2014 (2) TMI 1073 - HC - Income Tax

Validity of Reassessment proceedings u/s 148 of the Act Held that - This is a serious lapse, and it is apparent that the proceeding sheets in the revenue custody and charge have been removed when proceedings/hearings were held, then order/proceeding sheet should be available - reassessment proceedings have been initiated after four years from the end of the relevant assessment year and as per the first proviso to Section 147 of the Act - it has to be shown that there was failure on the part of the assessee to disclose fully and truly all facts necessary for the assessment - In the reasons to believe it is mentioned that absence of crucial information relating to income and expenditure on account of activities of the petitioner in India had resulted in improper computation of income for the assessment year 2003-04. As per the reasons to believe itself, in case the petitioner had furnished statement showing income and expenditure from Indian activities in the course of the original assessment proceedings, there was no lapse or failure on the part of the assessee i.e. the petitioner - Once it is held that the details were furnished, the reassessment notice would fail - Letter/reply dated 22nd March, 2006 enclosing the details would go to the very root and falsify the averments made in the reasons to believe - The said reasons would be factually incorrect and reassessment notice bad and contrary to the first proviso to Section 147 of the Act - The reassessment notice is hit by the principle of change of opinion . Reasons to believe must have nexus and live link with the formation of opinion by the Assessing Officer that taxable income had escaped assessment - As per mandate of Section 149(1)(b), income escaping assessment should be or likely to exceed Rupees one lac. - This required prima facie computation of income escaping assessment - This in turn required examination of data or figures relating to Indian operations - This being the position and stand of the Revenue, the Assessing Officer could not have formed any prima facie or tentative opinion that income had escaped assessment as the petitioner had positive income from Indian operations , if we take into account actual expenditure incurred relating to Indian operations. In the absence of the details, the averment made in the reasons to believe will be only a guess work or surmise and not cogent or reliable material to form a prima facie view - the Assessing Officers may be handicapped in such cases but there are sufficient provisions in the Act to get hold of the said data before proceedings are initiated or reasons are recorded - There is nothing to indicate and show the data and figures of the year in question were ascertained or gathered from records for other assessment years or otherwise - Thus, the petition is allowed and the reassessment proceedings set aside initiated by issue of notice under Section 148 relating to assessment year 2003-04 Decided in favour of Assessee.

Issues Involved:
1. Validity of reassessment proceedings.
2. Change of opinion.
3. Disclosure of full and true material facts.
4. Record maintenance by the Revenue.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The reassessment proceedings were initiated for the assessment year 2003-04 by issuing a notice dated 30th March 2010 under Section 148 of the Income Tax Act, 1961. The petitioner contested the reassessment, arguing that it was based on a change of opinion and that they had disclosed all material facts fully and truly. The court examined whether the reasons to believe recorded by the Assessing Officer justified reopening the assessment and whether they met the legal requirements.

2. Change of Opinion:
The petitioner argued that the reassessment was merely a change of opinion, which is not permissible. The court noted that the original assessment order dated 24th March 2006 had already examined the question of attribution of income to the Indian Permanent Establishment (PE) and had adopted a specific method for computing the income. The court found that the Assessing Officer had formed an opinion during the original assessment, and the reassessment was based on a different view adopted in subsequent years. This constituted a change of opinion, making the reassessment invalid.

3. Disclosure of Full and True Material Facts:
The petitioner claimed to have submitted India-specific revenues and expenses during the original assessment proceedings via a letter dated 22nd March 2006. The Revenue contended that this letter was not on record. The court examined the original records and found that crucial documents were missing, indicating a serious lapse in record maintenance by the Revenue. The court accepted the petitioner's contention that they had disclosed all material facts fully and truly during the original assessment proceedings.

4. Record Maintenance by the Revenue:
The court found significant issues with the maintenance of records by the Revenue. The original assessment records were incomplete, with missing order sheets and documents. The court criticized the Revenue's record maintenance practices and emphasized the need for urgent remedial steps. The court directed that a copy of the order be sent to the Chairman of the Central Board for Direct Taxes for appropriate action to ensure proper record maintenance.

Conclusion:
The court allowed the writ petition, quashing the reassessment proceedings initiated by the notice dated 30th March 2010 and the order dated 13th December 2011 dismissing the objections to the reopening. The court held that the reassessment was invalid due to a change of opinion and the full and true disclosure of material facts by the petitioner. The court also highlighted the need for improved record maintenance practices by the Revenue.

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