2014 (11) TMI 950 - HC - Income Tax

Validity of notice for reopening of assessment u/s 148 - Failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment or not Held that - The essential ingredient of there being a failure to disclose fully and truly all material facts necessary for assessment is conspicuous by its absence - there is not even an allegation or a whisper or suggestion with regard to this in the reasons recorded in Haryana Acrylic Manufacturing Company v. CIT 2008 (11) TMI 2 - DELHI HIGH COURT it has been held that the reasons must record that there was such a failure on the part of the assessee or, in the least, the reasons must lead to the clear and direct inference that there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment - the reasons must indicate which material fact was not fully and truly disclosed in the reasons recorded, there is neither any allegation that the assessee had failed to truly and fully disclose material facts at the time of the assessment - one of the essential ingredients for re-opening an assessment beyond the period of four years has not been satisfied - The re-assessment proceedings are bad in law the notice u/s 148 and the re-assessment order is set aside Decided in favour of assessee.

Summary

Issues:
1. Validity of notice under Section 148 of the Income Tax Act, 1961 for re-opening assessment beyond the prescribed time limit.

Analysis:
The judgment revolves around the validity of a notice issued under Section 148 of the Income Tax Act, 1961, seeking to re-open an assessment completed under Section 143(3) for the assessment year 2005-06. The notice was issued beyond the four-year period from the end of the relevant assessment year, triggering the applicability of the first proviso to Section 147. The petitioner contended that the re-assessment proceedings were flawed as the conditions specified in the proviso to Section 147 had not been met, particularly emphasizing the absence of failure on their part to fully and truly disclose all material facts necessary for assessment. The petitioner highlighted that the original assessment order had explicitly mentioned the deduction claimed under Section 10A, indicating a full disclosure of relevant details.

The petitioner further argued that the notice for re-assessment, issued after the four-year limit, lacked any allegation or indication of a failure to disclose material facts. Despite objections raised by the petitioner on grounds of time limitation and non-compliance with statutory provisions, the Assessing Officer rejected the objections and proceeded with the re-assessment order. The court analyzed the reasons provided for re-opening the assessment and emphasized the necessity for the reasons to clearly establish a failure on the part of the assessee to fully and truly disclose material facts. Citing precedents, the court reiterated that the reasons must specifically identify any undisclosed material facts to justify re-opening an assessment beyond the prescribed time limit.

Ultimately, the court found that the essential requirement of a failure to disclose material facts necessary for assessment was conspicuously absent in the reasons recorded for re-opening the assessment. As a result, the court held that the re-assessment proceedings were legally flawed and set aside the notice under Section 148 along with all subsequent proceedings, including the re-assessment order. The court ruled in favor of the petitioner, allowing the writ petition without imposing any costs.