2016 (11) TMI 891 - HC - Income Tax

Validity of 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 - Decided in favour of the assessee

Summary

Issues:
1. Validity of reassessment order under Section 260-A of the Income Tax Act, 1961.
2. Failure to disclose fully and truly all material facts by the assessee for reassessment jurisdiction under Section 147 and Section 148.

Analysis:

Issue 1:
The appeal before the Allahabad High Court was concerning the validity of a reassessment order under Section 260-A of the Income Tax Act, 1961 for the assessment year 1996-97. The questions of law raised were whether the ITAT was correct in setting aside the order of the CIT (A) by holding the reassessment as invalid and whether there was a failure on the part of the assessee to disclose all material facts for the assessing officer to assume jurisdiction for framing reassessment.

The Tribunal found in favor of the assessee, stating that there was no satisfaction recorded by the assessing authority regarding any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal concluded that the conditions of the proviso to Section 147 and the provisions of Section 148 were not satisfied, thus invalidating the reassessment proceedings.

Issue 2:
The High Court referred to a decision in the case of C.I.T. vs. Jubilant Organosys, emphasizing the importance of the conditions under Section 147 and 148 of the Act. It was highlighted that after 01.04.1989, only the condition of "reasons to believe" was required for initiating reassessment, but both conditions needed to be fulfilled if falling under the proviso to Section 148. The Court noted that the reasons recorded for reopening the assessment did not indicate failure on the part of the assessee to fully and truly disclose all material facts, which is a prerequisite for reassessment after four years. The Court held that the notice for reopening the assessment did not meet the foundational requirement of the proviso to Section 147, rendering it contrary to the law.

In light of the above analysis and the precedent set by the Court, the High Court upheld the order passed by the Tribunal, ruling in favor of the assessee and against the department. The appeal was dismissed with no costs incurred.