2011 (11) TMI 482 - HC - Income Tax

Reopening of assessment - dis-allowance of contributions to Provident Fund received from the employees but not paid in time - Held that - Assessee has already placed entire material in terms of books of accounts, return of the AY 2004-05, notes attached to Form No.3CD and 3CA etc. It had also claimed the expenses worth Rs.1.49 crores in the computation of income while filing the return and P&L Account of petitioners were also certified by the Chartered Accountant for the year ended on 31.3.2004 and thus it is simply not possible to accept contention of Revenue that the petitioner failed to disclose truly and fully the facts leading to escapement of income. AO had in its possession all requisite materials necessary for framing the assessment. Therefore, non-disclosure cannot be attributed to the assessee rendering notice issued u/s 148 liable to be quashed - Decided in favor of assessee. Writing off of advances as bad debt without offering the same in the preceding years and quantum of such a write off exceeding the limits prescribed u/s 36(1)(viia) - Held that - There is no direct address to the issue of bad debts while disposing of objections to the re-opening. There is a complete absence of material, let alone tangible material to conclude, prima facie even escapement of income on this ground - in favor of assessee. .

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Requirement of full and true disclosure of material facts by the petitioner.
3. Jurisdiction of the Assessing Officer to reopen assessment after four years.
4. Alleged failure to debit expenses in the Profit and Loss Account.
5. Availability of alternative remedy for the petitioner.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 26.8.2009 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 2004-2005. The petitioner argued that the reopening was beyond the permissible period of four years from the end of the relevant assessment year and lacked jurisdiction. The respondent contended that the notice was issued within six years and was valid under Section 147 read with Section 148 of the Act.

2. Requirement of full and true disclosure of material facts by the petitioner:
The petitioner argued that all necessary facts were disclosed during the original assessment proceedings, including detailed statements and documents. The petitioner emphasized that there was no new material or tangible evidence to justify the reopening, and the notice was merely based on a change of opinion by the Assessing Officer. The respondent countered that the petitioner failed to disclose fully and truly all material facts, leading to income escapement.

3. Jurisdiction of the Assessing Officer to reopen assessment after four years:
The court examined whether the Assessing Officer had valid reasons to believe that income chargeable to tax had escaped assessment due to the petitioner's failure to disclose material facts. The court concluded that the reopening was beyond the permissible period of four years, and the reasons provided by the Assessing Officer did not indicate any failure on the part of the petitioner to disclose material facts.

4. Alleged failure to debit expenses in the Profit and Loss Account:
The respondent argued that the petitioner had not debited expenses worth Rs.1,49,35,727/- in the Profit and Loss Account and directly claimed them in the computation of income. The court noted that the petitioner had provided sufficient explanation and documentation, including notes to Form 3CD, indicating that the expenses were claimed correctly. The court found no evidence of non-disclosure or incorrect procedure by the petitioner.

5. Availability of alternative remedy for the petitioner:
The respondent argued that the petition was premature and that the petitioner had an alternative remedy by filing an appeal before the Commissioner (Appeals) and the Income Tax Appellate Tribunal. The court rejected this argument, stating that when the notice for reopening the assessment is found to be issued without valid reasons, the petitioner should not be subjected to the ordeal of reassessment.

Conclusion:
The court allowed the petition, quashing and setting aside the impugned notice dated 26.8.2009 issued under Section 148 of the Income Tax Act, 1961. The court ruled that the reopening of the assessment was beyond the permissible period of four years and lacked jurisdiction. The court emphasized that the petitioner had disclosed all necessary facts during the original assessment, and the notice was based on a mere change of opinion by the Assessing Officer. The court also dismissed the argument of alternative remedy, stating that the petitioner should not be subjected to reassessment when the notice itself was found to be invalid. The rule was made absolute with no order as to costs.