2011 (11) TMI 304 - HC - Income Tax

Validity of re-opening of assessment after a period of four years from the end of the relevant A.Y. - reasons disclosed for re-opening the assessment ex-facie do not contain any reference to a failure on the part of the Assessee to disclose fully all material facts necessary for the assessment re-opening of an assessment in relation to matters which are the subject matter of an Appeal Reference or Revision A.Y. 03-04 Held that - In the present case ex-facie there is no statement in the reasons disclosed by the A.O. that there was a failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment. Further the ground on which the assessment is sought to be re-opened relates to the write off of bad debts u/s 36(1)(vii) which is the subject matter of an appeal before the CIT(Appeals). The power to reopen an assessment cannot be exercised to re-open what formed the subject matter of an appeal to the CIT (Appeals). Also Assessee vide its separate application for rectification have pleaded that the officer ought to have granted a deduction of an amount of 7.5% of the total income and not of the lesser amount of the business income. Hence on this aspect of the matter we are of the view that Assessing Officer duly informed in law could not possibly come to the conclusion that there is an escapement on this ground. Thus the notice issued u/s 148 is set aside - Decided in favor of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for re-opening the assessment beyond four years.
2. Alleged failure of the Assessee to disclose fully and truly all material facts necessary for the assessment.
3. Whether the matters in the notice were already subject to an appeal, reference, or revision.
4. Justification for re-opening the assessment based on the reasons provided by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The challenge in these proceedings under Article 226 of the Constitution of India is to a notice issued by the Assessing Officer on 30 March 2010 under Section 148 of the Income Tax Act, 1961 seeking to re-open an assessment for Assessment Year 2003-04. The notice has been issued admittedly after a period of four years from the end of the relevant Assessment Year. The jurisdictional condition for the exercise of the power to reopen beyond four years is that there must be a failure on the part of the Assessee to fully and truly disclose all material facts necessary for the assessment.

2. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts:
The contention of the Assessee is that the reasons disclosed for re-opening the assessment do not contain any reference to a failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment. The reasons recorded by the Assessing Officer nowhere state that there was a failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. The reasons must be clear and unambiguous, and should not suffer from any vagueness.

3. Matters Already Subject to Appeal, Reference, or Revision:
The Assessee had filed an Appeal before the CIT (Appeals) against the order of assessment, which partly allowed the Appeal by accepting the claim under Section 36(1)(vii) and Section 36(1)(viii) and allowed a proportionate deduction under Section 10(23G). The second proviso to Section 147 precludes the re-opening of an assessment in relation to matters which are the subject matter of an Appeal, Reference, or Revision. Consequently, the Assessing Officer cannot re-open the assessment in respect of a matter which squarely formed the subject matter of the Appeal before the CIT (Appeals).

4. Justification for Re-opening the Assessment:
The reasons provided by the Assessing Officer for re-opening the assessment include:
- The Assessee claimed bad debts in respect of parties where the income was exempt under Section 10(23G).
- Excessive deduction under Section 36(1)(viia).
- Discrepancy in the bad debts claimed by the Assessee and the NPA return furnished to the Reserve Bank of India.

The court found that the Assessing Officer had already addressed these issues during the original assessment process, and the Assessee had responded to all queries. The Assessing Officer's reasons for re-opening the assessment do not demonstrate a failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment. Furthermore, the matters were already subject to an appeal, and the Assessing Officer's reasons do not justify the re-opening of the assessment beyond the period of four years.

Conclusion:
The Assessing Officer has acted in excess of his jurisdiction in purporting to re-open the assessment after the expiry of a period of four years from the end of the Assessment Year. The jurisdictional condition for the exercise of the power to re-open in such a case has not been fulfilled. Accordingly, the court set aside the notice dated 30 March 2010.

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