2014 (7) TMI 645 - HC - Income Tax

Notice u/s 148 of the Act Reopening of assessment beyond 4 years Failure or not to disclose the material facts Principle of consistency - Held that - The reasons for reopening very categorically state that it is only during the assessment proceeding for AY 2009-10 that various documents including the loan application and sanction letter of HDFC Limited were called for - prima facie it appears that the AO on the basis of the information obtained during the assessment proceeding for AY 2009-10 came to the reasonable belief that income chargeable to tax has escaped assessment - The reasons for reopening indicate prima facie that the interest deduction claimed under the head income from other sources could not have been claimed as the loan was obtained for the purpose of residential property and the claim for interest u/s 24 of the Act could not be granted as no property was purchased from the loan taken - it cannot be said at this stage that there was no reason to believe in the mind of the AO that income chargeable to tax has escaped assessment for the purpose of issuing the notice dated 29 February 2012 The decision in CIT vs. Rajesh Jhaveri 2007 (5) TMI 197 - SUPREME Court followed - Decided against Assessee.

Summary

Issues:
1. Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2005-06.
2. Jurisdictional requirement for issuing notice beyond four years from the end of the relevant assessment year.
3. Failure to disclose all material facts necessary for assessment.
4. Application of mind to the return filed by the petitioner.
5. Principle of consistency in assessment proceedings.
6. Defense of change of opinion.
7. Reason to believe that income chargeable to tax has escaped assessment.
8. Prima facie evidence for reopening assessment.
9. Extraordinary writ jurisdiction.

Analysis:

1. The petition challenged a notice issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for Assessment Year 2005-06, originally completed under Section 142(1) of the Act. The notice was issued beyond the four-year period from the end of the relevant assessment year, based on the claim of deduction for interest paid to HDFC. The petitioner contended that all material facts were disclosed, and the deduction under Section 57 was appropriate. The Assessing Officer dismissed the objections, stating no full disclosure was made, and there was no application of mind to the filed return.

2. The petitioner raised objections to the notice, citing failure to disclose all necessary material facts and the principle of consistency in assessments for earlier and subsequent years. The Supreme Court's ruling in CIT vs. Rajesh Jhaveri clarified that a notice for reopening can be issued under Section 148 even after an assessment under Section 143(1), provided there is a reason to believe income has escaped assessment. The reasons for reopening in this case indicated fresh material was received during the assessment for AY 2009-10, justifying the belief of escaped income.

3. The Court noted that each assessment year is separate, and the obligation to disclose facts applies to each year. The principle of res judicata does not strictly apply in tax matters, and the Assessing Officer must consider the facts of each year independently. The petitioner's argument of consistency was countered by the Assessing Officer's assertion that the information disclosed in earlier assessments did not align with the current claim regarding the loan from HDFC.

4. The reasons for reopening highlighted that the interest deduction claimed under "income from other sources" was not valid as the loan was for residential property, making it ineligible for deduction under Section 24. The Court found prima facie evidence supporting the Assessing Officer's belief that income had escaped assessment for AY 2005-06, warranting the notice under Section 148.

5. While acknowledging the petitioner's potential defense during reassessment, the Court declined to interfere, emphasizing that the observations made were preliminary and should not influence the Assessing Officer's decision on jurisdiction or the merits of the petitioner's claim. Ultimately, the petitions were dismissed without costs, maintaining the possibility for the petitioner to address the issues during the reassessment process.