2014 (8) TMI 730 - HC - Income Tax

Notice for re-opening of assessment u/s 148 - Notice issued for payment of Group Gratuity to LIC - Balance of the premium payment paid payment depicted both on the liability as well as asset side of the balance sheet as contra entry - Neither claimed as expenditure nor allowed by the AO in the scrutiny assessment u/s 143(3) of the Act Held that - The AO had rightly issued notice u/s 148 of the Act on the ground that the claim on the part of the assessee had resulted in escapement of income on account of provisions created for retiring benefits and on account of provisions created for Group Gratuity Scheme - the mere production of account books or other evidence from which material evidence with due diligence could have been discovered by the AO, would not amount to disclosure - the AO while recording reasons for issuing notice u/s 148 of the Act had rightly held that there was no true and full disclosure and initiation of proceedings within four years from the end of the AY 2009-10 was valid Decided against Assessee.

Summary

Issues:
1. Validity of notice under section 148 of the Income Tax Act, 1961 for quashing.
2. Reopening of completed assessment based on change of opinion and audit objection.
3. Application of Explanation 1 to Section 147 of the Act regarding disclosure.

Analysis:

Issue 1: Validity of notice under section 148 of the Income Tax Act
The petitioner, a cooperative society engaged in banking, challenged the notice dated 24.3.2014 under section 148 of the Income Tax Act, seeking to quash it based on objections to the reasons recorded and the consequential order. The Assessing Officer contended that provisions for retiring benefits and Group Gratuity Scheme were not deductible under the Act, resulting in an alleged escapement of income. The notice was issued due to the Assessing Officer's opinion that there was an omission in the assessment, justifying the reopening. The court found no merit in the petitioner's argument, upholding the validity of the notice under section 148.

Issue 2: Reopening of completed assessment based on change of opinion and audit objection
The petitioner argued that the Assessing Officer's decision to reopen the assessment was a mere change of opinion, citing judgments to support the contention that audit objections cannot be a valid basis for reopening a concluded assessment. However, the court disagreed, stating that the reasons for reopening were valid as they pertained to provisions not deductible under the Act, leading to an alleged escapement of income. The court found no merit in the petitioner's challenge regarding the basis for reopening the assessment.

Issue 3: Application of Explanation 1 to Section 147 of the Act regarding disclosure
The court examined Explanation 1 to Section 147 of the Act, which clarifies that the mere production of account books or evidence that could have been discovered by the Assessing Officer does not constitute disclosure. The court noted that there was no discussion by the Assessing Officer on this aspect during the original assessment. Consequently, the court upheld the rejection of objections raised by the petitioner under Explanation 1, emphasizing that there was no true and full disclosure, and the initiation of proceedings within the prescribed timeframe was valid.

In conclusion, the court dismissed the petition, finding no merit in the petitioner's contentions. The judgments cited by the petitioner were deemed irrelevant as they did not address the specific issues raised in this case.