2019 (2) TMI 529 - HC - Income Tax

Reopening of assessment - Failure of the Assessee to disclose fully and truly all material facts - Held that - The requirement flowing from the first proviso to Section 147 of the Act, that income chargeable to tax has escaped Assessment due to failure of the Assessee to disclose fully and truly all material facts, therefore, would have to be satisfied. In the present case, the reasons recorded by AO would clearly establish that, these requirement is not satisfied. In the reasons itself, AO has referred to perusal of the case recorded for the Assessment Year in question from which, he could see that certain error in the assessment has crept in. He refers to the similar additions made in the assessment for the Assessment Year 2012-13 which were confirmed by the CIT (Appeals). In the absence of the failure of the Assessee to disclose fully and truly all material facts, the impugned notice issued beyond a period of four years of the relevant Assessment Year, cannot be sustained. AO has not referred to any material outside of the Assessment records to form the belief that, income chargeable to tax has escaped assessment. In fact, he proceeds essentially on the basis of the case records. Under the circumstances, impugned notice is set aside.

Summary

Issues:
Challenge to notice of reopening of Assessment for the Assessment Year 2011-12 based on Section 147 of the Income Tax Act.

Analysis:
The petitioner, a company registered under the Companies Act, challenged a notice of reopening of an Assessment dated 26th March, 2018, for the Assessment Year 2011-12. The Assessing Officer had passed an order of Assessing under Section 143(3) of the Act on 28th March, 2018. The reasons for reopening the assessment included discrepancies in the book profit of the assessee under the MAT provisions of section 115JB for the financial year 2010-11. The Assessing Officer believed that the book profit had escaped assessment under Section 147, seeking approval from the Pr. Commissioner of Income Tax. The petitioner raised objections to the notice for reopening, which were rejected by the Assessing Officer, leading to the filing of the Petition.

Upon hearing the arguments from both parties and examining the documents, it was found that the impugned notice had been issued beyond the four-year period from the end of the relevant Assessment Year. The first proviso to Section 147 of the Act requires that income chargeable to tax must have escaped assessment due to the failure of the Assessee to disclose all material facts. However, in this case, the reasons recorded by the Assessing Officer did not satisfy this requirement. The Assessing Officer had only referred to errors in the assessment and similar additions made in the assessment for the following year, without demonstrating any failure on the part of the Assessee to disclose material facts.

As there was no failure on the part of the Assessee to disclose all material facts, and the impugned notice was issued beyond the prescribed time limit, it was determined that the notice could not be sustained. The Assessing Officer had not cited any external material to support the belief that income chargeable to tax had escaped assessment, solely relying on the case records. Consequently, the impugned notice was set aside, and the Petition was disposed of.