2023 (1) TMI 424 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - as argued there was no failure to disclose fully and truly any material fact necessary for the assessment which was a condition precedent for reopening the assessment in terms of section 148 - HELD THAT - As during the scrutiny assessment, the AO had sought from the petitioner the relevant details with regard to the advertisement and sales promotion expenses which details were furnished by the petitioner vide its response - It can also be seen that the AO had disallowed some of the expenses which had been reflected in the break-up under the head details of advertisement and sales promotion expenses while passing the final order of assessment, which reflects that the AO had applied its mind to the appellant s claim while passing the order under section 143(3) - reasons do not disclose as to what material or fact was not disclosed by the assessee. It, therefore, cannot be said that there was any failure on the part of the petitioner to disclose fully and truly facts which were material and necessary for assessment. Thus the notice impugned does not satisfy the jurisdictional requirement of section 147 of the Act and, therefore, is held to be unsustainable, and is accordingly quashed. Decided in favour of assessee.

Summary

Issues:
Challenge to notice under section 148 of the Income Tax Act, 1961 for reopening assessment of the assessment year 2013-14 and rejection of objections to the notice.

Analysis:
1. The petitioner, a public limited company engaged in manufacturing and selling paints, challenged a notice dated 31st March 2021 seeking to reopen the assessment for the assessment year 2013-14 under section 148 of the Income Tax Act, 1961. The petitioner also contested the order dated 7th February 2022 rejecting objections to the issuance of the notice. The petitioner's business involved a marketing scheme called 'Colour Idea Stores,' where costs were incurred for setting up designated areas in dealers' shops for exclusive display of products. The petitioner claimed these costs as advertising and sales promotion expenses for deduction in computing income.

2. The Assessing Officer (AO) had initially accepted the expenses under 'Colour Idea Stores' during the assessment for the year 2013-14. However, a subsequent notice for reopening was issued based on the claim that an amount of Rs.17.42 crores had escaped assessment due to the petitioner's failure to disclose this information during the initial assessment proceedings. The reasons for reopening cited discrepancies in the treatment of similar expenses in the assessment year 2015-16, where expenses for 'Colour Idea Store' were considered capital expenditure instead of revenue expenditure.

3. The petitioner argued that there was no failure to disclose material facts necessary for assessment, citing previous judgments where similar reassessment attempts were quashed. The respondents supported the reassessment proceedings, contending that since the AO did not express a specific opinion on 'Colour Idea Stores' expenses during the initial assessment, the reassessment should proceed. The court referred to the proviso to section 147 of the Act, emphasizing the requirement for full and true disclosure of material facts by the assessee for assessment.

4. The court analyzed the reasons for reopening and found that the AO had already considered and disallowed certain expenses during the initial assessment, indicating a thorough examination of the petitioner's claims. The court held that the reasons for reopening lacked clarity on what material facts were not disclosed by the assessee, leading to the conclusion that there was no failure on the petitioner's part to disclose necessary facts for assessment. Consequently, the court quashed the notice for reopening the assessment for the year 2013-14, deeming it unsustainable.

5. In conclusion, the court allowed the petition, stating that the notice under section 148 did not meet the jurisdictional requirement of section 147 of the Act and, therefore, was unsustainable. The petitioner was granted relief, and no costs were imposed.