2019 (10) TMI 295 - AT - Income Tax

Reopening of assessment u/s 147 - AO issued a notice u/sec. 142(1) calling for explanation and submission of relevant information on various issues including development/sinking fund - HELD THAT - It cannot be said that the assessee has failed to disclose all the material facts fully and truly to complete the assessment. Notice u/sec. 148 is issued after 04 years of the relevant assessment and as per proviso to section 147, to reopen the assessment on the ground of escapement of income, the AO has to establish that the assessee has failed to disclose the fully and truly of the material facts to complete the assessment. In the present case, the assessee has disclosed all the facts in respect to the notice issued by the Assessing Officer u/sec. 142(1) dated 16/12/2010. By considering the above proviso to section 147 and also by considering the facts of the case we find that the assessee has disclosed all the material facts truly and fully before passing the assessment order u/sec. 143(3) and the Assessing Officer by considering the same, assessment was completed on 31/12/2010. Thus, the notice issued u/sec. 148 dated 19/03/2015 is invalid and subsequent order passed u/sec. 143(3) r.w.s. 148, dated 11/03/2016 is bad in law. Therefore, we quash the assessment order passed u/sec. 143(3) r.w.s. 148 dated 11/03/2016 and partly allow the appeal of the assessee.

Issues Involved:
1. Validity of reopening the assessment under Section 148 after four years.
2. Disclosure of material facts by the assessee.
3. Validity of the addition of ?19,27,95,540/- towards sinking funds.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148 after Four Years:
The primary issue revolves around whether the reopening of the assessment under Section 148 after four years is valid. The assessee argued that the reopening was invalid as it was initiated beyond the four-year limit stipulated by the proviso to Section 147. The proviso mandates that no action 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 Tribunal observed that the original assessment was completed under Section 143(3) on 31/12/2010, and the notice for reopening was issued on 19/03/2015, which is beyond the four-year period.

2. Disclosure of Material Facts by the Assessee:
The Tribunal examined whether the assessee had disclosed all material facts fully and truly during the original assessment proceedings. The assessee had provided detailed replies and relevant information in response to the notice issued under Section 142(1) dated 16/12/2010. The Assessing Officer had specifically asked about the sinking funds of ?19,27,95,540/- debited to the profit and loss account, and the assessee had furnished all the necessary details. The Tribunal noted that the Assessing Officer had completed the assessment after examining these details, indicating that the assessee had disclosed all material facts necessary for the assessment.

3. Validity of the Addition of ?19,27,95,540/- towards Sinking Funds:
The Tribunal scrutinized the addition of ?19,27,95,540/- towards sinking funds, which was a significant point of contention. During the original assessment, the Assessing Officer had issued a notice under Section 142(1) questioning the sinking funds, and the assessee had provided a detailed explanation. The Tribunal found that the Assessing Officer had considered this explanation and completed the assessment without making any addition on this account. The reopening was based on an internal audit objection without any new evidence or information, which the Tribunal deemed as a mere change of opinion. The Tribunal emphasized that for reopening an assessment after four years, there must be a failure on the part of the assessee to disclose material facts, which was not the case here.

Conclusion:
The Tribunal concluded that the reopening of the assessment under Section 148 was invalid as it was initiated beyond the permissible period of four years without establishing any failure on the part of the assessee to disclose material facts. Consequently, the subsequent order passed under Section 143(3) read with Section 148 was deemed bad in law. The appeal filed by the assessee was partly allowed, and the assessment order dated 11/03/2016 was quashed.

Final Judgment:
The appeal filed by the assessee is partly allowed, and the assessment order passed under Section 143(3) read with Section 148 dated 11/03/2016 is quashed. The Tribunal pronounced this order in open court on 04th October 2019.

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