2017 (12) TMI 673 - HC - Income Tax

Reopening of assessment - claim of bad debts - Held that - When the proceedings in respect of M/s. Kala Mines was decided in appeal and the issue of bad debts was resolved, the Respondent came to know about the income that has escaped assessment and the Petitioner ought to have placed these orders on record. We are not inclined to agree with these submissions. What the proviso to Section 147 postulates is material which was necessary for assessment, which the Assessee failed to fully and truly disclose. There is no clear statement in the reasons as to which material the Petitioner failed to disclose. On the Department s own showing in view of subsequent events that is the appeal of M/s. Kala Mines being allowed, that the reopening of the assessment was necessary. Even in the order, there is no reference to the argument of the Petitioner that he had not failed to disclose fully and truly all material facts. It is not enough that in the reasons supplied there is one line to the effect that due to failure on the part of the assessee to disclose fully and truthfully all material facts necessary for his assessment for the relevant Assessment Year, AY 2010-11 . This is just copying and incorporating the language of the section to assume jurisdiction. Such mere lip service is not enough. The jurisdictional requirement in the present case, namely, the failure of the assessee to fully and truly disclose all material facts, is not established. Furthermore, there are no particulars in the reasons supplied to the Petitioner which alone could be the foundation of the order passed under Section 148 of the Act. - Decided in favour of assessee.

Summary

Issues:
Challenge to order reopening assessment under Section 147 of the Income Tax Act, 1961.

Analysis:
The petition challenged the order reopening the assessment for the Assessment Year 2010-11, passed by the Income Tax Officer. The petitioner, an individual, declared income and showed a capital receipt. The notice seeking to reopen the assessment was issued beyond the four-year period specified in Section 147, triggering the proviso. The key issue was whether the assessee failed to disclose all material facts necessary for assessment, as required for reopening assessments after the prescribed period.

The court examined Section 147 of the Income Tax Act, which deals with Income Escaping Assessment. The proviso to Section 147 specifies that assessments cannot be reopened after four years unless the assessee failed to disclose all material facts. The court emphasized that the jurisdictional requirements under Section 147 must be met for reassessment proceedings to be valid. The assessee can challenge the initiation of reassessment if these requirements are not fulfilled. The Assessing Officer must provide reasons for reopening assessments, and these reasons cannot be altered later.

The court analyzed the reasons provided by the Respondent Officer for reopening the assessment. The reasons cited the failure of the assessee to disclose fully and truly all material facts necessary for assessment. However, the court found that the reasons lacked specific details about the material facts not disclosed. The court noted that subsequent events leading to the reopening did not necessarily indicate a failure to disclose. The court emphasized that the mere inclusion of statutory language in the reasons was insufficient to establish jurisdiction.

Ultimately, the court held that the jurisdictional requirement of the assessee failing to disclose all material facts was not established. As a result, the court ruled in favor of the petitioner, quashing the notice issued under Section 148 of the Act. The court affirmed the petitioner's right to challenge the reopening of assessments under Article 226 of the Constitution of India if the tax authorities exceed their jurisdiction. The judgment highlighted the importance of fulfilling jurisdictional requirements for valid reassessment proceedings.