2023 (12) TMI 217 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - condition precedent for invoking the extended period of six years for re-assessment u/s 147 - assumption of jurisdiction in the absence of a finding that the income chargeable to tax has escaped assessment by reason of the failure to fully and truly disclose material particulars - gain on sale of land - LTCG or business income - HELD THAT - Failure to render a finding that income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to fully and truly disclose the material facts necessary for assessment is a condition precedent to invoke the extended period beyond four years under section 147 of the Act. Absence of such finding would vitiate the reassessment proceeding. As relying on this court case M/S. Seshasayee Paper And Board Limited Rep. By Its Director (Finance) Secretary Sri V. Pichai 2023 (3) TMI 1111 - MADRAS HIGH COURT the impugned notice and consequential proceedings invoking the extended period of limitation beyond 4 years for making a reassessment under Section 147 read with Section 148 of the Act in the absence of any finding as to the existence of the condition precedent viz., that income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to fully and truly disclose the material particulars vitiates the entire proceedings and thus liable to be set aside. Assessee appeal allowed.

Issues Involved:
1. Validity of the assumption of jurisdiction under Section 147 of the Income Tax Act, 1961.
2. Legality of invoking the extended period of limitation for reassessment.
3. Alleged failure to disclose material facts fully and truly.
4. Reopening of assessment based on new material or mere change of opinion.

Summary of Judgment:

Issue 1: Validity of the Assumption of Jurisdiction under Section 147
The petitioner challenged the notice dated 24.03.2020 and the subsequent proceedings dated 27.02.2021 on the grounds that the assumption of jurisdiction was invalid due to the absence of a finding that income chargeable to tax had escaped assessment due to the failure to fully and truly disclose material particulars, which is a condition precedent for invoking the extended period of six years for reassessment under Section 147 of the Income Tax Act, 1961.

Issue 2: Legality of Invoking the Extended Period of Limitation for Reassessment
The court noted that the assessing authority proceeded with reassessment under the belief that the only requirement to initiate proceedings under Section 147 was the "reason to believe" that income had escaped assessment. However, the court emphasized that the absence of a finding that income had escaped assessment due to the assessee's failure to fully and truly disclose material facts is a condition precedent to invoke the extended period beyond four years under Section 147. The court referred to a Division Bench judgment which held that failure to record such a finding would vitiate the reassessment proceedings.

Issue 3: Alleged Failure to Disclose Material Facts Fully and Truly
The petitioner argued that the reopening of the assessment was based on a mere change of opinion without fresh tangible material. The court agreed, emphasizing that the reasons for reassessment did not contain a finding that the petitioner had failed to disclose fully and truly all material facts necessary for assessment. This omission rendered the assumption of jurisdiction under Section 147 invalid.

Issue 4: Reopening of Assessment Based on New Material or Mere Change of Opinion
The respondent contended that the reassessment was based on new material, including the petitioner's receipt of investment from Platex Limited, Mauritius, and the undervaluation of land sales. However, the court found that these reasons did not justify the extended period of limitation for reassessment since they did not establish a failure to disclose material facts fully and truly.

Conclusion:
The court concluded that the absence of a finding that the income chargeable to tax had escaped assessment due to the failure to fully and truly disclose material facts necessary for assessment invalidated the reassessment proceedings. Consequently, the writ petition was allowed, and the impugned notice dated 24.03.2020 and the subsequent proceedings dated 27.02.2021 were set aside.

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