2008 (10) TMI 327 - HC - Income Tax

Reassessment notice time limit - , in fact, not only there is no failure on the part of the assessee even alleged, but it is accepted that an incorrect assessment is framed due to an error on the part of the Assessing Officer. - the petitioner has made a full disclosure of material facts in the return of income filed by him for the relevant assessment year, which is accompanied with several enclosures, including enclosure B in which a summary of short-term and long-term capital gains has been disclosed meticulously, and item-wise. - It is the statutory duty of the Assessing Officer to record reasons for issuing notice under section 148 of the Act and reasons recorded cannot further be supplemented or explained by a subsequent order so as to give an entirely different complexion to the case. Held that notice issued beyond four years was not valid

Issues Involved:
1. Legality and jurisdiction of the notice under section 148 of the Income-tax Act, 1961.
2. Period of limitation for reopening the assessment.
3. Alleged failure to disclose fully and truly all material facts necessary for assessment.
4. Validity of the reasons recorded for reopening the assessment.

Detailed Analysis:

1. Legality and Jurisdiction of the Notice under Section 148:
The petitioner-assessee challenged the notice dated March 31, 2008, issued under section 148 of the Income-tax Act, 1961, claiming it was illegal, without jurisdiction, and beyond the prescribed period of limitation. The petitioner argued that the assessment for the assessment year 2001-02 was framed under section 143(3) of the Act and could not be reopened beyond the limitation period unless the conditions in the proviso to section 147 were met, which was not the case here. The court noted that the notice was issued beyond the four-year period from the end of the relevant assessment year and found no failure on the part of the petitioner to disclose all material facts necessary for the assessment.

2. Period of Limitation for Reopening the Assessment:
It was undisputed that the notice was issued after the expiry of four years from the end of the relevant assessment year. The court emphasized that as per the proviso to section 147, no action could be taken after the expiry of four years unless there was a failure on the part of the assessee to file a return or to disclose fully and truly all material facts necessary for the assessment. The court found that the reasons recorded for reopening the assessment did not indicate any such failure on the part of the petitioner.

3. Alleged Failure to Disclose Fully and Truly All Material Facts:
The respondent claimed that the petitioner did not disclose details and related facts necessary for determining the real nature of the transactions. However, the court observed that the reasons recorded for reopening the assessment did not mention any failure to disclose material facts. Instead, it was stated that the income was incorrectly assessed under the head "Capital gains" instead of "Profits and gains of business or profession." The court found that the petitioner had made a full disclosure of material facts in the return of income, including detailed summaries and item-wise computations.

4. Validity of the Reasons Recorded for Reopening the Assessment:
The court scrutinized the reasons recorded for reopening the assessment, which were based on an analogy drawn from a subsequent assessment year (2005-06). The court held that the assessment of tax under a wrong head by the Assessing Officer did not justify reopening the assessment beyond the limitation period, especially when none of the conditions in the proviso to section 147 were met. The court also noted that the order rejecting the petitioner's objections sought to supplement the reasons recorded initially, which was not permissible.

Conclusion:
The court concluded that the notice dated March 31, 2008, was issued without jurisdiction and beyond the period of limitation. The court quashed and set aside the impugned notice, allowing the petition. The court emphasized the statutory duty of the Assessing Officer to record reasons for issuing notice under section 148 and held that these reasons could not be supplemented or explained by subsequent orders to give a different complexion to the case.

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