2011 (2) TMI 738 - HC - Income Tax

Reopening - Deduction u/s 80-IB - whether there was any failure on the part of the petitioner-assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration - it appears to be the case of the Assessing Officer that upon verification of the details he has noticed that the assessee is merely a works contractor and has not undertaken any developing and building housing project approved by the local authority and as such the claim made by the assessee for deduction under section 80-IB(10) of the Act is not in accordance with law - All that is stated is that due to illegitimate claim of deduction of Rs. 13,45,211 made and allowed to the assessee under section 80-IB(10) of the Act, the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee - Merely because of the fact that the assessee had asserted that it is a developer in the returns filed by him, it cannot be said that there is any failure on the part of the petitioner to disclose fully and truly all material facts - In the circumstances, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the assumption of jurisdiction under section 147 of the Act after the expiry of four years from the end of the relevant assessment year is illegal and invalid - Decided in favor of the assessee

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income-tax Act, 1961 for reopening the assessment.
2. Jurisdiction under Section 147 of the Income-tax Act after the expiry of four years.
3. Permissibility of considering new grounds stated in the affidavit-in-reply filed by the Assessing Officer.

Detailed Analysis:

1. Validity of the Notice Issued under Section 148 of the Income-tax Act, 1961:
The petitioner challenged the notice dated March 12, 2010, issued under Section 148 of the Income-tax Act, 1961, for reopening the assessment for the assessment year 2003-04. The petitioner had originally filed a return declaring total income at nil and claimed a deduction under Section 80-IB of the Act. The assessment was initially completed under Section 143(3) on November 28, 2005. The reopening notice was issued based on the belief that the petitioner was merely a works contractor and not a developer, and thus not entitled to the deduction claimed under Section 80-IB(10).

2. Jurisdiction under Section 147 of the Income-tax Act after the Expiry of Four Years:
The notice under Section 148 was issued after the expiry of four years from the end of the relevant assessment year. For valid assumption of jurisdiction under Section 147 after four years, it must be shown that income escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court noted that the reasons recorded for reopening did not indicate any such failure on the part of the petitioner. The reasons merely stated that the petitioner was a works contractor and not a developer, without suggesting any non-disclosure of material facts.

3. Permissibility of Considering New Grounds Stated in the Affidavit-in-Reply Filed by the Assessing Officer:
The court examined whether it was permissible to look beyond the reasons recorded by the Assessing Officer and consider new grounds stated in the affidavit-in-reply. It was held that the reasons recorded must form the foundation for the assumption of jurisdiction under Section 147. The reasons cannot be supplemented by affidavits introducing new grounds. The court cited various precedents, including the Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO, which clarified that the reasons recorded for reopening the assessment are the only reasons that can be considered when the formation of the belief is impugned.

Conclusion:
The court concluded that the reopening of the assessment was invalid as the reasons recorded did not indicate any failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. The notice under Section 148 issued after the expiry of four years was quashed and set aside. The court emphasized that the reasons for reopening cannot be supplemented by affidavits introducing new grounds not envisaged when the reasons were recorded. The petition was allowed, and the impugned notice was quashed.

← Previous Next →