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2013 (4) TMI 116 - HC - Income TaxEscaped assessment U/s 147 of the Act - Period of limitation - Recomputing of income U/s 115JB - Held that - In view of the retrospective amendment of law by Parliament the court held that the Assessing Officer may have reason to believe that income has escaped assessment. But that in itself was not held to be sufficient for reopening an assessment beyond a period of four years unless there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. In Sesa Goa Ltd. v. Joint CIT 2007 (2004 (5) TMI 54 - BOMBAY High Court) a Division Bench of this court has held that a subsequent decision of a court cannot justify the reopening of an assessment after a period of four years by itself as the subsequent decision would not necessarily mean that there was a failure on the part of the assessee to disclose fully and truly all material facts. In CIT v. K. Mohan and Co. (2013 (2) TMI 628 - Bombay High Court ) a Division Bench of this court dealt with an appeal arising from a decision of the Tribunal cancelling reassessment proceedings initiated by the Assessing Officer beyond a period of four years from the end of the relevant assessment year. The assessment was sought to be reopened as a result of a retrospective amendment to section 80HHC introduced by the Taxation Laws (Amendment) Act 2005 with effect from April 1 1998. - Decided in favor of assessee.
Issues Involved:
1. Validity of reopening the assessment beyond four years. 2. Set off of unabsorbed depreciation. 3. Computation under section 115JB without additions for provisions. Issue-wise Detailed Analysis: 1. Validity of Reopening the Assessment Beyond Four Years: The primary issue revolves around the reopening of the assessment for the assessment year 2004-05, which was initiated beyond the statutory period of four years. The assessee contended that the notice issued on March 30, 2011, seeking to reopen the assessment, did not meet the jurisdictional condition required for such an action. Specifically, there was no allegation that the assessee failed to disclose fully and truly all material facts necessary for the assessment. The court emphasized that for reopening an assessment beyond four years, there must be a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment, which was absent in this case. The court noted that the reasons communicated to the assessee and the grounds for rejecting the objections did not contain any such allegation. Hence, the fundamental condition for reopening the assessment beyond four years was not fulfilled. 2. Set off of Unabsorbed Depreciation: The second issue pertained to the set off of unabsorbed depreciation for the assessment year 1994-95 against the income of the assessment year 2004-05. The Assessing Officer relied on the judgment of the Special Bench of the Tribunal in Deputy CIT v. Times Guaranty Ltd., which held that unabsorbed depreciation for the period up to 1996-97 could be carried forward and set off against the income from any head for a maximum period of eight assessment years. Consequently, the set off of unabsorbed depreciation for the assessment year 1994-95 against the income of the assessment year 2004-05 was deemed incorrect. However, the court highlighted that this judgment was delivered on June 30, 2010, after the assessment order for the assessment year 2004-05 was issued on December 31, 2007. Therefore, a subsequent judicial decision cannot ipso facto result in an inference of a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. 3. Computation Under Section 115JB Without Additions for Provisions: The third issue involved the computation of income under section 115JB without any addition for the provision for diminution in the value of investment and the provision for doubtful debts/advances. The Assessing Officer relied on an amendment made by the Finance (No. 2) Act, 2009, with retrospective effect from April 1, 2001, which required such provisions to be added back to the book profit. The court observed that while these reasons might indicate an escapement of income, they were insufficient to validate the reopening of the assessment beyond four years. The court reiterated that beyond a period of four years, the power of the Assessing Officer is structured by the requirement of a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment. In this case, there was no such allegation, and the return of income and material placed on record by the assessee showed no suppression of material facts. Conclusion: The court concluded that both the grounds formulated by the Assessing Officer for reopening the assessment pertained to events that occurred after the order of assessment was passed. The court held that a subsequent decision of a court or a legislative amendment enforced after the order of assessment might indicate an escapement of income, but it does not justify reopening an assessment beyond four years without a failure on the part of the assessee to disclose all material facts. Consequently, the court set aside the impugned notice dated March 30, 2011, and ruled in favor of the assessee.
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