2011 (8) TMI 864 - HC - Income Tax

Reopening - AO issued the impugned notice dt. 30th March 2010 indicating that he has reason to believe that income chargeable to tax for the asst. yr. 2004-05 has escaped assessment within the meaning of s. 147 of the Act and therefore he proposed to assess the income - It is by now well-settled that reopening beyond four years of end of the relevant assessment year would be permissible if the AO has reason to believe that income chargeable to tax has escaped assessment and further that such escapement was by reason of failure on the part of the assessee to make a return under s. 139 or in response to a notice under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for assessment - assessee had also forwarded the certified true copy of the receipts obtained from the depositors. After discussing the response of the assessee and the evidence produced and other related materials the AO held that an amount of Rs. 28, 15, 845 claimed to have been received by the assessee from different secured creditors did not satisfy the requirement of law and that therefore this figure was added in the income of the assessee under s. 68 of the Act - It therefore cannot be stated that the income of the assessee with respect to such items escaped assessment on account of any failure on part of the assessee to fully and truly disclose all material facts - Decided in favor of the assessee

Summary

Issues involved:
1. Validity of notice issued under section 148 of the IT Act, 1961 seeking to reopen assessment proceedings for the assessment year 2004-05.
2. Rejection of objections to the proposed reopening of assessment.
3. Whether the reopening of assessment beyond four years from the end of the relevant assessment year is permissible under section 147 of the Act.

Detailed analysis:

Issue 1: The petitioner challenged the notice issued under section 148 of the IT Act, 1961 seeking to reopen assessment proceedings for the assessment year 2004-05. The notice was based on the grounds of unsecured loans, unaccounted loans, and non-charging of interest. The petitioner contended that the proposed reassessment was a mere change of opinion and that all items in the notice were already part of the scrutiny assessment conducted earlier. The AO had called for detailed disclosures during the original assessment, and the petitioner had provided the necessary information. The High Court found that there was no failure on the part of the petitioner to disclose all material facts necessary for assessment. Therefore, the reopening of the assessment was deemed unwarranted and without jurisdiction.

Issue 2: The petitioner's objections to the proposed reopening of assessment were rejected by the AO. The High Court examined each ground for reopening separately. It was noted that the AO had already been provided with detailed information during the original assessment regarding unsecured loans, unaccounted loans, and non-charging of interest. The Court found that the petitioner had fully disclosed all material facts required for assessment, and there was no failure on their part. As a result, the Court held that the rejection of objections was unjustified, and the notice for reopening assessment was quashed.

Issue 3: The High Court analyzed whether the reopening of assessment beyond four years from the end of the relevant assessment year was permissible under section 147 of the Act. It was established that for such reopening to be valid, there must be a belief that income chargeable to tax has escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for assessment. The Court found that in this case, the petitioner had provided all necessary details during the original assessment, and there was no failure on their part to disclose material facts. Therefore, the Court concluded that the reopening notice was without jurisdiction and ordered it to be quashed along with the rejection of objections.

In conclusion, the High Court allowed the petition, quashed the notice for reopening assessment, and set aside the order rejecting the objections, stating that the reopening was unwarranted and without jurisdiction due to the petitioner's full disclosure of all material facts during the original assessment.