2016 (7) TMI 1545 - AT - Income Tax

Reopening of assessment u/s 147 - reopening after four years - recomputed the short-term capital gains on transfer of Bangalore unit under slumps a as per the provisions of section 50B - HELD THAT - A cursory look at the reasons clearly reveal that there was no failure on part of the assessee to disclose truly and fully the material facts necessary for making assessment.Provisio to section 147 clearly mandates that for re-opening the assessment,after four years from the end of the relevant assessment year,there should be failure on part of the assessee to disclose material facts. Reassessment after a period of four years from the end of the relevant assessment year requires failure on part of the assessee. Not only there should be failure,what is important that it should be highlighted that as to how the failure took place. AO has not mentioned the very basic fact that would have given him the right to re-open the completed assessment.Secondly,it is also an admitted fact that the AO had not issued notice u/s.143(2) within the period of six months.Thus,on both the counts,order passed by the AO is invalid. Order of the FAA does not suffer from any legal infirmity.Confirming his order, we decide the effective ground of appeal against the AO.

Summary

Issues:
1. Validity of reassessment proceedings initiated under section 147 of the Income Tax Act.
2. Requirement of failure on the part of the assessee to disclose material facts for reassessment.
3. Compliance with the provisions of section 143(2) of the Act for issuing notice.

Issue 1: Validity of Reassessment Proceedings:
The Assessing Officer (AO) initiated reassessment proceedings under section 147 of the Income Tax Act based on the recomputation of short-term capital gains on the transfer of the Bangalore unit under section 50B of the Act. The AO contended that it was not a mere change of opinion and therefore justified the reassessment. The First Appellate Authority (FAA) held that the reassessment was invalid as there was no fresh material justifying the reopening, and the assessee had disclosed all material facts related to the transfer of the Bangalore unit.

Issue 2: Failure to Disclose Material Facts:
The AO's reasons for reopening the assessment did not mention any failure on the part of the assessee to disclose material facts necessary for the assessment. The Proviso to section 147 mandates that reassessment after four years requires such failure on the part of the assessee. Legal precedents, including the Nirmal Bang Securities case, emphasize the necessity of failure to disclose material facts for reassessment beyond the four-year limit. The AO's failure to establish this failure rendered the reassessment proceedings invalid.

Issue 3: Compliance with Section 143(2) Notice Requirement:
The Authorized Representative argued that the AO did not issue a notice under section 143(2) of the Act within the required six-month period after the filing of the return for reassessment. Citing cases such as Dynacraft Air Controls and Hindustan Lever Ltd., the AR contended that this procedural lapse rendered the reassessment order void ab-initio. The absence of the section 143(2) notice within the stipulated timeframe further weakened the validity of the reassessment proceedings.

In conclusion, the Appellate Tribunal held that the reassessment proceedings were invalid due to the absence of failure on the part of the assessee to disclose material facts and the non-compliance with the notice requirements under section 143(2) of the Act. Relying on legal precedents and the clear legal position requiring such failure for reassessment beyond four years, the Tribunal dismissed the appeal filed by the AO, upholding the FAA's decision.