2012 (7) TMI 659 - HC - Income Tax

Reopen the assessment u/s 147 - issue of notice u/s 148 - case is reopened after the expiry of four years - Held that - On perusal of the reasons recorded shows that there is nothing whatsoever to indicate that there is any failure on the part of the petitioner to disclose fully and truly all material facts - AO on an arithmetical calculation of the turnover of the previous years and raw material consumed as against raw material consumed in the year under consideration concluded that the turnover should be higher than that stated by the petitioner and formed any belief that any income chargeable to tax has escaped assessment - is settled legal position that section 147 cannot be exercised for making a roving inquiry and that the Assessing Officer, before reopening the assessment has to form a belief that income chargeable to tax has escaped assessment - the petitioner had placed all relevant material on record - in favour of assessee.

Summary

Issues:
Challenging notice seeking to reopen assessment for assessment year 2003-04 under section 148 of the Income Tax Act, 1961.

Analysis:
The petitioner, a private limited company engaged in job work of dyeing and printing of art silk cloth, filed its return of income for assessment year 2003-04 declaring a loss of Rs.16,41,500. The assessment was framed under section 143(3) of the Act on 31.12.2004. Subsequently, a notice was issued seeking to reopen the assessment based on reasons indicating an understatement of turnover. The petitioner objected to the reopening, citing the requirement of failure to disclose material facts for reopening under section 147 of the Act. The objections were rejected, leading to the present petition challenging the reopening.

The petitioner argued that the notice under section 148 was issued after the expiry of four years from the relevant assessment year without any failure to disclose material facts, rendering the reopening jurisdictionally invalid. The Assessing Officer's reasons for reopening were based on assumptions regarding production/turnover, suggesting a roving inquiry rather than a belief of escaped income chargeable to tax. The petitioner had provided all relevant material during the original assessment, and the reasons for reopening did not establish any failure to disclose material facts.

On the other hand, the respondent contended that the petitioner had understated turnover, indicating a failure to disclose correct income, justifying the reopening even after the four-year period. However, the court found that the reasons for reopening did not reflect a belief of escaped income due to failure to disclose material facts. The Assessing Officer's focus on investigating understated turnover did not meet the legal requirement for invoking section 147 after the four-year period.

The court held that the Assessing Officer failed to establish the necessary conditions for reopening the assessment under section 147 after the four-year limit. As there was no indication of escaped income due to a failure to disclose material facts, the jurisdiction to reopen the assessment was deemed invalid. Consequently, the impugned notice seeking to reopen the assessment was quashed and set aside, with the petition allowed.