2014 (5) TMI 225 - HC - Income Tax

Validity of notice u/s 148 of the Act Re-opening of assessment - Bar of limitation Held that - The notice of reopening is beyond the period of four years, it is incumbent upon the AO to have the reasonable belief that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for the purpose of assessment - It is emerging clearly from the reasons recorded while issuing the notice of reopening, no mention is made to the fact that on the basis of any new material, the AO had any reason to believe that the petitioner had not fully and truly disclosed all material facts the notice is based on the material which was very much available before the AO and he had examined the very issue threadbare while framing original assessment. Relying upon Sun Pharmaceutical Industries Ltd. v. Dy. CIT 2012 (10) TMI 403 - Gujarat High Court - the notice of reopening of an assessment must be adjudged on the basis of the reasons recorded while issuing the notice - Reasons other than those on the basis of which notice was issued cannot be considered while examining the validity of such notice and the same essentially and materially requires to be dealt on the basis of recorded reasons - there was no failure of the assessee in furnishing the information at the time of original assessment, where the transactions were treated in the nature of capital gain after making the detailed inquiry - in absence of any failure of disclosure of fully and truly of all the material facts on the part of the assesee, issuance of notice of reopening u/s 148 of the Act is not sustainable Decided in favour of Assessee.

Summary

Issues:
1. Validity of notice under section 148 for reopening the assessment for the Assessment Year 2006-07.
2. Whether there was a failure on the part of the assessee to disclose all material facts necessary for assessment.
3. Jurisdictional validity of the notice issued beyond the four-year period from the end of the relevant assessment year.

Issue 1: Validity of notice under section 148 for reopening the assessment for the Assessment Year 2006-07:
The petitioner challenged the notice issued under section 148 dated 13.2.2013, arguing that the original assessment had already scrutinized the relevant issues. The Assessing Officer had raised queries regarding the treatment of share investments as business or investment, which the petitioner had responded to by stating that the gains were capital gains and not business profits. However, the notice for reopening the assessment was issued beyond the four-year period, leading to a jurisdictional challenge.

Issue 2: Failure to disclose all material facts necessary for assessment:
The Assessing Officer contended that the petitioner had not fully disclosed all material facts during the original assessment, particularly regarding the nature of share transactions. The revenue argued that the petitioner's share transactions indicated a business activity rather than mere investment, and thus, the claim for long-term capital gains was wrongly allowed. However, the petitioner maintained that there was no failure in disclosing material facts during the original assessment, as the nature of share investments had been clearly explained and accepted.

Issue 3: Jurisdictional validity of the notice issued beyond the four-year period:
The Court emphasized that for a notice of reopening beyond the four-year period to be valid, there must be a reasonable belief of failure to disclose all material facts by the assessee. In this case, it was observed that the reasons for reopening did not indicate any new material that had surfaced after the original assessment. The Court referred to legal precedents emphasizing the importance of fully and truly disclosing material facts by the assessee for assessment purposes. As the petitioner had already provided all necessary information during the original assessment, the notice issued beyond the four-year period was deemed unsustainable, leading to the quashing of the notice and subsequent proceedings.

In conclusion, the High Court of Gujarat held that the notice under section 148 for reopening the assessment for the Assessment Year 2006-07 was not valid due to the absence of any failure on the part of the assessee to disclose all material facts necessary for assessment. The Court emphasized the importance of fully disclosing material facts by the assessee and ruled in favor of the petitioner, quashing the notice and subsequent proceedings undertaken pursuant to the notice.