2017 (11) TMI 577 - HC - Income Tax

Reopening of assessment - exixtence of valid reasons to believe - Held that - Unless and untill the respondent was able to establish that such claim for direction is the reason of the failure on the part of the assessee to truly and fully disclose material facts, the question of reopening the assessment would not arise. Both in the counter affidavit as well as in the reasons of reopening dated 07.06.2004 there is no allegation that the petitioner has failed to truly and fully disclose material facts necessary for the assessment. The impugned reopening of the assessment is unsustainable in law and it is a clear case of change of opinion as the respondent has miserably failed to point out as to what is the reason to believe that any income chargeable to tax has escaped assessment. Thus it is a case where on suspicion the impugned reopening proceedings have been initiated. At the relevant point of time, the decision of the Hon ble Division Bench Supreme Court in case of GKN DRIVE SHAFTES (2002 (11) TMI 7 - SUPREME Court ) was not rendered by the Hon ble Supreme Court and therefore, the petitioner did not seek for furnishing the reason for reopening which resulted in passing of the impugned assessment order. It is only thereafter, the petitioner sought for the reasons and the present writ petition has been filed. Accordingly, the writ petition is allowed and the notice issued for reopening the assessment and consequent assessment order dated 30.03.2004 are quashed. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice issued under Section 147 read with 143(3) of the Income-tax Act, 1961 for re-assessing income for the assessment year 1996-97 based on three grounds.

Analysis:

Ground 1: Barred by Limitation
- Petitioner challenges notice issued after four years from completion of assessment, alleging no failure to disclose primary facts.
- Asserts impugned notice barred by limitation.

Ground 2: Furnishing Necessary Information
- Petitioner provided all required information during original assessment, questioning jurisdiction of reopening assessment after four years.
- Contends assessing officer had necessary data during original assessment, making reopening without jurisdiction.

Ground 3: Escapement of Income
- Argues mere escapement of income insufficient for action under Section 147 after four years without failure to disclose material facts.
- Claims impugned proceedings lack tangible material post original assessment, suggesting change of opinion.

Counter Affidavit and Material Facts
- Respondent justifies reopening due to unadjusted loss from one unit while claiming deductions from other units.
- Court notes petitioner disclosed loss for assessment year 1996-97, which was considered in original assessment.
- Emphasizes need for failure to disclose material facts for reopening assessment beyond four years, as per legal preconditions.

Legal Precedent and Proviso Interpretation
- Cites Fenner (India) Ltd. case regarding conditions for invoking extended period of limitation for reopening assessments.
- Highlights requirement for assessing officer to reasonably believe in income escapement due to assessee's failure to disclose material facts.
- Stresses that notice beyond four years must include reasons for belief in income escapement and failure to disclose facts.

Judgment and Conclusion
- Court finds impugned reopening unsustainable, deeming it a change of opinion without valid reason for income escapement.
- Notes absence of allegation against petitioner for failure to disclose material facts, leading to quashing of notice and assessment order.
- Decision based on legal principles and lack of justification for reopening assessment, allowing petitioner's success in the writ petition.
- Orders notice for reopening assessment and consequent assessment order to be quashed, closing connected Miscellaneous Petition without costs.