2018 (2) TMI 1712 - HC - Income Tax

Reopening of assessment - Carry forward loss under Section 79 denied - reopening beyond the period of four years - non independent application of mind by A0 - Held that - The reasons in support of the impugned notice itself records the fact that the issue of shareholding pattern of the company was discussed by the Assessing Officer in his Assessment order passed in the regular assessment proceedings. The only basis of reopening is that the Assessing Officer in the regular assessment did not apply provisions of Section 79 of the Act, to determine the taxable income. This non-application of mind by the AO while carrying out assessment cannot lead to the conclusion that there has been any failure on the part of the Assessee to truly and fully disclose all material facts necessary for Assessment. The impugned order of the Tribunal correctly placed reliance upon the decision of the Supreme Court in Calcutta Discount Company Ltd (1960 (11) TMI 8 - SUPREME Court) to hold that not pointing out the inference to be drawn from facts will not amount to failure to disclose truly and fully all material facts, necessary for assessment. - Decided in favour of assessee.

Summary

Issues:
Challenge to order passed by the Income Tax Appellate Tribunal regarding the carry forward of business losses under Section 79 of the Income Tax Act, 1961.

Analysis:
The appeal challenges the Tribunal's order regarding the true and full disclosure of material facts necessary for assessment when business loss not eligible for carry forward under Section 79 of the Act. The Respondent-Company, incorporated in 1996, underwent a change in shareholding with the German Partner increasing its shareholding to 80%. The Assessment Order for the year under consideration allowed the carried forward loss under Section 79. However, a notice was issued to reopen the assessment, citing non-application of Section 79 in the regular assessment proceedings. The Assessing Officer disallowed the carry forward of losses under Section 79 in the subsequent order. The Commissioner of Income Tax (Appeals) allowed the appeal, stating that all facts, including the change in shareholding, were disclosed during regular assessment, and the reopening notice was beyond the prescribed period. The Tribunal upheld this decision, emphasizing that the Assessee's obligation is to disclose all primary facts truly and fully, not to inform the Assessing Officer of the legal inferences to be drawn. The Tribunal correctly relied on the Supreme Court's decision in Calcutta Discount Company Ltd. to support its conclusion.

The Revenue contended that the Assessee should have drawn the Assessing Officer's attention to Section 79 during the regular assessment. However, the Tribunal found that the regular Assessment Order was passed under Section 143(3) for the relevant year, and the reopening notice was issued beyond the prescribed period. The Tribunal held that the failure to apply Section 79 in the regular assessment does not amount to a failure to disclose all material facts necessary for assessment. The Tribunal's decision was based on the principle that the Assessee is not obligated to point out legal inferences from disclosed facts. Consequently, the question raised did not present a substantial question of law and was not entertained. Therefore, the appeal was dismissed with no order as to costs.