2014 (10) TMI 1061 - HC - Income Tax

Reopening of assessment u/s 147 - notice beyond four years from the end of the relevant assessment year - jurisdiction to the AO to issue reopening notice viz. failure on the part of the petitioner to truly and fully disclose all material facts necessary for assessment - HELD THAT - We are unable to understand/accept the submission made on behalf of the Revenue that Schedule 21 Notes to Annual Accounts were written in small print and hidden away in the Balance sheet resulting in the AO omitting to notice during the regular assessment proceedings. The reasons in support of the impugned notice which have been issued long after the completion of the regular assessment proceedings on 21 March 2002 rely upon the same Notes to Annual Accounts to issue impugned notice for reopening of the assessment. The submission of the Revenue based on Explanation 1 to Section 147 that the Notes to Annual Accounts could only have been discovered by the AO with due diligence and therefore would not amount to a disclosure within the meaning of the first proviso to Section 147 is not acceptable. This for the reasons Explanation 1 to Section 147 of the Act does not refer to the Balancesheet and Profit Loss Account which is necessarily to be submitted alongwith the return of income otherwise the return of income is itself regarded as defective u/s 139 of the Act. Thus Explanation 1 to Section 147 of the Act would have no application to the present facts. While allowing the petition on the above grounds we must make it clear that we do not accept the submissions of the petitioner that the reasons in support of the impugned notice is devoid of particulars and therefore bad in law. The reasons do indicate why according to the AO there has been escapement of income. The impugned notice as well as the order rejecting the petitioner s objection to the impugned notice are quashed and set aside.

Summary

Issues:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening an assessment for the assessment year 1999-2000.
2. Challenge against the order rejecting the petitioner's objection to the reasons in support of the notice.

Analysis:

Issue 1:
The petitioner challenged a notice issued under Section 148 of the Income Tax Act, 1961 to reopen an assessment for the year 1999-2000. The petitioner contended that all material facts were fully disclosed during the regular assessment proceedings, as evidenced by Schedule 21 of the Notes to Annual Accounts in the Balance-sheet filed with the return of income. The Assessing Officer's reasons for reopening the assessment were based on the information disclosed by the petitioner in its Balance-sheet. The petitioner argued that there was no failure to disclose all material facts necessary for assessment. The court noted that for reopening an assessment beyond four years, there must be a failure to disclose fully and truly all material facts. The court found that the petitioner had provided sufficient information in the Balance-sheet, which was part of the return of income, and the reasons for reopening relied on the same information. The court rejected the revenue's argument that the information was hidden in the Balance-sheet and not noticed by the Assessing Officer, as the Notes to Annual Accounts were integral to the Balance-sheet.

Issue 2:
The petitioner objected to the notice, arguing that it was issued beyond the prescribed period and without jurisdiction due to the absence of any failure to disclose material facts. The Assessing Officer rejected the objection, stating that the information disclosed was not true and full. The court held that the reasons for reopening the assessment did indicate a prima facie conclusion of income escapement, but the petitioner had indeed disclosed all necessary material facts. The court quashed the notice and the order rejecting the objection, emphasizing that the reasons for the notice were not devoid of particulars and did provide a basis for the Assessing Officer's belief of income escapement.

In conclusion, the court allowed the petition, quashing the notice and the order rejecting the objection, as the petitioner had fully and truly disclosed all material facts necessary for assessment, as required by law.