2011 (11) TMI 137 - HC - Income Tax

Validity of reopening of the assessment- beyond the period of four years of the end of the relevant A.Y.-Income escaping assessment- Held that - Where the re-opening is beyond four years the escapement of income is not sufficient in itself to validate the reopening. The jurisdictional requirement where an assessment is opened beyond four years is a failure to disclose all material facts necessary for the assessment. Unless that condition is fulfilled the re-opening cannot be sustained. In present case all material facts were within the knowledge of the Assessing Officer and were placed on the record by the assessee. Thereby notice u/s 148 is set aside. Decided in favor of the assessee.

Summary

Issues:
Reopening of assessment beyond four years, failure to disclose material facts, jurisdictional requirement for reopening assessment, disclosure of loan settlement details, reliance on Gujarat High Court decision.

Analysis:
The judgment by the Bombay High Court involved a challenge to the reopening of an assessment for Assessment Year 2004-05 by the Assessing Officer. The primary issue was whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment within the jurisdictional condition for reopening an assessment beyond four years. The Petitioner had filed its return of income for the said year, and subsequently, a revised return was filed reducing an amount representing a loan remitted by an Overseas Lender. The loan was obtained for the acquisition of plant and machinery, and a portion of it was waived, leading to a dispute during scrutiny. The Assessing Officer accepted the computation of income and passed an order of assessment. However, a notice under Section 148 was issued years later, proposing to reopen the assessment based on the alleged non-disclosure of income from the loan settlement.

The Petitioner argued that all primary facts regarding the loan settlement were disclosed during the assessment proceedings, including details of the agreement and the contention that the writing back of the loan did not constitute income under the Income Tax Act. The Petitioner contended that the Assessing Officer accepted the computation of income in the original order, and hence, reopening the assessment based on a change of opinion was not valid. On the other hand, the Revenue argued that there was a failure to disclose material facts, particularly regarding whether the loan represented a capital liability and the asset purchased with it was reflected in the balance sheet.

The Court noted that the jurisdictional condition for reopening an assessment beyond four years is a failure to disclose all material facts necessary for the assessment. It observed that all primary facts were disclosed to the Assessing Officer during the assessment proceedings, and the reasons provided for reopening the assessment were not based on newly discovered information but on facts already known to the Assessing Officer. The Court held that unless there was a failure on the part of the assessee to disclose all material facts necessary for the assessment, the reopening of the assessment could not be sustained. As the Petitioner had disclosed all primary facts, the Court set aside the notice to reopen the assessment, ruling in favor of the Petitioner.