2012 (11) TMI 849 - HC - Income Tax

Reopening the assessment - loss by embezzlement of funds - To scrutinize claim for Bad debts Held that - Conditions precedent for exercise of powers under section 147 of the Act after the expiry of a period of four years from the end of the relevant assessment year have not been satisfied. Even if, Assessing Officer submits that the claim for bad debts had been erroneously allowed were to be accepted, even then in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts the reopening of assessment under section 147 of the Act is without jurisdiction. Consequently, the impugned notice issued under section 148 of the Act cannot be sustained - petition succeeds and is, accordingly, allowed. The impugned notice dated February 27, 2003, issued by the respondent seeking to reopen the assessment of the petitioner for the assessment year 1996-97 is hereby quashed and set aside.

Summary

Issues:
Challenge to notice under section 148 of the Income-tax Act, 1961 for reopening assessment for the assessment year 1996-97.

Analysis:
The petitioner, a partnership firm, challenged a notice issued by the respondent seeking to reopen their assessment for the year 1996-97. The petitioner declared a total loss in their income tax return, which was assessed under section 143(3) of the Act. The notice to reopen the assessment was issued after the expiry of four years from the relevant assessment year. The petitioner argued that there was no failure to disclose material facts and that the reopening was based on a mere change of opinion. The respondent opposed the petition, claiming that the claim for bad debts was erroneously allowed previously. The High Court noted that the Assessing Officer can reopen an assessment only if there is a belief that income has escaped assessment due to the assessee's failure to disclose all material facts. The court emphasized the importance of recording reasons before reopening an assessment.

The court found that the reasons provided for reopening the assessment focused on scrutinizing the petitioner's claim for bad debts due to embezzlement. However, the court observed that the Assessing Officer did not establish any failure on the part of the petitioner to disclose material facts. The court highlighted that during the original assessment, the petitioner had provided detailed submissions regarding the bad debts claim, which were accepted by the Assessing Officer. The court reiterated that the Assessing Officer cannot reopen an assessment for a fishing inquiry but must have a belief that income has actually escaped assessment.

Regarding the reliance on old Supreme Court decisions by the Assessing Officer, the court stated that these decisions should have been known to the Assessing Officer during the original assessment. The court concluded that since the conditions for exercising powers under section 147 of the Act were not met, the reopening of the assessment was without jurisdiction. Therefore, the court allowed the petition, quashed the notice to reopen the assessment, and made no order as to costs.