2012 (7) TMI 695 - HC - Income Tax

Reopen the assessment u/s 147 - notice u/s 148 - expenditure incurred by the petitioner before the commencement of production was of capital nature and not revenue expenditure - Held that - As the petitioner has not failed to furnish return under section 139 or in response to a notice under section 142(1) or under section 148, thus on reading of the reasons recorded, it is evident that there is no allegation to the effect that there is any failure on part of the petitioner to disclose true and correct facts - nothing which is indicative of any default on the part of the petitioner in furnishing any material particulars leading to income chargeable to tax having escaped assessment The expenditure claimed as revenue expenditure in the computation of income remained unconsidered by the Assessing officer during the course of assessment proceedings which was capital in nature as the material was available on record at the time of first assessment, no conscious consideration of the material was made by the Assessing Officer and the mistake had been committed - thus impugned notice after the expiry of a period of four years cannot be warranted - In favour of assessee.

Summary

Issues:
Challenge to notice seeking to reopen assessment for the assessment year 1996-1997 beyond the prescribed period.

Analysis:
The petitioner, a private limited company engaged in the business of Industrial Gases, challenged a notice issued by the respondent under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 1996-1997. The petitioner had filed its return of income for the said assessment year, which was accepted under section 143(1)(a) and later assessed under section 143(3). The impugned notice sought to reopen the assessment under section 147 of the Act, leading to the petitioner filing fresh returns and objections against the reopening. The petitioner approached the court, challenging the reopening of the assessment, contending that the notice was issued beyond the prescribed period and without any failure on their part to disclose all material facts.

The legal position was discussed, emphasizing that for exercising powers under section 147 of the Act after four years from the relevant assessment year, the Assessing Officer must form a belief that income has escaped assessment due to the assessee's failure to disclose all material facts. In this case, the assessment was sought to be reopened after the expiry of four years, necessitating the satisfaction of conditions under the proviso to section 147. The court noted that the reasons recorded for reopening did not allege any failure on the petitioner's part to disclose material facts, but rather focused on the nature of certain expenditures claimed by the petitioner. The court highlighted that the reasons should reflect a failure to disclose fully and truly all material facts for reopening beyond the prescribed period, which was not the case here.

The court further analyzed the respondent's contentions, noting that the Assessing Officer's assertion of a mistake in considering certain expenditures as revenue instead of capital in nature did not indicate any default on the petitioner's part. It was observed that the Assessing Officer's acknowledgment of available material not being consciously considered during the initial assessment did not amount to a failure on the petitioner's part as required under the proviso to section 147. Consequently, the court held that the impugned notice to reopen the assessment was without authority of law and quashed it, allowing the petition in favor of the petitioner.