2015 (9) TMI 1062 - HC - Income Tax

Reopening of assessment - Held that - The reasons to believe as recorded by the Assessing Officer does not aver that the assessee had failed to fully and truly disclose all material facts necessary for the assessment, which is a condition precedent for reopening the assessment after four years. The reason to believe only indicates that the reasons for reopening is based on the assessment records and the balance sheet. In our view, the foundational requirement for reopening an assessment beyond four years had not been fulfilled, as per the proviso to Section 147, which is a condition precedent. Consequently, we are of the opinion that the notice issued for reopening the assessment was contrary to law since it did not meet with the foundational requirement of the proviso to Section 147. Similar view was held by this Court in ACI Oils P. Ltd. Vs. DCIT and Anr., (2014 (11) TMI 187 - ALLAHABAD HIGH COURT), which is fully applicable in the present case. - Decided in favour of assessee.

Issues:
1. Reopening of assessment under Section 147 of the Income Tax Act beyond four years.
2. Fulfillment of jurisdictional conditions for reopening assessment.
3. Interpretation of "reasons to believe" under Section 147 of the Act.
4. Application of proviso to Section 147 in the case.
5. Comparison with relevant case laws.

The judgment deals with the issue of reopening an assessment beyond four years under Section 147 of the Income Tax Act. The original assessment order was passed under Section 143(3) of the Act, following which proceedings under Section 148 were initiated, leading to a subsequent assessment order. The Tribunal allowed the assessee's appeal, stating that the jurisdictional condition for reopening the assessment had not been met, as there was no failure on the part of the assessee to disclose all material facts. The revenue appealed this decision under Section 260-A of the Act, arguing that the Tribunal erred in holding that the foundational requirement of Section 147 was lacking.

The assessment order highlighted certain discrepancies related to the investment in shares made by the assessee using loans raised through debentures and term loans. The Assessing Officer contended that the assessee had not fully disclosed all material facts necessary for the assessment. However, the Court emphasized that the foundational requirement for reopening an assessment beyond four years, as per the proviso to Section 147, had not been fulfilled. The "reasons to believe" recorded did not indicate any failure on the part of the assessee to disclose all material facts, which is crucial for reopening assessments after four years.

The judgment discussed the changes in the scope and effect of Section 147 post its substitution in 1989, emphasizing the importance of fulfilling the conditions precedent for the Assessing Officer to assume jurisdiction under Section 148. While post-1989, only "reasons to believe" is required, both conditions must be met if falling within the proviso to Section 148. In this case, the foundational requirement for reopening beyond four years was not met, rendering the notice for reopening contrary to law. The Court cited a previous case to support its decision, emphasizing the necessity of meeting the foundational requirement.

The Court dismissed the appeal, stating that no substantial question of law arose for consideration. It rejected the appellant's reliance on certain decisions, highlighting that they were not applicable to the present case. The judgment provides a detailed analysis of the interpretation of "reasons to believe" under Section 147, the application of the proviso, and the importance of fulfilling jurisdictional conditions for reopening assessments beyond four years.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved, the court's interpretation of relevant legal provisions, and the application of precedents to arrive at the final decision.

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