2024 (3) TMI 38 - HC - Income Tax

Re-opening of assessment u/s 147 - notice beyond period of four years - change in the opinion or a later decision on the legal aspects - reason for the re-assessment is that the assessee was not entitled to the exemption u/s 10B of the IT Act by reason of it not having an approval from the relevant authority, as provided in the explanation to the section - HELD THAT - There is no contention that the assessee had originally withheld any information from the assessing authority. It is not contended that the assessee had suppressed any material or had not made available the approvals during the assessment or had induced the assessing authority to come to a wrong conclusion by any failure on the part of the assessee to disclose the relevant details. Apparently, what has occurred was a mistake on the part of the assessing authority in accepting the approval produced by the assessee to be an approval as required under Explanation 2 to Section 10B. It appears that later, the High Court of Delhi 2012 (9) TMI 627 - DELHI HIGH COURT had held that the approval for the purpose of Section 10B can only be an approval granted by the Board constituted by the Central Government under the provisions of Industries (Development and Regulation) Act. This judgment of the Delhi High Court is the reason cited in respect of all the re-assessments. In WP it is additionally stated in the reasons that there was a failure on the part on the assessee to disclose fully and truly all relevant materials required for the assessment. However, neither in the notices or the assessment orders, nor in the counter affidavit is it stated that the assessee had failed to disclose any relevant information or had produced any fraudulent material during the assessment proceedings. The Apex Court in Parashuram Pottery Works Co. L.t.d v. Income Tax Officer 1976 (11) TMI 1 - SUPREME COURT has specifically considered the issue and has held that the responsibility of the assessee is only to place the materials before the assessing officer and the assessee would not be responsible for the inferences made by the assessing authority on the basis of the materials that he has placed before the concerned authority. As further held by the Apex Court that a change in the opinion or a later decision on the legal aspects cannot be a reason for re-opening an assessment which has been concluded on the basis of the material which is made available in cases where the re-opening is attempted after 4 years, unless the assessee failed to disclose relevant information. In the cases before us the respondents have no case that the income chargeable to tax during the relevant assessment years had escaped assessment because of the failure on the part of the assessee to disclose any relevant material. It apparently is a case where the assessing authority had gone wrong in granting exemptions which were not liable to be granted in terms of the provisions of the statutes. If that be so, the 1st proviso would prevent the authorities from reopening the assessment after 4 years from the close of the assessment year, unless the income had escaped assessment on account of the failure of the assessee. Thus it is clear that in a case where there is no failure on the part of the assessee to disclose the materials and the failure was on the part of the assessing authority in drawing inferences on the basis of the materials placed the re-opening of the assessment after 4 years would be incompetent. The re-opening of the assessment in all these 3 cases are therefore found to be incompetent. Decided in favour of assessee.

Issues Involved:
1. Validity of re-opening an assessment under Section 147 of the Income Tax Act, 1961 after four years.
2. Whether the subsequent decision of a High Court can be a reason for re-opening an assessment.
3. The requirement of failure on the part of the assessee to disclose fully and truly all material facts for re-opening after four years.

Summary:

Issue 1: Validity of Re-opening an Assessment after Four Years
The writ petitions challenge the validity of re-opening assessments under Section 147 of the Income Tax Act, 1961 after the period of four years from the end of the assessment year. The court noted that the re-opening of an assessment after four years is permissible only if the income chargeable to tax has escaped assessment due to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. In this case, the court found no evidence that the assessee had withheld any material information or disclosed incorrect facts. The re-opening was based on a change in the interpretation of law, not on any failure by the assessee to disclose material facts.

Issue 2: Subsequent Decision of a High Court as a Reason for Re-opening
The re-opening was initiated based on the Delhi High Court's decision in CIT Vs. Regency Creations Ltd., which clarified that approval under the STPI scheme does not equate to approval under Section 10B of the Act. The court held that a subsequent judicial decision cannot be a valid ground for re-opening an assessment after four years, especially when there was no failure on the part of the assessee to disclose material facts at the time of the original assessment.

Issue 3: Requirement of Failure to Disclose Material Facts
The court emphasized that for re-opening an assessment after four years, it must be shown that the income escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment. The court found that in all three cases, the re-opening notices did not allege any such failure by the assessee. The original assessments were completed based on the materials provided by the assessee, and any error in interpretation was on the part of the assessing officer.

Conclusion:
The court concluded that the re-opening of assessments in these cases was incompetent as it was based on a change in the interpretation of law rather than any failure by the assessee to disclose material facts. Consequently, the notices and re-assessment orders were set aside, and the original assessments under Section 143 for the relevant years were confirmed. The writ petitions were ordered accordingly.

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