2013 (5) TMI 660 - HC - Income Tax

Re opening of assessment - no true and full disclosure on the part of the petitioner with respect to purchase of the Ship/Tug particularly in context of the petitioner s claim for full depreciation @ 25% of the total value - Held that - Present being a case of issuance of notice after four years from the end of relevant assessment year, and therefore, proviso to subsection (1) of Section 151 would apply. In such a case, irrespective of the level of AO issuing notice for reopening, a precondition of the Chief Commissioner or the Commissioner being satisfied on the reasons recorded by the AO that it is a fit case for issuance of such notice must be satisfied. This additional safeguard not only involves the application of mind on the part of the Chief Commissioner or the Commissioner but his satisfaction, which would be based on the reasons recorded by the AO, and such satisfaction should be that it is a fit case for issuance of the notice. Admittedly, in the present case, these requirements have not been fulfilled. What the Revenue however argues is that when the Commissioner had perused the suggestions of the audit party, the same should be seen as substantial compliance of such a requirement cannot be accepted. See CIT v. SPL s Siddhartha Limited 2011 (9) TMI 640 - DELHI HIGH COURT . Thus impugned notice for reassessment quashed.

Summary

Issues:
1. Validity of notice issued under Section 148 of the Income-tax Act, 1961 beyond the four-year period.
2. Requirement of obtaining necessary approval from Chief Commissioner or Commissioner before issuing the notice.

Analysis:

Issue 1: Validity of notice issued beyond the four-year period
The petitioner challenged a notice issued by the Assessing Officer under Section 148 of the Income-tax Act, 1961, beyond the four-year period from the end of the relevant assessment year. The petitioner contended that there was no failure to disclose material facts and, therefore, the notice was without jurisdiction. On the other hand, the respondent argued that the petitioner did not fully disclose the purchase of a Ship/Tug, which affected the depreciation claimed. The Assessing Officer independently examined the issue and decided to reopen the assessment. The Court noted that the notice for reopening was issued after the four-year period, requiring specific approval. The Court emphasized the importance of the Chief Commissioner or Commissioner being satisfied that it is a fit case for the notice issuance, based on the reasons recorded by the Assessing Officer. The Court held that the satisfaction of the Chief Commissioner or Commissioner was a necessary procedural safeguard against arbitrary exercise of power. The Court referred to a Delhi High Court case to support the requirement of independent satisfaction by the designated authority before issuing such notices. The Court ruled that the notice issued was quashed due to the lack of necessary approval.

Issue 2: Requirement of obtaining necessary approval
The crux of the judgment revolved around the necessity of obtaining approval from the Chief Commissioner or Commissioner before issuing a notice under Section 148 after the four-year period. The Court highlighted the specific requirements outlined in Section 151 of the Act, emphasizing that the satisfaction of the higher authority was crucial for the validity of such notices. The Court rejected the argument of substantial compliance through the perusal of suggestions by the audit party, stressing that the satisfaction recorded should be independent and not borrowed or dictated. The Court underlined that compliance with the requirement of obtaining necessary approval was not technical but essential before issuing notices for reopening assessments. Consequently, the Court quashed the notice in question solely on the grounds of lacking the required approval, without expressing an opinion on the other contentions raised by the petitioner.

In conclusion, the High Court of Gujarat held that the notice issued under Section 148 of the Income-tax Act, 1961 beyond the four-year period was invalid due to the failure to obtain necessary approval from the Chief Commissioner or Commissioner. The judgment emphasized the significance of independent satisfaction by the designated authority as a crucial procedural safeguard against arbitrary exercise of power in reopening assessments.