2015 (4) TMI 341 - HC - Income Tax

Re-opening of assessments - proceedings under Section 147 initiated to reassess escaped income, beyond four years but within six years - assessee s failure to fully and truly disclose all material facts - whether the exemption claimed under Section 10A was applicable to the Company? - Held that - The assessee having claimed such exemption on the first assessment year after incorporation and commencement of business, necessarily the constitution of the assessee Company is the most relevant factor in deciding the claim of exemption. The BCA between the holding Company and the assessee Company is the essential document which discloses the factum of commencement of business. De hors that, for the assessment year 2003-04, it has been unequivocally established that the BCA was before the Assessing Officer even before completion of the assessment. The production of the said document, as is evident from Exhibit P13, is pursuant to a hearing held on 19.12.2005. The Revenue does not dispute the factum of the BCA being available in the files before the assessment was completed for the assessment year 2003-04 and the subsequent years beginning from assessment year 2004-05. Hence, there could be no contention raised as to there being no full and true disclosure of material facts. If essential and basic documents which are to be necessarily examined before grant of exemption, if not gone into, then it is the default of the officer and not the assessee as held in Calcutta Discount Co. Ltd. (1960 (11) TMI 8 - SUPREME Court). Further, as held by the Hon ble Supreme Court, here too the grant of exemption, is an inferential conclusion of the Assessing Officer and it cannot be said that the assessee while claiming exemption under Section 10A should have, in the same breath, pointed out that they are not entitled to it. This Court would not look into the question of whether there is a change of opinion or not, since the assessment of a subsequent year, which was challenged on the ground of exemption being disallowed, assailed as a mere change of opinion, has been declined consideration under Article 226 and the assessee relegated to the statutory remedy. This Court, hence, would not refer to the decisions on that aspect too. Any observation made on that count in this judgment is in the nature of a prima facie one; not binding on the statutory authorities who are to first consider that aspect. Going by the binding precedents with respect to full and true disclosure of material facts, this Court is of the opinion that no proceedings could be initiated under Section 147 of the IT Act. The impugned orders in the respective writ petitions would stand set aside, for the proceedings are hit by limitation; - having been initiated beyond four years - as provided under Section 153 of the Act. There is no warrant to extend the period by two years, again as provided under Section 153, since on facts it cannot be said that the grant of exemption, at least from the assessment year 2003-04, was in the absence of full and true disclosure by the assessee. - Decided in favour of assessee.

Issues Involved:
1. Sustainability of proceedings under Section 147 of the Income Tax Act, 1961, initiated beyond four years on the ground of failure to "fully and truly disclose all material facts."
2. Validity of re-opening assessments for the years 2004-05, 2005-06, and 2006-07.
3. Examination of whether the assessee's conduct constituted a lack of full and true disclosure of material facts.
4. Applicability of various legal precedents and interpretations of relevant provisions of the IT Act.

Issue-Wise Detailed Analysis:

1. Sustainability of Proceedings under Section 147 of the Income Tax Act, 1961:
The central question was whether proceedings under Section 147, initiated to reassess escaped income beyond four years, were sustainable due to the assessee's failure to "fully and truly disclose all material facts." According to Section 147, reassessment is permissible if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The first proviso to Section 147 allows reopening of assessment after four years only if there was a failure on the part of the assessee to make a return under Section 139, respond to notices under Sections 142(1) or 148, or disclose all material facts fully and truly.

2. Validity of Re-opening Assessments for the Years 2004-05, 2005-06, and 2006-07:
The assessments for the years 2004-05, 2005-06, and 2006-07 were reopened on the grounds that the assessee failed to disclose fully and truly all material facts necessary for assessment. The notices for reopening were issued within six years but beyond four years from the end of the relevant assessment years. The Department contended that the exemption granted under Section 10A was incorrect due to the assessee's non-disclosure of the Business Corporation Agreement (BCA), which indicated that the business was formed by splitting up or reconstructing an existing business.

3. Examination of Whether the Assessee's Conduct Constituted a Lack of Full and True Disclosure of Material Facts:
The court examined whether the assessee's conduct constituted a lack of full and true disclosure of material facts. The assessee argued that the BCA was produced before the Assessing Officer during the assessment for the year 2003-04, thus refuting the Department's claim of non-disclosure. The court found that the BCA was indeed available in the records before the completion of the assessment for 2003-04, and thus, there was no absence of full and true disclosure for the subsequent years.

4. Applicability of Various Legal Precedents and Interpretations of Relevant Provisions of the IT Act:
The court considered several precedents, including the Supreme Court's decision in Calcutta Discount Co. Ltd. v. Income Tax Officer, which held that mere production of account books or evidence does not amount to full disclosure if material facts are not fully and truly disclosed. The court also referred to decisions such as Malegaon Electricity Co. P. Ltd. v. CIT and CIT v. Popular Vehicles & Service Ltd., which discussed the concept of "reason to believe" and the adequacy of reasons for reopening assessments.

Conclusion:
The court concluded that the proceedings under Section 147 were not sustainable as they were initiated beyond four years without sufficient grounds for alleging a lack of full and true disclosure of material facts by the assessee. The court found that the BCA was available in the records before the completion of the assessment for 2003-04, and thus, there was no absence of full and true disclosure. Consequently, the impugned orders were set aside, and the writ petitions were allowed. The proceedings were deemed to be hit by limitation, and the period could not be extended by two years as provided under Section 153 of the IT Act.

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