2021 (9) TMI 248 - HC - Income Tax

Reopening of assessment u/s 147 - notice after the expiry of period of four years - eligible reason to believe - non disclosure to deduction under Section 10A was allowed on capital gain - HELD THAT - Reasons cannot be improved upon and/or supplemented much less substituted by affidavit and/or oral submissions. In the reasons to believe, except for a general statement that the escapement of income is by a reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, there is no mention anywhere that the assessee did not disclose that the deduction under Section 10A was allowed on capital gain during the course of assessment proceedings under Section 143(3) of the Act or that the subsequently it came to the notice of the assessing officer. Infact in the reasons for reopening, it is expressly mentioned that the assessee has added short term capital gain. We would also add that in the assessment order dated 31st January 2017, the assessing officer has allowed the set of - Therefore, by no stretch of imagination it can be concluded that there was failure on the part of petitioner to disclose fully and truly the fact that sum has been deducted against the losses claimed under Section 10AA. In the case at hand the assessing officer has not even indicated what was the material fact that was not disclosed truly or fully to him. When the assessment is sought to be reopened after the expiry of period of four years from the end of the relevant year, the proviso to Section 147 stipulates a requirement that there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. This stipulation does not govern a notice for reopening within a period of four years. In the case at hand, as noted earlier, there is not even a whisper about what fact was not disclosed. In our view, therefore, the notice to reopen under Section 148 of the said Act itself was issued without jurisdiction. Consequently, the order passed also cannot be sustained. - Decided in favour of assessee.

Issues:
1. Validity of notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2012-13.
2. Disallowance of deductions under Section 10AA during assessment proceedings.
3. Allegation of failure to disclose material facts by the assessee.
4. Compliance with the proviso to Section 147 regarding the reopening of assessment.

Issue 1: Validity of notice under Section 148 for reopening assessment:
The petitioner contested a notice received under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for Assessment Year 2012-13. The respondent's grounds for reopening were based on the belief that the petitioner's income chargeable to tax had escaped assessment under Section 147 of the Act. The petitioner also challenged the order rejecting objections raised in response to the notice. The High Court analyzed the reasons recorded for reopening and found that they lacked specificity on undisclosed material facts, rendering the notice issued without jurisdiction. Consequently, the court set aside both the notice and the order rejecting objections.

Issue 2: Disallowance of deductions under Section 10AA:
During assessment proceedings, deductions under Section 10AA were disallowed by the assessing officer. The petitioner's business income before deduction under Section 10AA was computed, including short term capital gain, leading to a specific disallowance. The Dispute Resolution Panel rejected the petitioner's objections, but the ITAT later decided in favor of the petitioner, accepting the revised return. The respondent sought to reopen the assessment based on the disallowance of the short term capital gain against business income, citing Circular No. 7 of 2013 for clarification. The High Court scrutinized the computation and found the deduction allowed to be incorrect, leading to the conclusion that income chargeable to tax had escaped assessment.

Issue 3: Allegation of failure to disclose material facts:
The assessing officer alleged that the petitioner failed to disclose fully and truly all material facts necessary for assessment, specifically regarding the deduction under Section 10AA allowed on capital gain. The respondent's reasons for reopening highlighted this alleged failure, but the High Court observed that the reasons lacked explicit mention of undisclosed material facts. The court emphasized that the reasons recorded for reopening an assessment must be based on facts at the time of issuing the notice, without room for improvement or supplementation through subsequent submissions.

Issue 4: Compliance with the proviso to Section 147:
The High Court examined the proviso to Section 147, which mandates that when reopening an assessment after four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In this case, the court found no indication of undisclosed facts in the reasons for reopening, leading to the conclusion that the notice itself was issued without jurisdiction. Consequently, the court set aside both the notice and the order rejecting objections, emphasizing the importance of complying with statutory requirements for reopening assessments.

Overall, the High Court's judgment focused on the procedural and substantive aspects of the assessment process, ensuring that notices for reopening assessments are based on specific and valid grounds supported by the law.

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