2014 (10) TMI 226 - HC - Income Tax

Validity of notice for reopening of assessment u/s 148 Failure on the part of assessee disclosed or not - AO was of the view that the interest paid on borrowings was business expenditure to be allowed as revenue expenditure Held that - The notices having been issued beyond a period of four years from the end of relevant AY, the reasons in support do not indicate any failure on the part of the petitioner to submit fully and truly all material facts necessary for assessment - it is submitted that income chargeable to tax has escaped assessment - However, the reasons nowhere indicate any failure on the part of the petitioner to disclose truly and fully material facts necessary for assessment - the reopening of assessments u/s 148 of the Act beyond the period of four years from the end of the relevant AY has to specify the failure on the part of the assessee to disclose fully and fully all material facts necessary for assessment - Revenue has to justify the notices only on the basis of the reasons recorded at the time of issuing the notices - The reasons as recorded and furnished to the petitioner, do not disclose even remotely any failure on the part of the assessee to disclose truly and fully material facts necessary for assessment during the relevant AYs 1998-1999 and 1999- 2000 the notice is without jurisdiction cannot be sustained Decided in favour of assessee.

Summary

Issues:
Challenging two notices dated 23 March 2005 under Section 148 of the Income Tax Act, 1961 for reopening assessment for the Assessment Years 1998-1999 and 1999-2000.

Analysis:
The petitioner filed its return of income for the Assessment Year 1998-1999, disclosing a loss of Rs. 4.98 lakh. The Assessing Officer determined the income at Rs. 47.11 lakhs, allowing interest paid on borrowings as a business expenditure. Subsequently, a notice was issued on 23 March 2005 to reopen the assessment, stating that the interest paid on borrowings was of capital nature and should be disallowed as an expenditure. The petitioner objected to the reasons furnished, but the objection was rejected by the Assessing Officer.

The petitioner argued that the notices were issued beyond the four-year period without indicating any failure to disclose material facts, constituting a mere change of opinion and invoking the doctrine of merger due to appeal proceedings. The High Court found merit in the argument regarding the notices being issued beyond the prescribed period without indicating any failure to disclose material facts, which is a jurisdictional requirement for reopening assessments under Section 148. The Court emphasized that reasons for reopening assessments must be based on the failure to disclose material facts, as specified at the time of issuing the notices.

The Court held that the reasons furnished for reopening the assessments did not demonstrate any failure on the part of the petitioner to disclose material facts necessary for assessment. Therefore, the impugned notices were deemed without jurisdiction and unsustainable. Consequently, both notices seeking to reopen assessments for the years 1998-1999 and 1999-2000 were quashed and set aside, with the petitions allowed and no costs imposed.