2016 (9) TMI 208 - HC - Income Tax

Reopening of assessment - Held that - The respondents cannot shy away from the fact that there was a full and true disclosure of all material facts necessary for assessment. This case will not fall under the category of mere production of books of accounts and other records. This case very clearly falls under the category of true and full disclosure, upon which the first assessment order was passed on the opinion that the lands sold were agricultural lands. Therefore, to say after 4 years that the lands were sold to a Real Estate Company for the purpose of forming a Special Economic Zone, would undoubtedly tantamount to a change of opinion, which is not permitted by law.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for the year 2008-2009; Preliminary objection on availability of alternative remedy; Reopening of assessment after 4 years; Failure to disclose fully and truly all material facts necessary for assessment; Interpretation of Explanation 1 to Section 147 regarding disclosure requirements; Distinction between production of materials and true/full disclosure; Assessment order based on disclosure during initial assessment proceedings.

Analysis:
The petitioner challenged a notice under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the year 2008-2009. The notice lacked reasons for reopening, leading to objections by the petitioner. The Assessing Officer claimed the profit on land sale was taxable due to it being sold for a Special Economic Zone, contrary to the initial claim of it being agricultural land. The petitioner's objections were rejected, leading to a writ petition challenging the reopening of assessment (para 3-7).

A preliminary objection was raised on the availability of alternative remedies based on Supreme Court decisions. However, the court held that the case could not be dismissed on this ground as the reopening was challenged for being without jurisdiction and defying statutory prescriptions (para 10-11).

Regarding the merits, the assessment was reopened after 4 years, exceeding the statutory limit without falling under failure to file returns or disclose facts. The Assessing Officer attempted to fit the case under the failure to disclose fully and truly all material facts category (para 12-13).

The court emphasized the distinction between production and disclosure of materials for assessment, as outlined in Explanation 1 to Section 147. Mere production of evidence does not suffice; true and full disclosure is required to prevent arbitrary reopening of assessments (para 14-16).

The petitioner had made a detailed disclosure during initial assessment proceedings, including specific details on land sale being exempt as agricultural. The initial assessment order also reflected these details, indicating a thorough examination by the Assessing Officer. Therefore, reopening the assessment after 4 years based on a different interpretation would amount to a change of opinion, not permitted by law (para 24-27).

Ultimately, the court allowed the writ petition, setting aside the impugned proceedings due to the full and true disclosure made during the initial assessment, rendering the reopening invalid (para 28-29).