2010 (1) TMI 29 - HC - Income Tax

Prior period expenditures reassessment proceedings under Sections 147/148 - Rs. 96,534/- disallowed by the Assessing Officer and confirmed by the CIT(A) the reopening was subsequent to the four-year period stipulated in the proviso to Section 147 and, consequently, the same could only be initiated if any income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice under Section 142(1) or Section 148 or to disclose fully and truly all material facts necessary for his assessment , for that assessment year. ITAT deleted the addition - held that - There has been no failure on the part of the assessee to fully and truly disclose the relevant material. Therefore, the reopening of the assessment was beyond the jurisdiction of the Assessing Officer. We note that it was a case of mere change of opinion and that is not permissible for the purposes of invoking jurisdiction under Section 147 of the Act. Decided in favor of assessee

Summary

Issues:
Reopening of assessment under Section 260A of the Income Tax Act, 1961 for the assessment year 1997-98 based on disallowed prior period expenses amounting to Rs75,96,534.

Analysis:
The Tribunal was tasked with determining whether certain prior period expenses disallowed by the Assessing Officer and confirmed by the Commissioner of Income Tax in reassessment proceedings were rightly disallowed. The key issue was whether the assessee failed to disclose fully and truly all material facts regarding the prior period expenses. The reopening of the assessment was challenged on the grounds that the assessee had indeed disclosed all relevant details during the regular assessment under Section 143(3). The Tribunal noted that the Assessing Officer had raised queries and required information from the assessee regarding prior period expenses during the regular assessment proceedings, indicating the application of mind by the Assessing Officer. The Tribunal concluded that there was no failure on the part of the assessee to disclose material facts, rendering the reopening beyond the jurisdiction of the Assessing Officer.

The High Court concurred with the Tribunal's findings, emphasizing that there was no failure on the part of the assessee to fully and truly disclose relevant material. The Court noted that the case was a mere change of opinion, which is impermissible for invoking jurisdiction under Section 147 of the Act. The Court referred to conflicting decisions but highlighted the Full Bench decision that when a regular assessment order is passed under Section 143(3), a presumption can be made that it was done after due application of mind. The Court also cited a Supreme Court judgment emphasizing that Section 147 should not be used for a mere change of opinion, reinforcing the invalidity of the reopening in this case.

Regarding the argument related to Explanation 1 to Section 147, the Court held that the mere production of account books or evidence does not necessarily amount to disclosure within the proviso to Section 147. However, in this case, the Assessing Officer actively sought information and raised queries on the prior period expenses, indicating the assessee's cooperation and the absence of failure to disclose. The Court highlighted that the word "necessarily" in the explanation implies that disclosure through the production of account books may not always be required, and each case must be assessed based on its facts. Ultimately, the High Court dismissed the appeal, concurring with the Tribunal's conclusions based on factual findings and established legal principles, finding no substantial question of law for consideration.