2014 (12) TMI 1113 - HC - Income Tax

Validity of notice for reopening of assessment u/s 148 Failure on its part to disclose truly and fully all material facts necessary for assessment or not - Held that - The condition precedent to clothe the AO with jurisdiction to reopen an assessment are reason to believe that income chargeable to tax has escaped assessment (a mere change of opinion would not be reason to believe) - An additional jurisdictional condition for reopening of an assessment beyond a period of four years from the end of the relevant assessment year is the failure to truly and fully disclose all material facts necessary for assessment the notice has been issued beyond a period of four years from the end of the relevant AY - the reasons itself indicate that it is on perusal of record and details filed by the Petitioner that claim of the Petitioner in respect of export of trading goods is concerned, is disproportionately higher - there has been no failure on the part of the Petitioner to disclose fully and truly all material facts necessary for the assessment. No invoice wise details of purchase of trading goods exported and failure to corelate the trading export with the purchases has resulted in failure to make a true and full disclosure - the reasons for re-opening cannot be supplemented by affidavits - The reasons have to be read as they are and cannot be improved upon by filing affidavits in Ajanta Pharma Ltd. Versus Assistant Commissioner of Income-Tax And Others 2003 (11) TMI 32 - BOMBAY High Court wherein it has been held that the petitioners have categorically stated about the disclosure of details of trading goods exported along with direct cost of purchases for the assessment year along with their return and the fact also finds corroboration from the affidavit of the Assistant Commissioner of Income Tax wherein he has made a grievance only of non-furnishing of documents in support of those details - the reasons for issuance of notice did not disclose to be borne out from the records - the so called reasons are totally flimsy, as has been contended on behalf of the petitioners, and, by no stretch of imagination, can be said to be sufficient to draw the conclusion about escapement of income which could empower the authorities to invoke powers under Section 148 - there was no material on the basis of which the Department could have reopened the case in exercise of powers u/s 148. Set off of trading profits against the loss of manufactured exports for purposes of claiming deduction u/s 80 HHC Held that - The Petitioner had pointed out in its return of income that the loss on account of export of manufactured goods is ignored for the purpose of calculation of deduction u/s 80HHC of the Act as it is an incentive provisions - there was a complete disclosure the notice is hit by the first proviso to Section 147 in IPCA Laboratories v/s. Deputy Commissioner of Income Tax 2001 (7) TMI 99 - BOMBAY High Court - the loss in any of the two segments has to be set off against the other for the purpose of determining the deduction available u/s 80HHC thus, the notice u/s 148 is unsustainable in view of no failure on the part of the Petitioner to fully and truly disclose all facts necessary for assessment, the notice is set aside on the above ground alone Decided in favour of assessee.

Issues Involved:
1. Validity of notice issued under Section 148 of the Income Tax Act, 1961 for reopening assessment beyond four years.
2. Alleged failure to disclose fully and truly all material facts necessary for assessment.
3. Jurisdictional validity of the notice based on a change of opinion.
4. Impact of the merger of the assessment order with the order of the Commissioner of Income Tax (Appeals).

Detailed Analysis:

1. Validity of Notice Issued Under Section 148 Beyond Four Years:
The primary contention was that the notice dated 24th January 2003, issued under Section 148 of the Income Tax Act, 1961, was beyond the permissible period of four years from the end of the relevant assessment year, making it without jurisdiction. The Petitioner argued that there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The Court emphasized that for reopening an assessment beyond four years, there must be a failure to disclose fully and truly all material facts necessary for the assessment.

2. Alleged Failure to Disclose Fully and Truly All Material Facts:
The reasons for reopening the assessment included:
- Higher profit claimed on export of trading goods disproportionate to the trading export turnover.
- Non-filing of invoice-wise details of purchases of trading goods exported and failure to correlate the trading export sales with invoice-wise purchase of trading goods exported.
- Non-adjustment of profit on trading export against the loss on manufacturing export.

The Court found that the Petitioner had indeed disclosed all necessary details during the original assessment proceedings, including a complete statement of exported sales and purchases, and the Assessing Officer had examined these details before passing the order. The Court rejected the Revenue's argument that the Petitioner failed to file supporting invoices, noting that the reasons for reopening cannot be supplemented by affidavits and must stand on their own.

3. Jurisdictional Validity Based on Change of Opinion:
The Petitioner contended that the notice was a mere change of opinion, as all the facts relied upon in the reasons for reopening were already considered during the original assessment proceedings. The Court agreed, stating that a mere change of opinion does not constitute a valid reason to believe that income has escaped assessment, thus invalidating the notice.

4. Impact of the Merger of the Assessment Order with the CIT(A) Order:
The Petitioner argued that the original assessment order dated 23rd March 1999 had merged with the order of the Commissioner of Income Tax (Appeals) dated 9th July 1999, which allowed the Petitioner's appeal regarding the deduction under Section 80HHC. Consequently, any attempt to reopen the assessment based on the original order was without jurisdiction. The Court did not need to delve deeply into this issue as the notice was already found unsustainable on other grounds.

Conclusion:
The Court concluded that there was no failure on the part of the Petitioner to fully and truly disclose all material facts necessary for assessment. The impugned notice under Section 148 of the Act was set aside, and the Petition was allowed. The Court did not find it necessary to examine other issues raised by the Petitioner, as the decision on the primary issue was sufficient to dispose of the Petition. The rule was made absolute with no order as to costs.

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