2012 (2) TMI 158 - HC - Income Tax

Validity of notice issued u/s 148 beyond a period of four years from the end of the relevant A.Y. - manufacturer of jewellery in a SEZ deduction u/s 10A - assessment order for A.Y. 05-06 framed u/s 143(3) reopening sought on the basis of the findings contained in the assessment order for A.Y. 07-08 - Held that -A.O. having failed to establish that there was a failure on the part of the assessee to disclose fully and truly all material facts for A.Y. 05-06, the reopening beyond a period of four years is clearly not valid. There was a finding of fact by the A.O. in the assessment order for A.Y. 2005-06 that the business activity of the assessee is manufacturing of jewellery in a Special Economic Zone entitling deduction u/s 10A Decided in favor of assessee.

Summary

Issues:
Challenging validity of notice under Section 148 of Income Tax Act for reopening assessment for Assessment Year 2005-06 based on findings of Assessment Year 2007-08.

Analysis:
In this case, the Petitioner challenged the validity of a notice issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for Assessment Year 2005-06 based on the findings of Assessment Year 2007-08. The Assessing Officer had initially allowed a deduction under Section 10A for the Petitioner's business activity of manufacturing jewelry in a Special Economic Zone. However, the deduction was later modified on appeal. The assessment for 2005-06 was sought to be reopened solely based on the findings of the assessment order for 2007-08, where it was concluded that the Petitioner was not entitled to the deduction as claimed.

The Petitioner contended that the reopening of the assessment was beyond the four-year period from the end of the relevant assessment year and that there was no failure on their part to disclose all material facts necessary for assessment. The reasons provided for reopening did not elaborate on how the Petitioner allegedly failed to disclose all material facts for 2005-06. It was argued that the Assessing Officer had already considered the facts of the case during the initial assessment and entered a finding regarding the Petitioner's business activity.

On the other hand, the Revenue argued that the Petitioner had failed to disclose all material facts for 2005-06, especially concerning the relationship between the Petitioner and its parent company, which was characterized as a facilitation agreement. The High Court considered both submissions and emphasized the jurisdictional condition for reopening an assessment beyond four years, which requires a failure to disclose all material facts. The Court found that the reasons provided by the Assessing Officer did not establish such a failure on the part of the Petitioner for 2005-06.

Ultimately, the High Court allowed the Petition, quashing and setting aside the impugned notice dated 20 June 2011, with no order as to costs. The Court concluded that the reopening of the assessment for 2005-06 based solely on the findings of the assessment for 2007-08 was not valid due to the lack of fulfillment of the primary jurisdictional requirement regarding the disclosure of material facts. The Court also noted that the order allowing the appeal for 2007-08 was passed after the notice for reopening the assessment for 2005-06 was issued, further supporting the decision to disallow the reopening.