2020 (2) TMI 737 - HC - Income Tax

Reopening of assessment u/s 147 - Defective notice - no whispering in the recorded reason that there was any omission or failure on the part of the assessee in disclosing fully and truly material facts - HELD THAT - The impugned notices under Section 148 and the proceedings under Section 147 are not sustainable in law and should be quashed for the reason that admittedly impugned proceeding initiated under Section 147 and notices issued under Section 148 which were issued after the expiry of four years from the end of the relevant assessment year and in view of the fact that there is no whispering in the recorded reason that there was any omission or failure on the part of the assessee in disclosing fully and truly material facts for assessment and in view of the fact that the Assessing Officer could not establish that the information of alleged escaped income was not within his knowledge and was not considered at the time of passing of the assessment order under Section 143 (3) and it came to his knowledge subsequent to the assessment order passed under Section 143 (3) of the Income Tax Act, 1961 and that subsequent decision of the Hon ble Supreme Court reversing the legal position prevailing at the time of regular assessment cannot be called an omission or failure on the part of the assessee in disclosing fully and truly the material facts necessary for relevant assessment. Writ Petition is allowed and the impugned proceeding under Section 147 and notices dated March 26, 2014 under Section 148 of the Income Tax Act, 1961 are quashed.- Decided in favour of assessee.

Issues Involved:
1. Legality of the impugned reassessment proceeding under Section 147.
2. Validity of notices under Section 148 issued after the expiry of four years from the end of the relevant assessment year.
3. Requirement of specific allegations by the Assessing Officer regarding the failure of the assessee to disclose fully and truly any material fact necessary for assessment.

Issue-wise Detailed Analysis:

1. Legality of the Impugned Reassessment Proceeding under Section 147:
The petitioner challenged the initiation of reassessment proceedings under Section 147 of the Income Tax Act, 1961, arguing that the reassessment was based on a subsequent Supreme Court decision that reversed the legal position existing at the time of the original assessment under Section 143(3). The petitioner contended that there was no specific allegation by the Assessing Officer regarding the failure to disclose fully and truly any material fact necessary for assessment. The court found that the reassessment proceedings were initiated based on the Supreme Court's decision in the case of M/s Bangalore Club vs. Commissioner of Income Tax & Anr., which held that income earned by way of interest from corporate members of a club is taxable and does not come under the ambit of the mutuality principle.

2. Validity of Notices under Section 148 Issued After the Expiry of Four Years:
The notices under Section 148 were issued after the expiry of four years from the end of the relevant assessment years 2007-08 and 2008-09. The court noted that the income in question had already been considered and allowed as exempt by the Assessing Officer during the original assessment under Section 143(3). The court emphasized that the recorded reasons did not indicate any omission or failure on the part of the assessee to disclose material facts necessary for assessment. The court referred to the legal requirement that for reopening an assessment after four years, there must be an allegation of failure to disclose fully and truly all material facts necessary for assessment, which was absent in this case.

3. Requirement of Specific Allegations by the Assessing Officer:
The court highlighted that the recorded reasons did not contain any specific statement by the Assessing Officer alleging that there was any omission or failure on the part of the assessee to disclose fully and truly the material facts necessary for assessment under Section 143(3). The court referred to various judicial precedents, including the judgments in Tantia Construction Co. Ltd. vs. Deputy Commissioner of Income Tax and Titanor Components Ltd. vs. Assistant Commissioner of Income Tax, which held that the absence of such an allegation renders the reassessment proceedings without jurisdiction. The court also cited the Supreme Court's decision in Deputy Commissioner of Income Tax vs. Simplex Concrete Piles (India) Ltd., which stated that a subsequent reversal of the legal position by the Supreme Court does not authorize the Department to reopen an assessment that was closed based on the law as it stood at the relevant time.

Conclusion:
The court concluded that the impugned notices under Section 148 and the reassessment proceedings under Section 147 were not sustainable in law. The court quashed the reassessment proceedings and the notices dated March 26, 2014, under Section 148 of the Income Tax Act, 1961, on the grounds that they were issued after the expiry of four years from the end of the relevant assessment year and lacked specific allegations of failure to disclose material facts by the assessee. The court allowed the writ petition and ordered that there would be no order as to costs.

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