2013 (11) TMI 1511 - AT - Income Tax

Validity of reassessment u/s 147 - Without recording the reasons for reopening - Held that - The AO has not showed that escapement of income is on account of failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment - The assessment year involved is A.Y. 2004-05 and impugned notice u/s. 148 was issue on 23.3.2011 i.e. after expiry of about 4 years from the end of the said assessment year - Following Sound Casting Pvt. Ltd. Vs. DCIT 2012 (4) TMI 248 - BOMBAY HIGH COURT - The AO has failed to establish that there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment - Decided against Revenue.

Issues Involved:
1. Validity of reopening the assessment.
2. Compliance with procedural requirements for reopening the assessment.
3. Allegations of failure to disclose material facts by the assessee.
4. Impact of previous appellate orders on subsequent reassessment proceedings.

Detailed Analysis:

1. Validity of Reopening the Assessment:

The appeal concerns the reopening of the assessment for the assessment year 2004-05. Initially, the assessment was completed under section 143(3) on 22.12.2006. The assessment was reopened by issuing a notice under section 148 on 27.3.2009, which was completed on 15.12.2009. The assessee challenged this reopening, and the CIT(A) quashed the assessment on the grounds that the Assessing Officer (AO) did not furnish the reasons for reopening. The department did not appeal this decision, thus it reached finality.

2. Compliance with Procedural Requirements:

The Supreme Court in GKN Drive Shafts (India) Ltd. prescribed that upon issuance of a notice under section 148, the AO must furnish reasons for reopening within a reasonable time, and the assessee is entitled to file objections which the AO must dispose of by a speaking order. The CIT(A) observed that the AO did not follow this procedure, leading to the quashing of the assessment. The department accepted this ruling by not appealing it.

3. Allegations of Failure to Disclose Material Facts by the Assessee:

The second reopening notice under section 148 was issued on 23.3.2011, more than four years after the end of the assessment year. According to the first proviso to section 147, for such a reopening to be valid, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The CIT(A) found no such failure on the part of the assessee, as the reasons recorded by the AO did not allege any failure to disclose material facts.

4. Impact of Previous Appellate Orders on Subsequent Reassessment Proceedings:

The CIT(A)'s order dated 31.8.2010, which quashed the initial reassessment, was not appealed by the department, making it final. The second reopening was based on the same grounds as the first, which were already deemed invalid. The CIT(A) noted that the reasons for the second reopening did not comply with the legal requirements, as they did not allege a failure to disclose material facts by the assessee. Consequently, the reassessment proceedings were quashed again.

The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to establish any failure by the assessee to disclose material facts. The Tribunal also found no necessity to address other contentions or merits of additions since the reopening itself was quashed.

Conclusion:

The appeal filed by the revenue was dismissed, and the reassessment proceedings were quashed due to non-compliance with procedural requirements and failure to establish that the assessee did not disclose material facts. The Tribunal affirmed the CIT(A)'s decision, emphasizing the finality of the previous appellate order and the lack of valid grounds for reopening the assessment.

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