2023 (3) TMI 1111 - HC - Income Tax

Reopening of assessment u/s 147 - extension of period of limitation u/s 147 - computing the income u/s 115JB excluded the provision created towards bad and doubtful debts from the purview of 'Book Profits' - HELD THAT - It leaves no room for any doubt that to invoke the extended period, AO ought to show/ demonstrate the existence of any of the three circumstances set out in the proviso to Section 147 - In this case, failure on the part of the assessee to fully and truly disclose all material particulars in our view would constitute the jurisdictional fact for invoking extended period of limitation and failure to record the existence of the above jurisditional fact while invoking the extended period under the proviso to Section 147 of the Act, would vitiate the entire proceedings. When the view taken by the assessee is also the view taken by the Hon'ble Supreme Court 1972 (8) TMI 110 - SUPREME COURT it would not be open to the Revenue to state that there is failure on the part of the assessee to fully and truly disclose all material particulars. Afortiori there is a legislative affirmation of the view taken by the assessee by way of an amendment introduced to Section 115 JB of the Act with regard to the treatment to bad and doubtful debts whereby the above position of law declared by the Hon'ble Supreme Court was neutralized with retrospective effect from 01.04.2010 We agree with the finding of the learned Single Judge that the condition precedent to invoke extended period of limitation under Section 147 of the Act viz., failure on the part of the respondent /assessee to disclose fully and truly all material particular is absent in the facts of the case.

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Applicability of retrospective amendments to Section 115JB of the Act.
3. Requirement of full and true disclosure of material facts by the assessee.
4. Jurisdictional limitations and conditions for invoking the extended period for reassessment.

Issue-wise Detailed Analysis:

1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961:
The revenue challenged the order of the learned Single Judge, which held that the reassessment proceedings initiated under Section 147 were invalid as there was no failure on the part of the assessee to fully and truly disclose material facts required for assessment. The court emphasized that the reasons for reassessment must include a finding of failure to disclose material facts, which was absent in this case. The court cited several judgments, including Duli Chand Singhania vs ACIT and Commissioner of Income Tax vs. Eigi Ultra Industries Ltd., to support the requirement of such a finding for valid reassessment.

2. Applicability of retrospective amendments to Section 115JB of the Act:
The amendment to Section 115JB, made retrospectively effective from 01.04.2001, was central to the reassessment notice. The court noted that the retrospective amendment could not be a basis for reassessment if the assessee had made full and true disclosure of material facts at the time of the original assessment. The court referenced the case of Vodafone West Ltd. vs. ACIT, which held that reassessment based on retrospective amendments beyond the normal period of four years is impermissible.

3. Requirement of full and true disclosure of material facts by the assessee:
The court found that the assessee had disclosed all material facts fully and truly during the original assessment. The assessee's treatment of bad and doubtful debts was based on the prevailing legal position, including the Supreme Court's judgment in CIT vs. HCL Commet Systems & Services Ltd. The court emphasized that the assessee's compliance with the law as it stood at the time negated any failure to disclose material facts.

4. Jurisdictional limitations and conditions for invoking the extended period for reassessment:
The court reiterated that for the extended period of six years to be invoked under Section 147, there must be a clear finding of failure to disclose material facts. The absence of such a finding in the reasons for reassessment rendered the proceedings void. The court cited Arun Kumar v. Union of India to underline the necessity of jurisdictional facts for valid reassessment proceedings. The court concluded that the absence of a finding on the failure to disclose material facts invalidated the reassessment notice.

Conclusion:
The court affirmed the order of the learned Single Judge, dismissing the revenue's appeal and holding that the reassessment proceedings were invalid due to the absence of a finding on the failure to disclose material facts. The court emphasized the importance of jurisdictional facts and the impermissibility of reassessment based on retrospective amendments without such findings.

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