2012 (12) TMI 456 - HC - Income Tax

Reassessment - notice u/s 148 - reason to believe - change of opinion - held that - In the present case, the original return of the assessee was subjected to scrutiny assessment, under Section 143 (3). The assessee was apparently closely questioned on various aspects, including its claim for treatment of the three units, under Sections 10-A/10B of the Act. In response to a query raised by Respondent No.1, the Petitioner by letter dated 21.02.2005 furnished information regarding the units eligible for deduction u/s 10A/10B. In the reply the Petitioner listed all three units as units eligible for claiming deduction. The issue of deduction under Sections 10A/10B was specifically examined by the Assessing Officer during the original assessment. When there was intensive examination in the first instance in respect of the issue, which was the basis for re-opening of assessment, it was necessary for the AO to indicate, what other material, or objective facts, constituted reasons to believe that the assessee had failed to disclose a material fact, necessitating reassessment proceedings. That is precisely the tangible material which have to exist on the record for the reasons (to believe bearing a live link with the formation of the belief The notice, under proviso to Section 147, and consequent reassessment proceedings, are beyond jurisdiction. - Decided in favor of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act.
2. Whether the reassessment proceedings were justified.
3. The applicability of the proviso to Section 147 concerning the limitation period.
4. Whether there was a failure to disclose material facts by the assessee.

Issue-Wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The petitioner, referred to as the assessee, challenged the notice dated 23.07.2010 issued under Section 148 of the Income Tax Act, which proposed to reassess the income for the assessment year 2004-2005. The notice was issued on the grounds that the assessee's income had escaped assessment. The reasons provided for reopening the assessment included the non-addition of income from other sources and short-term capital gains amounting to Rs. 8,54,39,339 and the failure to reduce the loss of Rs. 50,75,39,374 from the profit of other units, leading to an excess exemption under Sections 10A and 10B.

2. Justification of the Reassessment Proceedings:
The assessee argued that the reassessment was unjustified as the original assessment was completed after detailed scrutiny under Section 143(3) on 29.12.2006. The assessee had disclosed all relevant facts, including the claim of deductions under Sections 10A and 10B for two units and NIL deduction for the third unit. The Assessing Officer (AO) had already considered these facts during the original assessment. The court emphasized that reassessment cannot be initiated merely on a change of opinion, as per the Supreme Court's ruling in Kelvinator of India Limited (2010) and Lakhmani Mewal Das (1976).

3. Applicability of the Proviso to Section 147:
The reassessment notice was issued more than four years after the end of the relevant assessment year, invoking the proviso to Section 147. This proviso allows reassessment beyond four years only if the income escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for assessment. The court noted that the assessee had disclosed all primary facts necessary for the assessment, including the details of deductions claimed and the loss incurred by the third unit. Therefore, the conditions for invoking the proviso to Section 147 were not met.

4. Failure to Disclose Material Facts:
The revenue contended that the assessee failed to disclose fully and truly all material facts, particularly regarding the set-off of losses of one eligible unit against the profits of another. However, the court found that the assessee had disclosed all relevant facts in the return of income, Form 56F/56G, and accompanying notes. The AO had scrutinized these disclosures during the original assessment. The court held that there was no failure on the part of the assessee to disclose material facts, and the reassessment proceedings were based on a mere change of opinion, which is not permissible under Section 147.

Conclusion:
The court concluded that the impugned notice under Section 148 and the consequent reassessment proceedings were beyond jurisdiction and unsustainable. The reassessment was initiated on a mere change of opinion without any tangible material indicating that the income had escaped assessment. The court quashed the notice and the reassessment proceedings, allowing the writ petition without any order as to costs.

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