2014 (7) TMI 11 - HC - Income Tax

Reassessment - Applicability of Explanation 1 to Proviso 1 of Section 147 of the Act - Failure to disclose material facts Held that - It is required to be noted that, as such, in the reasons recorded by the AO for reopening the assessment u/s 148 of the Act, it was not the contention of the AO that there was any failure on the part of the assess to disclose the material facts truly and correctly - it is required to be noted that, as such, there are concurrent findings recorded by both the authorities that reassessment proceedings were initiated / assessment was reopened beyond a period of four years - the view taken by the CIT(A) and ITAT is upheld that the reassessment was opened after a period of four years and if that be so, unless and until it was alleged or established that there was any failure on the part of the assessee to disclose the material facts truly and correctly, it was not permissible to AO to reopen the assessment u/s 148 of the Act - even in the reasons recorded by the AO, it is not alleged that there was failure on the part of assessee to disclose the material facts truly and correctly - no error has been committed by the CIT(A) and ITAT in holding that the reassessment proceedings were bad in law thus, there was no reason to interfere in the order of the Tribunal and no substantial question of law arises for consideration Decided against revenue.

Issues Involved:
1. Justification of the ITAT in holding that there was no failure on the part of the assessee to disclose material facts fully and truly.
2. Compliance with the requirements of proviso 1 to Section 147 of the IT Act in the reopening of the assessment.

Issue-wise Detailed Analysis:

1. Justification of the ITAT in holding that there was no failure on the part of the assessee to disclose material facts fully and truly:

The case revolves around the reopening of an assessment under Section 147 of the Income Tax Act. The assessee initially filed a return under Section 143(3) of the Act, with the regular assessment completed on 26.12.2007. Subsequent rectification under Section 154 disallowed interest on unsecured loans. The Tribunal had deleted certain additions made by the AO, leading to the reopening of the case under Section 147.

The Tribunal, while dismissing the Revenue's appeal, noted that the AO's reasons for reopening were based on perusal of the assessment records and there was no allegation that the assessee failed to disclose material facts fully and truly. The Tribunal emphasized that the reopening after four years required a specific allegation of such failure, which was absent in this case.

2. Compliance with the requirements of proviso 1 to Section 147 of the IT Act in the reopening of the assessment:

The reassessment was initiated beyond four years from the end of the relevant assessment year. The CIT(A) quashed the reassessment, observing that the AO did not have new material to justify the belief of income escapement and that the reassessment was based on a change of opinion, which is not permissible. The CIT(A) cited Supreme Court rulings, emphasizing that a change of opinion or incorrect legal inference does not justify reopening under Section 147.

The Tribunal upheld the CIT(A)'s decision, confirming that the original assessment was completed under Section 143(3) and the reopening was beyond four years. The Tribunal reiterated that the first proviso to Section 147 requires the AO to establish that the assessee failed to disclose fully and truly all material facts, which was not alleged in the reasons for reopening.

Conclusion:

The High Court concurred with the CIT(A) and Tribunal's findings, emphasizing that the reassessment proceedings were initiated beyond the permissible period without any allegation of failure by the assessee to disclose material facts. The Court found no substantial question of law arising from the Revenue's appeal and dismissed it, affirming that the reassessment proceedings were invalid.

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