2015 (11) TMI 931 - HC - Income Tax

Reopening of assessment - undisclosed share transaction - Held that - A perusal of the first proviso indicates that the reasons to believe also indicate that there was failure on the part of the assessee to make a return under Section 139 of the Act or in response to a notice under sub-section (1) of Section 142 or Section 148 of the Act has failed to disclose fully and truly all material facts necessary for his assessment. The foundational requirement for initiating reassessment proceedings after four years is, that the assessee had failed to disclose fully and truly all material facts. In the instant case, the reasons recorded is that the petitioner had purchased shares amounting to ₹ 54,22,500/- and the same was sold in the same year for ₹ 39,48,500/- and, therefore, incurred a loss of ₹ 14,74,000/- which has escaped assessment. From this, it is apparently clear that the assessee had disclosed all material facts. There is nothing to indicate failure on the part of the petitioner disclosing fully and truly all material facts. In the absence of this foundational requirement, the initiation of proceedings was patently erroneous and cannot be sustained. The notice is, accordingly, quashed - Decided against revenue

Summary

Issues:
1. Alternative remedy available to the petitioner before filing the writ petition.
2. Validity of reassessment proceedings initiated by the Assessing Officer.
3. Application of the first proviso to Section 147 regarding the time limit for reassessment.

Analysis:

1. The High Court addressed the preliminary objection raised regarding the availability of an alternative remedy before filing the writ petition. While acknowledging the Supreme Court decision in GKN Driveshafts (India) Ltd. Vs. Income Tax Officer, the High Court found that in this particular case, directing the petitioner to pursue an alternative remedy at a belated stage would result in a travesty of justice. The court noted that the writ petition was filed in 2003 and admitted in 2008, with affidavits exchanged. Consequently, the court rejected the preliminary objection and decided to proceed with the matter on its merits rather than sending it back to the authority for an alternative remedy.

2. The case involved reassessment proceedings for the assessment year 1995-96 initiated by the Assessing Officer based on the petitioner's claimed loss in the sale of shares. The Assessing Officer made additions to the loss indicated by the petitioner, leading to an appeal by the petitioner. The Commissioner of Income Tax (Appeals) allowed the appeal, stating that the reasons recorded by the Assessing Officer were not honest, rendering the assessment invalid. The Commissioner directed the Assessing Officer to take action afresh by recording proper reasons. Subsequent appeals to the Tribunal and the High Court affirmed the first appellate authority's decision.

3. The Assessing Officer recorded fresh reasons under Section 148 of the Income Tax Act for initiating reassessment proceedings a second time after obtaining necessary permission. The fresh reasons indicated that income had escaped assessment due to the petitioner's sale and purchase of shares, resulting in a loss. The High Court analyzed the application of the first proviso to Section 147, which imposes a time limit of four years for reassessment unless there is a failure on the part of the assessee to disclose fully and truly all material facts. The court found that in this case, the petitioner had disclosed all material facts, and there was no indication of failure to disclose necessary information. Consequently, the court quashed the reassessment proceedings initiated after four years, as it lacked the foundational requirement for reassessment.

In conclusion, the High Court allowed the writ petition, quashing the reassessment proceedings initiated by the Assessing Officer for the second time after four years, as the petitioner had disclosed all material facts, and there was no failure on their part to provide necessary information.