2017 (9) TMI 46 - HC - Income Tax

Initiating proceedings for re-assessment u/s 147 - extended period of limitation invoked - reason to believe - information received from the Investigation Wing - escaped assessment inter-alia for the reason of non disclosure of true and full material facts necessary for assessment Held that - A perusal of the reasons to believe as supplied by the department reveals that though it has been contended that on the information received from the Investigation Wing, New Delhi, the income of the assessee had escaped assessment but it no where states that the assessee had failed to disclose the true and full particulars necessary for the assessment of income tax for the relevant year. In the absence of the averment that the assessee has failed to disclose fully and truly all material facts necessary for the assessment, the proceedings for re-assessment could not have been initiated under Section 147 of the Act in the extended period of limitation. - Decided in favour of assessee.

Summary

Issues:
1. Validity of re-assessment proceedings under Section 147 of the Income Tax Act, 1961 based on the initiation by the assessing officer.
2. Interpretation of the first proviso to Section 147 regarding conditions for initiating re-assessment proceedings.
3. Assessment of whether the income of the assessee escaped assessment due to non-disclosure of material facts necessary for assessment.

Analysis:
1. The High Court reviewed the appeal against the Income Tax Appellate Tribunal's order deeming the re-assessment proceedings initiated under Section 147 of the Income Tax Act, 1961 as illegal. The proceedings were initiated against the respondent-assessee for the assessment year 2005-06. The key contention was whether the assessing officer had valid reasons to believe that income had escaped assessment due to the assessee's failure to disclose material facts necessary for assessment.

2. The Court analyzed the provisions of Section 147 of the Act and the first proviso, which outlines the conditions for initiating re-assessment proceedings. The first proviso mandates that re-assessment can be initiated if income has escaped assessment due to the assessee's failure to make a return under specified sections or disclose material facts necessary for assessment. The Court emphasized the necessity for the authorities to be satisfied that income escaped assessment due to non-disclosure of material facts.

3. The Court scrutinized the reasons recorded by the assessing officer for initiating re-assessment. It was observed that while there were contentions based on information from the Investigation Wing, there was no explicit mention of the assessee's failure to disclose true and full particulars necessary for assessment. The Tribunal found that the assessing officer did not satisfy the condition of recording that income escaped assessment due to non-disclosure of material facts by the assessee.

4. The appellant's argument regarding a transaction in the books of accounts was considered, but the Court noted that it was based on inference without specific allegations in the reasons to believe provided to the assessee. As the mandatory condition of failure to disclose material facts necessary for assessment was not met, the Court upheld the Tribunal's decision that the re-assessment proceedings were illegal.

5. Ultimately, the Court ruled in favor of the assessee, holding that without averments of the assessee's failure to disclose material facts, the re-assessment proceedings could not be validly initiated under Section 147 of the Act within the extended period of limitation. Consequently, the appeal against the Tribunal's decision was dismissed.