2019 (1) TMI 122 - HC - Income Tax

Validity of reopening of assessment - re assessment beyond the period of four years from the end of relevant assessment year - Held that - Where the AO exercises power of re assessment beyond the period of four years from the end of relevant assessment year, an essential requirement is that the escapement of income chargeable to tax is due to the failure on the part of the assessee to disclose truly and fully all material facts. This is part of Section 147 of the Act itself and is on number of occasions by various judgments of High Court and Supreme Court held to be mandatory pre- requirement. In view of such settled law, it is not necessary to refer to any judgment. Revenue is unable to bring to our notice any aspect or element which did not form part of the record and on the basis of which from the reasons recorded, it can be culled out that the Assessing Officer had formed a belief that income chargeable to tax had escaped assessment. In clear terms therefore, there was no failure on the part of the assessee to disclose truly and fully all material facts. Revenue however submitted that one of the issues raised by the Assessing Officer is that the activity carried on by the assessee does not amount to manufacturing activity. In the present petition, it is not necessary for us to comment on this aspect of the matter. What is important however is such belief also the Assessing Officer has formed on the basis of material already on record. Looked from any angle, the AO cannot justify issuing the notice of re opening of assessment beyond the period of four years from the end of relevant assessment year.

Summary

Issues Involved:
1. Validity of reopening the assessment beyond the four-year period.
2. Alleged failure by the assessee to disclose fully and truly all material facts.
3. Specific grounds for reassessment cited by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Validity of reopening the assessment beyond the four-year period:
The petitioner challenged the notice of reopening of assessment dated 24th September 2018, which was issued beyond the four-year period from the assessment year 2011-12. The court noted that for the Assessing Officer to exercise the power of reassessment beyond this period, there must be a failure on the part of the assessee to disclose truly and fully all material facts necessary for the assessment. This requirement is embedded in Section 147 of the Income Tax Act and is considered mandatory by various judgments of the High Court and Supreme Court.

2. Alleged failure by the assessee to disclose fully and truly all material facts:
The Assessing Officer's reasons for reopening the assessment were scrutinized. It was observed that the reasons recorded referred extensively to the information and material already present in the record of the assessment year in question. The court emphasized that the reasons for reassessment began with the phrase "On perusal of the record for the assessment year 2011-12, the following issues were found," indicating reliance solely on existing records. The court concluded that there was no new material or information outside the record that the Assessing Officer had used to justify the reopening. Consequently, there was no failure on the part of the assessee to disclose all material facts fully and truly.

3. Specific grounds for reassessment cited by the Assessing Officer:
The Assessing Officer cited several grounds for reassessment, including:
- Ineligibility of deductions claimed under Sections 80IB and 80IC for certain units due to the nature of manufacturing activities.
- Disallowance of capital advance written off.
- Incorrect set-off of Long Term Capital Gain (LTCG) against brought forward long-term capital loss.
- Excess deduction allowed due to incorrect reallocation of rent and storage charges.
- Incorrect reduction of ?42.75 crore from net profit.
- Incorrect allowance of provision for impairment of a trademark.

The court found that all these grounds were derived from the existing records of the assessment year 2011-12. The Assessing Officer's belief that income had escaped assessment was based on the scrutiny and verification of these records, not on any new information. The court highlighted that the Assessing Officer had acted on the information available from the record of the assessment, which did not satisfy the condition of failure to disclose material facts by the assessee.

Conclusion:
The court quashed the impugned notice for reopening the assessment, stating that the Assessing Officer could not justify issuing the notice beyond the four-year period from the end of the relevant assessment year. The petition was allowed and disposed of accordingly.