2019 (1) TMI 659 - HC - Income Tax

Reopening of assessment - Reasons to believe - CIT(A) found that the disclosure was a full and true disclosure by the assessee and quashed the reassessment order - ITAT confirmed the order of CIT(A) - Held that - It is now well settled that the reasons which are recorded by the A.O. for reopening the assessment are the only reasons which can be considered. No substitution or deletion is permissible. No addition can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. This being the position in law, and admittedly there being no allegation in the reasons that there was any failure on the part of the assessee to disclose fully and truly any material fact, we find that the Tribunal was not incorrect in upholding the order of the CIT(A) and dismissing the appeal filed by the revenue. We find that the CIT(A) as well as ITAT have examined the factual aspects of the matter and thereafter come to the conclusion that in fact there has been no failure on the part of the assessee to disclose fully and truly all material facts as contemplated under the first proviso to Section 147. These findings, being purely factual in nature, and nothing being brought to our notice that these findings are in any way perverse, we do not think that the questions of law as proposed by Mr. Suresh Kumar give rise to any substantial question of law requiring our consideration in an appeal under Section 260A.

Summary

Issues Involved:
1. Validity of reassessment notice under Section 147 of the Income Tax Act, 1961.
2. Alleged failure of the assessee to disclose fully and correctly all material facts necessary for assessment.

Detailed Analysis:

Issue 1: Validity of Reassessment Notice under Section 147 of the Income Tax Act, 1961
The appeal challenges the order of the ITAT, which upheld the decision of the CIT(A) to set aside the reassessment notice issued by the Assessing Officer (A.O.) under Section 147 of the Income Tax Act, 1961. The A.O. had issued a notice under Section 148 on 25th February 2010, contending that the assessee had claimed excessive deductions on Short Term Capital Gains, which were neither exempted under Section 11(1A) nor eligible for accumulation under Sections 11(1)(a) or 11(2).

The court noted that the original assessment was completed on 13th February 2006 under Section 143(3), and the reassessment notice was issued after four years from the end of the relevant assessment year (A.Y. 2003-04). According to the first proviso to Section 147, no action for reassessment can be taken after four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court emphasized that the reasons recorded by the A.O. for reopening the assessment did not allege any such failure by the assessee.

Issue 2: Alleged Failure of the Assessee to Disclose Fully and Correctly All Material Facts
The A.O. argued that the assessee did not disclose fully and correctly the computation of income, specifically regarding the Short Term Capital Gains. However, the CIT(A) found that the assessee had disclosed all relevant facts in the note attached to the return of income and in the audited balance sheet. The ITAT confirmed this finding, noting that there was no failure on the part of the assessee to disclose material facts.

The court cited the decision in the case of City and Industrial Development Corporation of Maharashtra Ltd. vs. Assistant Commissioner of Income Tax, which held that the reasons recorded by the A.O. for reopening an assessment are the only reasons that can be considered, and no additions or substitutions are permissible. The court found that the reasons recorded by the A.O. did not allege any failure on the part of the assessee to disclose material facts, and thus, the reassessment notice was invalid.

Conclusion:
The court dismissed the appeal, agreeing with the findings of the CIT(A) and ITAT that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The reassessment notice issued under Section 147 was set aside as it did not meet the conditions specified in the first proviso to Section 147. The court concluded that the questions of law proposed did not give rise to any substantial question of law requiring consideration under Section 260A of the Income Tax Act, 1961. The appeal was dismissed without any order as to costs.