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2024 (1) TMI 1042 - SC - Income TaxValidity of reopening of assessment - reopening beyond period of four years - reason to believe - significant increase in the current and capital accounts of the partners of the assessee - whether reopening of a concluded assessment i.e. reassessment under Section 147 following issuance of notice u/s 148 of the Act is legally sustainable or is bad in law? - High Court of Kerala in appeals filed by the revenue u/s 260A of the Act has reversed the findings of the Tribunal by deciding the appeals preferred by the revenue in its favour. HELD THAT - As prior to 01.04.1989, the income tax officer was required to have reason to believe that by reason of the omission or failure on the part of an assessee to make a return u/s 139 for any assessment year or to disclose fully and truly all material facts necessary for such assessment, income chargeable to tax had escaped assessment for that assessment year or the income tax officer had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year, the income tax officer could reopen an assessment. But with effect from 01.04.1989, the requirement of law underwent a change. Section 147 as it stood at the relevant point of time provides that if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or re-assess such income and such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings u/s 147. Section 148 says that before making an assessment, re- assessment etc. under Section 147, the assessing officer is required to issue and serve a notice on the assessee calling upon the assessee to file a return of his income in the prescribed form etc., setting forth such particulars as may be called upon. Such a notice is subject to the time limit prescribed u/s 149. Under sub-Section (1)(b), no notice under Section 148 shall be issued in a case where an assessment under sub-section (3) of Section 143 or Section 147 has been made for such assessment year if seven years but not more than 10 years have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs. 50,000 or more for that year. Meaning of term 'disclosure' - As per the P. Ramanatha Aiyar, Advanced Law Lexicon, Volume 2, Edition 6, to disclose is to expose to view or knowledge, anything which before was secret, hidden or concealed. The word disclosure means to disclose, reveal, unravel or bring to notice vide CIT Vs. Bimal Kumar Damani 2003 (2) TMI 49 - CALCUTTA HIGH COURT The word true qualifies a fact or averment as correct, exact, actual, genuine or honest. The word full means complete. True disclosure of concealed income must relate to the assessee concerned. Full disclosure, in the context of financial documents, means that all material or significant information should be disclosed. Therefore, the meaning of full and true disclosure is the voluntary filing of a return of income that the assessee earnestly believes to be true. Production of books of accounts or other material evidence that could ordinarily be discovered by the assessing officer does not amount to a true and full disclosure. As decided in Calcutta Discount Company Limited 1960 (11) TMI 8 - SUPREME COURT the words used in the expression omission or failure to disclose fully and truly all material facts necessary for his assessment for that year would postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment though what facts are material and necessary for assessment would differ from case to case. On the above basis, this Court came to the conclusion that while the duty of the assessee is to disclose fully and truly all primary facts, it does not extend beyond this. This position has been reiterated in subsequent decisions by this Court including in Income Tax Officer Vs. Lakhmani Mewal Das 1976 (3) TMI 1 - SUPREME COURT - The expression reason to believe has also been explained to mean reasons deducible from the materials on record and which have a live link to the formation of the belief that income chargeable to tax has escaped assessment. Such reasons must be based on material and specific information obtained subsequently and not on the basis of surmises, conjectures or gossip. The reasons formed must be bona fide. Balance sheet of the assessee for the assessment year 1989-90 obtained from the South Indian Bank for obtaining credit relied upon - What the assessing officer did was to cull out the figures discernible from the balance sheet for the assessment year 1989-90 obtained from the South Indian Bank and compared the same with the balance sheet submitted by the assessee before the assessing officer for the assessment year 1993-94 and thereafter arrived at the aforesaid conclusion. Assessee had filed its regular balance sheet as on 31.12.1985 while filing the return of income for the assessment year 1986-87. The next balance sheet filed was as on 31.03.1993 for the assessment year 1993-94. No balance sheet was filed in the interregnum as according to the assessee, it could not maintain proper books of account as the relevant materials were seized by the department in the course of a search and seizure operation and not yet returned. It was not possible for it to obtain ledger balances to be brought down for the succeeding accounting years. As regards the balance sheet as on 31.03.1989 filed by the assessee before the South Indian Bank and which was construed by the assessing officer to be the balance sheet of the assessee for the assessment year 1989-90, the explanation of the assessee was that it was prepared on provisional and estimate basis and was submitted before the South Indian Bank for obtaining credit and therefore could not be relied upon in assessment proceedings. It appears that this balance sheet was also relied upon by the assessing officer in the re-assessment proceedings of the assessee for the assessment year 1989-90. In the first appellate proceedings, CIT(A) in its appellate order dated 26.03.2002 held that such profit and loss account and the balance sheet furnished to the South Indian Bank were not reliable and had discarded the same. That being the position, the assessing officer could not have placed reliance on such balance sheet submitted by the assessee allegedly for the assessment year 1989-90 to the South Indian Bank for obtaining credit. Dehors such balance sheet, there were no other material in the possession of the assessing officer to come to the conclusion that income of the assessee for the three assessment years had escaped assessment. Once the primary facts are disclosed by the assessee, the burden shifts onto the assessing officer. It is not the case of the revenue that the assessee had made a false declaration. On the basis of the balance sheet submitted by the assessee before the South Indian Bank for obtaining credit which was discarded by the CIT(A) in an earlier appellate proceeding of the assessee itself, the assessing officer upon a comparison of the same with a subsequent balance sheet of the assessee for the assessment year 1993-94 which was filed by the assessee and was on record, erroneously concluded that there was escapement of income and initiated reassessment proceedings. Change of opinion - While framing the initial assessment orders of the assessee for the three assessment years in question, the assessing officer had made an independent analysis of the incomings and outgoings of the assessee for the relevant previous years and thereafter had passed the assessment orders under Section 143(3) of the Act. We have already taken note of the fact that an assessment order under Section 143(3) is preceded by notice, enquiry and hearing under Section 142(1), (2) and (3) as well as under Section 143(2). If that be the position and when the assessee had not made any false declaration, it was nothing but a subsequent subjective analysis of the assessing officer that income of the assessee for the three assessment years was much higher than what was assessed and therefore, had escaped assessment. This is nothing but a mere change of opinion which cannot be a ground for reopening of assessment. Defective return filed - A return filed without the regular balance sheet and profit and loss account may be a defective one but certainly not invalid. A defective return cannot be regarded as an invalid return. The assessing officer has the discretion to intimate the assessee about the defect(s) and it is only when the defect(s) are not rectified within the specified period that the assessing officer may treat the return as an invalid return. Ascertaining the defects and intimating the same to the assessee for rectification, are within the realm of discretion of the assessing officer. It is for him to exercise the discretion. The burden is on the assessing officer. If he does not exercise the discretion, the return of income cannot be construed as a defective return. As a matter of fact, in none of the three assessment years, the assessing officer had issued any declaration that the returns were defective. Assessee has asserted both in the pleadings and in the oral hearing that though it could not file regular books of account along with the returns for the three assessment years under consideration because of seizure by the department, nonetheless the returns of income were accompanied by tentative profit and loss account and other details of income like cash flow statements, statements showing the source and application of funds reflecting the increase in the capital and current accounts of the partners of the assessee etc., which were duly enquired into by the assessing officer in the assessment proceedings. Thus, we are therefore of the view that the Tribunal was justified in coming to the conclusion that the reassessments for the three assessment years under consideration were not justified. The High Court has erred in reversing such findings of the Tribunal. Consequently, we set aside the common order of the High Court 2009 (10) TMI 230 - KERALA HIGH COURT and restore the common order of the Tribunal - Decided in favour of assessee.
Issues Involved:
1. Legality of reopening a concluded assessment under Section 147 of the Income Tax Act, 1961. 2. Whether the assessee disclosed fully and truly all material facts necessary for assessment. 3. Whether the reassessment proceedings were barred by limitation. 4. Validity of the reassessment orders based on the balance sheet submitted to the South Indian Bank. Summary: 1. Legality of Reopening Assessment: The Supreme Court examined whether the reopening of a concluded assessment under Section 147 of the Income Tax Act, 1961, following the issuance of notice under Section 148, was legally sustainable. The Court noted that the assessee's original assessments for the years 1990-91, 1991-92, and 1992-93 were completed under Section 143(3) after detailed scrutiny. The reassessment was initiated based on the balance sheet for the assessment year 1989-90 obtained from the South Indian Bank, which the assessing officer compared with the balance sheet for the assessment year 1993-94. The Court held that this comparison and the subsequent inference of escaped income constituted a mere change of opinion, which is not a valid ground for reopening an assessment. 2. Disclosure of Material Facts: The Court emphasized the duty of the assessee to disclose fully and truly all primary facts necessary for assessment. It was found that the assessee had disclosed all relevant details, including profit and loss accounts and statements showing the source and application of funds. The Court noted that the balance sheet submitted to the South Indian Bank was prepared on a provisional basis for obtaining credit and had been previously discarded by the CIT(A) as unreliable. Therefore, the reassessment based on this balance sheet was not justified. 3. Limitation for Reassessment: The assessee argued that the reassessment proceedings were barred by limitation as the notices under Section 148 were issued beyond the permissible period. The Court observed that the original assessments were completed under Section 143(3) and that the reassessment notices issued on 29.03.2000 were beyond the four-year period specified in the proviso to Section 147. The Court held that the reassessment proceedings were indeed barred by limitation. 4. Validity of Reassessment Orders: The Court found that the reassessment orders were based on the balance sheet submitted to the South Indian Bank, which was not reliable. The assessing officer's reliance on this balance sheet, without any fresh material or evidence, was not justified. The Court concluded that the reassessment orders were invalid as they were based on a change of opinion and not on any new information or material evidence. Conclusion: The Supreme Court set aside the High Court's order and restored the Tribunal's order, which had quashed the reassessment proceedings. The Court held that the reassessments were not justified, as they were based on a mere change of opinion and were barred by limitation. The appeals filed by the assessee and its partners were allowed.
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