2011 (10) TMI 464 - HC - Income Tax

Reopening of assessment - Validity of notice u/s 148 - Held that - The reopening of the assessment in the present case is beyond the period of four years of the end of the relevant assessment year but the reasons disclosed by the AO do not refer to any failure on the part of the assessee to disclose material facts nor is there any allegation of suppression on the part of the assessee. AO has relied upon Note 3 (e) of Schedule P to the notes forming part of the accounts whereas the assessee had clearly disclosed therein that as a result of the restructuring by the lenders finance cost to the tune of Rs.20.58 Crores was waived/foregone and that the payment of the balance was to be made in accordance with the settlement terms. Thus the condition precedent to the invocation of the jurisdiction is clearly absent - in favour of assessee.

Summary

Issues:
Challenge to validity of notice under Section 148 of the Income Tax Act 1961 for reopening assessment for Assessment Year 2004-05.

Analysis:
The petitioner challenged the validity of a notice issued by the First Respondent under Section 148 of the Income Tax Act 1961 to reopen an assessment for Assessment Year 2004-05. The petitioner had entered into a financial restructuring arrangement with its lending institutions during the financial year 2003-04, resulting in a waiver of accumulated finance cost. The petitioner disclosed this transaction in its accounts. The Assessing Officer issued a notice under Section 143(2) in 2004, followed by an order of assessment accepting the disclosed loss. However, in 2011, a notice was issued under Section 148, alleging that interest waiver had escaped assessment. The petitioner objected to the reopening, arguing that there was no failure to disclose material facts and that the reasons provided did not establish any suppression or non-disclosure by the petitioner.

The petitioner contended that the reopening of the assessment beyond the four-year period required a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment. The reasons provided by the Assessing Officer did not indicate any such failure or suppression by the petitioner. The petitioner had disclosed the waiver of finance cost in its accounts, indicating the restructuring and the waiver of Rs.20.58 Crores. The power of the Assessing Officer to reopen assessments beyond four years is more restricted and necessitates clear evidence of non-disclosure or suppression, which was absent in this case. The court found that the Assessing Officer had acted in excess of jurisdiction by reopening the assessment for Assessment Year 2004-05 beyond the four-year period without any evidence of failure to disclose material facts. Consequently, the court set aside the notice dated 29 March 2011, ruling in favor of the petitioner.

This judgment highlights the importance of establishing a failure to disclose material facts as a jurisdictional condition for reopening assessments beyond the prescribed period. It emphasizes the need for clear evidence of non-disclosure or suppression by the assessee to justify reopening assessments beyond the statutory timeframe. The court's decision underscores the significance of adherence to legal requirements and the necessity for assessing officers to demonstrate valid reasons for reopening assessments to prevent exceeding their jurisdiction.