act was justified.

Detailed Analysis:

1. Validity of notice under Section 148 of the Income-Tax Act:

The primary issue was whether the notice issued under Section 148 for reopening the assessment was valid. The assessee had filed a return declaring "NIL" income for the assessment year 2002-03, which was processed and assessed under Section 143(3) of the Income-Tax Act. However, the Assessing Officer (AO) later issued a notice under Section 147, stating that there were "Reasons to Believe" that income had escaped assessment, specifically pointing out that the assessee claimed depreciation and other expenses despite no manufacturing activity during the year.

The assessee objected to the reopening, arguing that all relevant facts, including the lack of manufacturing activity and the incurred expenses, were disclosed during the original assessment. The AO had already considered these facts and allowed the expenses and depreciation. The CIT (A) accepted the assessee's contention, noting that the original assessment had scrutinized these details, and concluded that the reopening was merely a change of opinion, which is not permissible.

The ITAT upheld the CIT (A)'s decision, affirming that the reopening constituted a change of opinion since no new material facts had emerged post the original assessment. The Revenue's appeal to the High Court questioned whether the ITAT erred in holding the notice under Section 148 as invalid.

2. Justification of reopening the assessment under Section 147 of the Income-Tax Act:

The Revenue argued that the notice under Section 148 was justified because the AO had not noticed the absence of manufacturing activity during the original assessment. They contended that the AO did not examine whether the machinery was passively used, which would still entitle the assessee to claim depreciation. The Revenue relied on the judgment in Rakesh Agarwal Vs. Assistant Commissioner of Income-Tax, which emphasized the duty of the assessee to disclose all material facts, even those embedded in the evidence produced.

The High Court, however, found the Revenue's argument unpersuasive. The original assessment order indicated that the AO had scrutinized the details, including the statutory audit report and various schedules. The AO had noted the lack of manufacturing activity due to lack of orders but allowed depreciation considering the machinery was kept ready for use. The High Court concluded that the AO had applied his mind to the issue during the original assessment, and the reopening was indeed a change of opinion.

The Tribunal had rightly observed that no new facts or material had come to light after the original assessment. The reopening was based on the same material available during the original assessment, which had already been scrutinized by the AO. The High Court held that the reopening under Section 147 was not justified as it was based on a mere change of opinion.

Conclusion:

The High Court dismissed the Revenue's appeal, affirming the ITAT's decision that the reopening of the assessment under Section 147 was invalid. The court emphasized that the AO had already considered the relevant facts during the original assessment, and no new material facts had emerged to justify the reopening. The notice under Section 148 was thus held to be invalid, and the appeal was dismissed in favor of the assessee.