2022 (3) TMI 786 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - Notice issued after the expiry of four years - cancellation of registration under Section 12A and 12AA of the Act belief can be formed that some income has escaped assessment and the same can be provided to taxation making disallowance under Section 11 of the Act during the course of re-assessment proceedings - HELD THAT - Revenue has been able to show that there was failure on the part of petitioner to disclose truly and fully any material fact. Usage of the expression in the reasons that assessee has failed to disclose fully and truly material facts is only to escape the restrictions provided under Section 147 of the Act. In effect there has been no failure to disclose. We say this because the reasons for re-opening expressly provides that income to the extent of ₹ 138,90,74,595/- has to be assessed because petitioner by virtue of an order dated 27th March, 2014 has become ineligible for exemption under Section 11 of the Act with effect from 1st April, 2002. It is not alleged that petitioner had actually failed to disclose any material fact. We are afraid we cannot agree with the submissions of the Revenue in as much as proviso to Section 147 of the Act expressly makes it clear that there is bar in re-opening the assessment after expiry of four years from the end of the relevant assessment year. The proviso states no action shall be taken under this section after expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year . Revenue has failed to make out a case of failure to disclose on the part of petitioner the material facts, the impugned notice dated 29th March, 2014 is not sustainable. Consequently, the order rejecting objections also have to be set aside. In the circumstances, petition is allowed .

Summary

Issues:
Impugning a notice under Section 148 of the Income Tax Act, 1961 and order rejecting objections to re-opening.

Analysis:
The petitioner challenged a notice dated 29th March, 2014 issued under Section 148 of the Income Tax Act, 1961, and an order dated 16th February, 2015 rejecting objections to re-opening. The petitioner's return for assessment year 2008-09 was assessed under Section 143(3) of the Act, disallowing a deduction under Section 11. The Commissioner of Income Tax (Appeals) allowed the appeal against the disallowance, which was upheld by the Income Tax Appellate Tribunal (ITAT) and the High Court. Subsequently, the petitioner received a notice for re-opening the assessment based on the cancellation of registration under Section 12AA of the Act, rendering the petitioner ineligible for exemption under Section 11. The notice was issued after the expiry of four years from the relevant assessment year, triggering the proviso to Section 147 of the Act, which requires a failure to disclose material facts for re-opening. The court found that the Revenue failed to demonstrate such a failure on the petitioner's part.

The court noted that the reasons for re-opening did not allege any failure to disclose material facts but rather focused on the petitioner's ineligibility for exemption under Section 11 due to the registration cancellation. The Revenue argued that new facts justified re-opening, but the court held that the proviso to Section 147 imposes a bar on re-opening after four years without a failure to disclose. Since the Revenue could not establish such a failure, the court deemed the notice unsustainable and set aside the order rejecting objections. The petition was allowed, quashing the impugned notice and order.

This judgment underscores the importance of establishing a failure to disclose material facts for re-opening assessments beyond the prescribed time limit. The court's strict interpretation of the proviso to Section 147 highlights the burden on the Revenue to prove non-disclosure by the assessee. The decision reaffirms the principle that re-opening assessments must be based on valid grounds supported by evidence of non-disclosure, ensuring procedural fairness and protecting the assessee's rights.