2023 (7) TMI 696 - HC - Income Tax

Reopening of assessment u/s 147 - Reasons to believe - HELD THAT - Whether it is a disclosure or not within the meaning of Section 147 would depend on the facts and circumstances of each case and nature of document and circumstances in which it is produced. The duty of the assessee is to fully and truly disclose all primary facts necessary for the purpose of assessment. It is not part of his duty to point out what legal inference should be drawn from the facts disclosed. It is for the ITO to draw a proper inference. In this case, petitioner had filed all details and the subject of brought forward unabsorbed depreciation was also considered while passing the assessment order u/s 143(3) - AO had in his possession all primary facts and it was for him to draw proper inference as to whether the brought forward unabsorbed depreciation should be adjusted against capital gains or profit and gains from business or profession. There was nothing more to disclose and a person cannot be said to have omitted or failed to disclose something when, of such thing, he had no knowledge. We are satisfied that petitioner had truly and fully disclosed all material facts necessary for the purpose of assessment. Not only material facts were disclosed by petitioner truly and fully but they were carefully scrutinized and the figures of income as well as deductions were worked out carefully by the AO - Decided in favour of assessee.

Summary

Issues Involved:
The legality and validity of notice dated 26th April 2011 under Section 148 of the Income Tax Act, 1961.

Judgment Summary:

Issue 1: Disclosure of Unabsorbed Depreciation and Adjustment against Income

The petitioner filed a return of income for Assessment Year 2006-2007 declaring total income as "Nil" after claiming set off of brought forward unabsorbed depreciation against long term capital gains and business income. The assessment order passed by respondent no.2 assessed the income at "Nil" after setting off unabsorbed depreciation against business income and capital gains. The impugned notice was issued based on a subsequent judicial pronouncement regarding the adjustment of unabsorbed depreciation against income from capital gains. The petitioner contended that there was no failure to disclose fully and truly all material facts necessary for assessment, as the unabsorbed depreciation was disclosed in the original return. The High Court held that the Assessing Officer had all primary facts before him during the original assessment under Section 143(3) and that there was no failure to disclose, thus quashing the notice.

Issue 2: Jurisdiction for Re-opening Assessment

The petitioner argued that the notice was issued beyond the four-year limit after the relevant assessment year and without any failure to disclose material facts. The respondent contended that the issue of unabsorbed depreciation and its adjustment was not scrutinized during the original assessment, justifying the re-opening. The High Court noted that the only basis for re-opening was a subsequent judicial pronouncement, and as there was no failure to disclose, the Assessing Officer had no jurisdiction to re-open the assessment. The Court emphasized that the duty of the assessee is to disclose primary facts, not legal inferences, and held that the petitioner had fully and truly disclosed all necessary material facts. The rule was made absolute, quashing the impugned notice under Section 148 of the Act.

Conclusion:
The High Court ruled in favor of the petitioner, quashing the notice dated 26th April 2011 under Section 148 of the Income Tax Act, 1961, as there was no failure to disclose material facts and the Assessing Officer lacked jurisdiction to re-open the assessment.