2010 (10) TMI 851 - HC - Income Tax

Reassessment proceedings - AO had not deducted the capital receipt from the block of assets while making computation of income Held that - The facts on record clearly reveal that this is the third round of litigation in respect of the same subject-matter. Before issuing the notice for reopening, reasons were recorded wherein it is clearly stated that the AO without applying his mind, in this aspect of the issue, accepted the claim of the assessee. If the material facts are disclosed by the petitioner truly and fully and if the AO did not apply his mind it is not fault of the petitioner which can lead the AO to issue notice of reopening within the period of 4 years. The reasons recorded further reveal that the AO had not deducted the said capital receipt from the block of assets while making computation of income. Here also it is not alleged that there is failure on the part of the assessee to disclose all material facts truly and fully and if the mistake is committed by assessee (sic AO), on this basis notice of reopening cannot be issued, especially when all throughout all necessary facts are on record and several proceedings were initiated in the past in respect of the same subject-matter - the action of the AO in issuing the notice of reopening, in the background of all previous proceedings initiated by the Revenue, is not justified.

Summary

Issues:
1. Validity of notice issued under section 148 of the Income Tax Act, 1961 for the assessment year 1993-94.
2. Disclosure of material facts by the petitioner for assessment of Rs. 68,66,673 received from the cancellation of a forward exchange contract.
3. Jurisdiction of the Assessing Officer in issuing the notice of reopening beyond the statutory period of 4 years.
4. Assessment of interest and depreciation on the received amount.

Issue 1: Validity of Notice under Section 148
The petitioner challenged the notice issued under section 148 of the Income Tax Act, 1961 for the assessment year 1993-94. The High Court observed that this was the third round of litigation on the same subject matter. Initially, the AO accepted the petitioner's claim that the receipt was a capital receipt. The notice of reopening was issued within 4 years but was challenged and quashed by the Court. The subsequent s. 263 proceeding by the CIT was also quashed by the Tribunal. The High Court, after considering all previous proceedings, held that the notice of reopening was unjustified and lacked legal basis, ultimately quashing and setting it aside.

Issue 2: Disclosure of Material Facts
The petitioner contended that all material facts were disclosed in the return of income, including the claim that the received amount was a capital receipt not liable to tax. The AO had accepted this claim during the original assessment under section 143(3) of the Act. The High Court noted that the petitioner had disclosed the receipt, claimed non-taxability, and the AO allowed the claim during the scrutiny assessment. It was held that the petitioner had not failed to disclose all material facts necessary for assessment, and the notice of reopening was deemed without jurisdiction.

Issue 3: Jurisdiction of the Assessing Officer
The Assessing Officer issued the notice of reopening beyond the statutory period of 4 years, alleging that income had escaped assessment due to the failure of the assessee to disclose all material facts. The High Court emphasized that the notice was issued after several rounds of litigation where the nature of the receipt was consistently held to be a capital receipt not liable to tax. The Court found that the AO's failure to apply his mind did not justify the reopening, especially when all necessary facts were on record and previous proceedings had addressed the same subject matter.

Issue 4: Assessment of Interest and Depreciation
The Revenue argued that interest and depreciation on the received amount had escaped assessment due to the assessee's failure to disclose all relevant facts. However, the High Court found that the interest component was adequately considered in previous proceedings, and the receipt was deemed an independent capital receipt not requiring adjustment in the computation of income. The Court held that the notice of reopening was unjustified, leading to its quashing and setting aside.

In conclusion, the High Court allowed the petition, quashing the notice of reopening without any order as to costs.