2014 (2) TMI 610 - AT - Income Tax

Reopening of Assessment u/s 147 of the Act Notice u/s 148 issued - Held that - The decision in Hindustan Lever vs. Assistant Commissioner of Income Tax 2004 (2) TMI 41 - BOMBAY High Court followed - the Assessing Officer must disclose in the reasons as to which material facts were not disclosed by the assessee fully and truly, which was necessary for assessment of that assessment year to establish vital link between the reasons and evidence - the vital link is to safeguard against arbitrary reopening of the concluded assessment - the assessing officer has not received any further evidence or information so as to say that the assessee at the time of making original assessment did not disclose truly and wholly the material facts which has come to the notice to the AO later on and due to which the income chargeable to tax has escaped assessment thus, the initiation of reassessment proceedings by issuing notice u/s 148 of the Act for the assessment year is barred by limitation as the original assessment was made u/s 143(3) of the Act - there is no evidence to establish that the assessee failed to disclose fully and truly the material facts necessary for the assessment thus, the order set aside Decided in favour of Assessee. Validity of Reassessment Held that - No new material has come to the notice of the Assessing Officer for initiating the reassessment proceedings and the reassessment has been initiated after expiry of more than 4 years on the same materials which was furnished by the assessee, at the time of falling the return - there is nothing to show that alleged escape of income was owing to the failure on the part of the assessee to disclose material facts truly and fully - No tangible material has been brought on record which has come to the notice of the Assessing Officer after the return was processed u/s 143(1) of the Act thus, the action of the Assessing Officer to initiate reassessment proceedings is not in accordance with law - the contention of the assessee is accepted that the initiation of reassessment proceedings is not valid Decided in favour of Assessee.

Summary

Issues:
1. Validity of reopening assessment under section 147 of the Income Tax Act for Assessment Year 2004-05.
2. Validity of reopening assessment under section 147 of the Income Tax Act for Assessment Year 2005-06.

Analysis:

Issue 1: Validity of Reopening Assessment for Assessment Year 2004-05

The appellant disputed the order of the CIT(A) sustaining the Assessing Officer's decision to reopen the assessment under section 147 of the Income Tax Act for the Assessment Year 2004-05. The Assessing Officer initiated reassessment proceedings based on the grounds that certain income had been understated by the assessee. However, the appellant argued that the reassessment proceedings were initiated without any new facts coming to light and were barred by limitation as the notice was issued after four years from the end of the relevant assessment year. The appellant contended that the Assessing Officer did not have any additional evidence to show that the assessee had failed to disclose fully and truly the material facts necessary for the assessment. The ITAT agreed with the appellant, citing the decision of the Hon'ble Bombay High Court in Hindustan Lever vs. Assistant Commissioner of Income Tax, which emphasized the importance of disclosing material facts for assessment and preventing arbitrary reopening of concluded assessments. The ITAT quashed the assessment order for Assessment Year 2004-05, holding that the reassessment proceedings were barred by limitation and lacked evidence of non-disclosure of material facts by the assessee.

Issue 2: Validity of Reopening Assessment for Assessment Year 2005-06

Similarly, in the case of the Assessment Year 2005-06, the Assessing Officer initiated reassessment proceedings based on the same grounds as for the previous year. The appellant argued that the reassessment was unjustified as no new material had come to the notice of the Assessing Officer, and the reassessment was initiated after the expiry of four years from the end of the relevant assessment year. The ITAT noted that the reassessment proceedings were based on the same materials furnished by the assessee during the original assessment under section 143(1) of the Act. The ITAT emphasized that the Assessing Officer did not have tangible material to show that income had escaped assessment due to the failure of the assessee to disclose material facts fully and truly. Citing the decision of the ITAT in Telco Dadajee Dhackjee Limited, the ITAT held that the initiation of reassessment proceedings was not in accordance with the law. Consequently, the ITAT quashed the reassessment order for Assessment Year 2005-06, allowing the ground of appeal taken by the assessee.

In conclusion, the ITAT allowed both appeals for Assessment Years 2004-05 and 2005-06, emphasizing the importance of disclosing material facts for assessment and upholding the limitation period for reopening assessments under section 147 of the Income Tax Act.