2021 (2) TMI 566 - HC - Income Tax

Reopening of assessment u/s 147 - Undisclosed purchase of land - validity of reasons to believe - reopening after period of four years - HELD THAT - From statement of investment in the land / purchase of lands made in the F.Y. 2013-14 and the table furnished by the Assessing Officer in his reply dated 14.09.2020 (Annexure-9) containing the recorded reasons in terms of section 147, it is clear that the assessee had not made full disclosure of the purchase of lands made in the year 2012-13. Assessee failed to disclose that on 26.02.2013 he had purchased lands in the district of Seraikella-Kharsawan from certain persons named therein, as also pointed out by the Revenue. After the assessment was over, on cross verification from the report of the District Registrar, Seraikella-Kharsawan, it was revealed that the Company had actually purchased lands of ₹ 30.04 crores from 11 different persons on 26.02.2013. The balance sheet for the year ending 31.03.2013 revealed that the Company had incurred ₹ 18.39 crores more than the declared expenses on land which appear to have escaped assessment for the A.Y. 2013-14. This fact was discovered by the Assessing Officer on the basis of the report of District Registrar, Seraikella-Kharsawan after the assessment was complete and not on re-examining the materials and documents already on record filed by the assessee along with the return or subsequently brought on record during the assessment proceedings. This is the basis on which the Assessing Officer formed a reasonable belief that the assessee had failed to truly and fully disclose his income. As such, this income of the assessee had escaped assessment. Thus, the ingredients of first proviso to section 147 appear to be made out on the basis of materials on records. If that is so, the initiation of reassessment proceedings under section 148 beyond the limitation of four years, as prescribed under the first proviso to section 147 and also under section 149(1) (b) is not in breach of the statutory provisions. - Decided against assessee.

Summary

Issues Involved:
1. Validity of issuance of notice under section 148 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings are barred by limitation under section 147 of the Act.
3. Whether the petitioner made full and true disclosure of all material facts necessary for the assessment.

Detailed Analysis:

1. Validity of Issuance of Notice under Section 148 of the Income Tax Act, 1961:

The petitioner challenged the notice dated 19.03.2020 issued under section 148 of the Act, arguing that the Assessing Officer (AO) had no valid reason to believe that income had escaped assessment. The petitioner contended that all material facts were fully and truly disclosed during the original assessment. The AO, however, argued that upon cross-verification with the District Registrar, it was found that the petitioner had purchased land worth ?30.04 crores, whereas only ?11.65 crores were declared, indicating an unexplained expenditure of ?18.39 crores. This discrepancy formed the basis for the AO’s belief that income had escaped assessment, justifying the issuance of the notice under section 148.

2. Whether the Reassessment Proceedings are Barred by Limitation under Section 147 of the Act:

The petitioner argued that the notice under section 148 was issued beyond the four-year limitation period prescribed under section 147 of the Act. However, the court noted that the limitation period could extend to six years if the income escaping assessment amounted to one lakh rupees or more, as per section 149(1)(b). Since the undisclosed income was significantly more than one lakh rupees, the notice was within the permissible period. The court also noted that the petitioner failed to disclose all material facts fully and truly, which allowed the AO to initiate reassessment proceedings beyond the four-year period.

3. Whether the Petitioner Made Full and True Disclosure of All Material Facts Necessary for the Assessment:

The petitioner claimed to have disclosed all necessary facts, including details of land purchases, in response to notices under section 142(1) of the Act. However, the court found that the petitioner did not disclose the full extent of land purchases from certain individuals, as revealed by the report from the District Registrar. This failure to disclose material facts fully and truly justified the AO’s belief that income had escaped assessment. The court referenced the principles laid down in cases like *Calcutta Discount Co. Ltd. v. Income Tax Officer* and *Lakhmani Mewal Das v. Income-Tax Officer*, emphasizing that the AO’s belief was based on new material facts discovered post-assessment, not merely a change of opinion.

Conclusion:

The court concluded that the initiation of reassessment proceedings under section 148 was valid and not barred by limitation. The petitioner’s failure to fully and truly disclose material facts warranted the AO’s belief that income had escaped assessment. Consequently, the writ petition was dismissed, affirming the validity of the notice dated 19.03.2020 and the order dated 05.01.2021.