2012 (6) TMI 385 - HC - Income Tax

Validity of reopening u/s 147 - ITAT delete the entire addition made by lower authority on the basis of the factual error pointed out by the audit party Held that - Re opening on the basis of the audit objection is not acceptable as it had not explained any provisions of law in the said objection but had merely pointed out certain factual mistakes - the assessee had categorically stated the receipt of the award money by Earth Vision, 1992,Tokyo Global Entertainment Film Festival and not from the Government of India in the balance sheet under the head of Notes on Account - in the absence of any reason that the assessee has failed to disclose fully and truly all material facts necessary for assessment , re-opening cannot be warranted - the Assessing Officer must have tangible material and the reasons must have a live link with the formation of the belief - the conceptual difference between power to review and power to reassess as Assessing Officer has no power to review and has the power to reassess in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income Tax Act based on audit objections.
2. Whether the assessee disclosed fully and truly all material facts necessary for assessment.
3. Jurisdictional aspect of reassessment beyond four years from the end of the relevant assessment year.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 147 Based on Audit Objections:
The Revenue challenged the Tribunal's decision to set aside the lower authority's order and delete the addition of Rs. 2,29,420/-, arguing that the reopening under Section 147 was valid based on the audit party's factual error. The Tribunal found that the audit party had merely pointed out factual mistakes without interpreting any provisions of law. The High Court upheld this view, stating that there was no evidence that the audit party had interpreted the Income Tax Act provisions, and thus, reopening based on factual errors pointed out by the audit party was not justified.

2. Disclosure of Material Facts by the Assessee:
The assessee received an award of Rs. 2,29,420/- from Earth Vision, 1992, Tokyo Global Entertainment Film Festival, and claimed exemption under Section 10(17a) of the Income Tax Act. The original assessment was completed under Section 143(3), and the award was disclosed in the balance sheet under "Notes on Account." The Tribunal found that the assessee had fully disclosed all material facts necessary for assessment in the annexure to the balance sheet. The High Court agreed, noting that the reassessment proceedings lacked any finding that the assessee failed to disclose fully and truly all material facts.

3. Jurisdictional Aspect of Reassessment Beyond Four Years:
The reassessment notice under Section 148 was issued on 26.5.2001, beyond the four-year period from the end of the relevant assessment year 1993-94. According to Section 147, for reassessment beyond four years, it must be shown that the income escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The High Court emphasized that mere production of account books does not constitute full disclosure. However, it found no evidence that the assessee failed to disclose material facts, thus invalidating the reassessment proceedings.

Conclusion:
The High Court upheld the Tribunal's decision, confirming that the reassessment proceedings were invalid as they were based on audit objections pointing out factual errors and lacked evidence of the assessee's failure to disclose all material facts. The appeal by the Revenue was dismissed, affirming that the reassessment beyond the four-year period was not justified without tangible material indicating the assessee's failure to disclose necessary facts.