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Issues: Validity of re-opening of assessment under sections 147/148
In this case, the main issue revolves around the validity of the re-opening of the assessment under sections 147/148 of the Income Tax Act. The facts of the case indicate that a survey was conducted at the business premises of the assessee, during which a partner of the firm admitted to conducting business not recorded in the books due to legal complications. The Income Tax Officer (ITO) issued a notice under section 148 in 1984, alleging that income outside the books had escaped assessment. The ITO ultimately made an addition to the assessment, which was later reduced on appeal. The contention arose regarding whether the re-opening of the assessment was justified as the assessee had allegedly not failed to disclose material facts. The learned counsel for the assessee argued that the re-opening was unjustified as the relevant facts were disclosed during the survey, and therefore, there was no failure on the part of the assessee to disclose necessary information for assessment. The Departmental Representative, on the other hand, asserted that since the income from trade outside the books was not disclosed in the return of income, the re-opening was valid under section 147(a). The Tribunal considered the arguments presented by both parties and examined the application of section 147(a) in this context. It was noted that the ITO had allowed the limitation for re-opening under section 147(b) to expire, leading the Revenue to rely on section 147(a) for the re-assessment. The Tribunal emphasized that section 147(a) permits the re-opening of an assessment if the assessee has failed to disclose fully and truly all material facts necessary for assessment. It was highlighted that even if certain facts were not disclosed in the return but were revealed before or after filing, the ITO cannot accuse the assessee of default under section 147(a). The Tribunal noted the partner's statement during the survey, where he admitted to unrecorded transactions due to legal issues, and the subsequent estimation of income by the AAC. The Tribunal cited a relevant case where a similar situation occurred, and the assessment was deemed invalid due to the failure to utilize information collected during a search operation. Ultimately, the Tribunal upheld the assessee's contention that the re-opening was unwarranted, rendering the assessment illegal. The Tribunal also mentioned that the other ground relating to the quantum of income added was not pressed by the counsel for the assessee. Consequently, the appeal was allowed, and the assessment order for the assessment year 1975-76 was canceled, emphasizing the illegality of the assessment due to the improper re-opening under sections 147/148 of the Income Tax Act.
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