2014 (6) TMI 211 - AT - Income Tax

Validity of reopening of assessment u/s 147 of the Act - Full and true disclosure Bar of limitation Held that - The AO reopened the assessment and the action was confirmed by the CIT(A) on the ground that the information provided by the assessee was not full and true and that there was justification with respect to the AO for reopening the assessment - Even if there is any such allegation, such allegation being justifiable and open to judicial scrutiny, cannot survive - all information was there in the record itself and the reopening of assessment was with reference to the material already available on record - there was no failure on the part of the assessee to disclose fully and truly all material facts - So long as the assessee has furnished full and true particulars at the time of original assessment and so long as the assessment order is framed u/s 143(3) of the Act, it matters little that the AO did not ask any question or query with respect to one entry or note but had raised queries and questions on other aspects - there was no failure on the part of the assessee to disclose fully and truly all material facts that are necessary for its assessment. Relying upon CIT & Anr. Vs. Foramer France 2003 (1) TMI 101 - SUPREME Court - Revenue was not able to show that there is a failure on the part of the assessee to disclose fully and truly all material facts in the assessment finally made - there is no failure on the part of the assessee to make return or to disclose fully and truly all the material facts necessary for assessment - notice issued by the AO on 27/11/2009 u/s 148 of the Act being issued after 4 years from the end of the relevant AY i.e. 2004- 05 is barred by limitation - Decided in favour of Assessee.

Issues Involved:
1. Legality of reopening the assessment under Section 147 of the Income Tax Act.
2. Application of Section 50C of the Income Tax Act for computing capital gains.
3. Validity of the indexed cost of acquisition.
4. Disallowance of gratuity payments to the LIC Group Gratuity Fund.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147 of the Income Tax Act:
The primary issue raised by the appellant was the legality of reopening the assessment under Section 147 of the Income Tax Act by issuing a notice under Section 148. The appellant contended that the reopening was illegal as it was done without satisfying the conditions precedent, particularly the failure to disclose fully and truly all material facts necessary for the assessment.

The facts indicate that the original assessment for the assessment year 2004-05 was completed under Section 143(3) on 28/12/2006. The notice for reopening under Section 148 was issued on 27/11/2009, which is beyond the four-year period stipulated by the proviso to Section 147. The appellant argued that there was no failure on its part to disclose all material facts fully and truly during the initial assessment.

The CIT(A) held that the information provided by the appellant was not full and true, justifying the reopening of the assessment. However, the tribunal found that the revenue authorities failed to demonstrate any failure on the part of the appellant to disclose all material facts fully and truly. Consequently, the tribunal quashed the reassessment, declaring the notice issued under Section 148 as barred by limitation, citing the Supreme Court judgment in the case of CIT & Anr. Vs. Foramer France, 264 ITR 566 (SC).

2. Application of Section 50C of the Income Tax Act for Computing Capital Gains:
The appellant contended that Section 50C of the Income Tax Act, which deals with the valuation of capital assets for the purpose of computing capital gains, was not applicable to the unregistered agreement executed on 28/06/2003. The appellant argued that Section 50C could only be invoked for registered documents and that the amendment to include unregistered documents came into effect prospectively from 1-10-2009.

The tribunal noted that the agreement in question was unregistered and executed before the amendment to Section 50C. Consequently, the tribunal held that the application of Section 50C was not justified for the assessment year 2004-05, as the provision was inapplicable to unregistered documents during that period.

3. Validity of the Indexed Cost of Acquisition:
The appellant disputed the indexed cost of acquisition determined by the assessing officer, arguing that it should have been taken at Rs. 6,94,30,787 based on the valuation report of the Registered Valuer, instead of Rs. 2,88,40,578.

Given that the tribunal quashed the reassessment on the grounds of illegality of the reopening, it refrained from addressing the merits of this issue.

4. Disallowance of Gratuity Payments to the LIC Group Gratuity Fund:
The appellant contended that the disallowance of Rs. 3,16,00,000 as gratuity payments to the LIC Group Gratuity Fund was incorrect. The appellant argued that the entire amount represented gratuity paid to the Recognized Gratuity Fund for employees retiring upon superannuation, not under any voluntary retirement scheme, and hence should not have been disallowed.

Similar to the issue of the indexed cost of acquisition, the tribunal did not delve into the merits of the disallowance of gratuity payments, having already quashed the reassessment.

Conclusion:
The tribunal allowed the appeal of the assessee, quashing the reassessment made under Section 147 of the Income Tax Act. The tribunal held that the reopening of the assessment was illegal as the conditions precedent were not satisfied, particularly the failure to disclose fully and truly all material facts necessary for the assessment. Consequently, the tribunal did not address the other grounds raised by the assessee on the merits of the additions made by the assessing officer.

← Previous Next →