2014 (4) TMI 123 - HC - Income Tax

Reopening of assessment u/s 147 of the Act Income escapement could not pointed out - Short levy of Tax Held that - The AO did not point out that income chargeable to tax had escaped assessment due to failure on the part of the assessee to disclose truly and fully all material facts - the entire formation of belief is founded on the material already on the record - in addition to there being no suggestion by the AO that income chargeable to tax had escaped assessment for the reason of the assessee failing to disclose truly and fully all material facts, demonstrably, from the record it emerges to the contrary - The notice for reopening having been issued beyond the period of four years from the end of the relevant assessment year and original assessment having been completed after scrutiny, the additional requirement emerging from proviso to Section 147 of the Act that income chargeable to tax had escaped assessment for the failure of the assessee to disclose truly and fully all material facts, must be satisfied. Any amendment in law, even with retrospective effect, would not authorize the AO to reopen the assessment previously framed after scrutiny beyond the period of four years from the end of the relevant assessment year unless the conditions laid down under the proviso to Section 147 of the Act are fulfilled Relying upon Denish Industries Limited v. IncomeTax Officer 2004 (7) TMI 72 - GUJARAT High Court - An assessee cannot be imputed with clairvoyance - When the return was filed, the assessee could not possibly have known that the decision on the basis of which cash compensatory support had been claimed as not amounting to the assessee s income ceased to be operative by reason of retrospective legislation - there was no failure on the part of the assessee to disclose truly and fully all material facts - Therefore, the condition precedent for invocation of the powers under section 147 read with sections 148 and 149 was not fulfilled thus, the notice is set aside Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Compliance with the conditions laid down in Section 80IA[4](i)(a) of the Income Tax Act, 1961.
3. Retrospective amendment of Section 80IA and its implications on reopening the assessment.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The petitioner challenged the notice dated 22nd March 2013 issued by the Assessing Officer (AO) for reopening the assessment for the assessment year 2006-07. The original assessment was completed after scrutiny. The AO believed that the income chargeable to tax had escaped assessment due to the petitioner's claim for deduction under Section 80IA. However, the AO did not indicate that this income had escaped assessment due to the petitioner's failure to disclose all material facts fully and truly. The court noted that the reasons recorded by the AO were based on the material already on record, and there was no suggestion that the petitioner had failed to disclose material facts. Since the notice for reopening was issued beyond four years from the end of the relevant assessment year, and the original assessment was completed after scrutiny, the additional requirement under the proviso to Section 147 that the income chargeable to tax had escaped assessment due to the failure of the petitioner to disclose material facts was not satisfied. Therefore, the notice for reopening lacked validity.

2. Compliance with Conditions in Section 80IA[4](i)(a):
The AO objected to the petitioner's claim for deduction under Section 80IA, arguing that the petitioner had not entered into an agreement with the Central Government, State Government, local authority, or any statutory body as required by Section 80IA[4](i)(a). The petitioner had entered into a concession agreement with the Gujarat State Road Development Corporation (GSRDC), a company and not a statutory body or local authority. The AO believed that the petitioner had subcontracted the project allotted to GSRDC by the State Government, and the government notification authorizing toll collection was issued to GSRDC, not the petitioner. Thus, the condition laid down in Section 80IA[4](i)(a) was not fulfilled, making the deduction allowed irregular and liable to be disallowed.

3. Retrospective Amendment of Section 80IA:
The counsel for the Revenue argued that Section 80IA was amended by the Finance Act of 2009 with retrospective effect from 1st April 2000, adding an explanation that a person acting as a works contractor would not be eligible for deduction under Section 80IA[4]. However, the court opined that any retrospective amendment would not authorize the AO to reopen an assessment previously framed after scrutiny beyond four years from the end of the relevant assessment year unless the conditions under the proviso to Section 147 were fulfilled. The court referenced previous judgments, including Denish Industries Limited v. Income Tax Officer, which held that an assessee could not be expected to foresee retrospective legislative changes. The court concluded that there was no failure on the part of the petitioner to disclose material facts fully and truly, and thus, the condition precedent for invoking powers under Section 147 was not fulfilled. The impugned notice was therefore without authority of law.

Conclusion:
The court quashed the impugned notice dated 22nd March 2013, concluding that the reopening of the assessment lacked validity due to non-compliance with the conditions under Section 147, and the petitioner had disclosed all material facts fully and truly. The retrospective amendment of Section 80IA did not justify reopening the assessment beyond the stipulated period. The petition was disposed of accordingly.