2022 (4) TMI 639 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - eligibility of reasons to believe - Notice issued after expiry of four years from the end of relevant assessment year - HELD THAT - We have to note that reasons as quoted above clearly provides that information regarding first item, i.e., WIP has been obtained from the balance-sheet of the Company and 2nd item, ground rent, has been obtained from Profit and Loss account and computation of income of Petitioner. Therefore, information has been obtained from the primary facts and documents filed by Petitioner. This not a case where Petitioner can be accused as having merely produced its books of accounts or other evidence during the course of assessment proceedings on the basis of which material evidence could not have been deduced by the Assessing Officer with the exercise of due diligence. Section 139 of the Act provides for mandatory obligations to furnish with its return of income the report of audit. Petitioner fulfilled its obligations. Petitioner had filed return of income alongwith audited Profit and Loss Account and balance-sheet as required under Section 139 of the Act. Balance-sheet being a part of the return of income under Section 139 of the Act, Petitioner cannot be stated to have not disclosed material facts. Petitioner having filed balance-sheet alongwith computation of income with its annual returns, there was nothing more to disclose and a person cannot be said to have omitted to disclose or failed to disclose when he had no knowledge. This not a case where Petitioner can be accused as having merely produced its books of accounts or other evidence during the course of assessment proceedings on the basis of which material evidence could not have been deduced by the Assessing Officer with the exercise of due diligence. Section 139 of the Act provides for mandatory obligations to furnish with its return of income the report of audit. Petitioner fulfilled its obligations. Petitioner had filed return of income alongwith audited Profit and Loss Account and balance-sheet as required under Section 139 of the Act. Balance-sheet being a part of the return of income under Section 139 of the Act, Petitioner cannot be stated to have not disclosed material facts. Petitioner having filed balance-sheet alongwith computation of income with its annual returns, there was nothing more to disclose and a person cannot be said to have omitted to disclose or failed to disclose when he had no knowledge. This is subject to the rider that there must be cogent and clear indication in the reasons supplied, that in fact there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment. If the factum of failure to disclose can be culled from the reasons in support of the notice seeking to reopen assessment, that will certainly not be fatal to the assumption of jurisdiction under sections 147 and 148 of the Act. The Court in CROMPTON GREAVES LTD. 2014 (12) TMI 936 - BOMBAY HIGH COURT held However, if from the reasons, no case of failure to disclose is made out, then certainly the assumption of jurisdiction under sections 147 and 148 of the Act would be ultra vires, being in excess of the jurisdictional restraints imposed by the first proviso to Section 147 of the Act . Having considered the reasons we are satisfied that even the reasons does not indicate there was failure to disclose truly and fully material facts. In fact there was nothing to indicate non-disclosure. Reasons itself rely on the balance-sheet and computation of income filed.- Decided in favour of assessee.

Summary

Issues:
Reopening of assessment for assessment year 2007-08 under Section 147 of the Income Tax Act, 1961 based on alleged escapement of income due to failure to disclose fully and truly material facts necessary for assessment.

Analysis:

1. The petitioner filed a return of income for assessment year 2007-08, which was later reassessed under Section 143(3) and subsequently reopened under Section 147 read with 148 of the Act. The issues raised in the second reopening included the treatment of capital work in progress (CWIP), gain on sale of land, and ground rent. The assessing officer contended that interest-bearing funds were used for CWIP without proper disclosure, resulting in under-assessment. The petitioner's failure to offer gains from land sale under any other head of income and the misclassification of ground rent also led to alleged under-assessment.

2. Regarding the gain on sale of land and ground rent, the assessing officer accepted the petitioner's explanation for the land sale gain. However, the focus shifted to the CWIP and ground rent issues, which were sourced from the balance sheet and profit and loss account. The court emphasized that the information was derived from primary documents filed by the petitioner.

3. The petitioner fulfilled its obligations under Section 139 by submitting audited financial statements. The court cited a previous judgment to highlight that the duty of disclosure extends only to providing all primary facts relevant to assessment. Once all primary facts are before the assessing authority, no further disclosure is required from the assessee.

4. As the notice to reopen was issued after the statutory four-year period, the burden was on the respondent to prove that income had escaped assessment due to the assessee's failure to disclose material facts fully and truly. The court noted that the reasons provided did not establish any failure to disclose on the petitioner's part.

5. The court rejected the respondent's argument that failure to disclose was implied, emphasizing that the reasons did not indicate any non-disclosure by the petitioner. Referring to a previous case, the court highlighted that the assumption of jurisdiction under sections 147 and 148 requires a clear indication of failure to disclose, which was lacking in this case.

6. Ultimately, the court allowed the petition, quashing the notice to reopen the assessment for the assessment year 2007-08. The decision was based on the lack of evidence supporting the claim of failure to disclose material facts, as the reasons provided for reopening did not establish any non-disclosure by the petitioner.