2010 (6) TMI 17 - HC - Income Tax

Disallowance u/s 14A Reassessment income escaping assessment - During the course of the assessment proceedings, the Assessing Officer issued a notice to the assessee on 11 October 2004 seeking inter alia details of dividend claimed to be exempt under Section 10(33) without considering the disallowance under Section 14A. - An assessment order was passed under Section 143(3) on 10 March 2005 determining the total income at Rs.3031.14 Crores. No disallowance was made under Section 14A. On 22 March 2007 a revisional order was passed under Section 263 by the Commissioner directing the First Respondent to consider the applicability of Section 14A. No order was passed by the Assessing Officer to give effect to the order passed by the revisional authority. - However, on 26 February 2009 a notice was issued to the Petitioner seeking to reopen the assessment for Assessment Year 2002-03 on the ground that there was reason to believe that income chargeable to tax had escaped assessment within the meaning of Section 147. Held that . Where an assessment has been made under sub section (3) of Section 143 for the relevant Assessment Year, no action can be taken after the expiry of four years from the end of the relevant Assessment Year unless inter alia there has been a failure of the assessee to disclose fully and truly all material facts necessary for his assessment for that Assessment Year. This is a condition precedent to a valid exercise of the statutory power to reopen an assessment after the expiry of four years from the end of the relevant Assessment Year. Evidently this condition has not been fulfilled. The record of the Court would clearly show that there was a full and true disclosure by the assessee of all the material facts and that the Assessing Officer has brought his mind to bear upon the issue on which the assessment is now sought to be reopened. Notice seeking reopening of an assessment set aside.

Summary

Issues:
Reopening of assessment beyond the statutory period; Failure to disclose material facts necessary for assessment; Application of Section 14A in relation to dividend income; Validity of jurisdiction under Section 147.

Analysis:
The judgment pertains to a case involving the reopening of assessment for Assessment Year 2002-03. The assessee had disclosed a dividend income of Rs.206.95 Crores during the assessment proceedings. The Assessing Officer sought details of the dividend claimed to be exempt under Section 10(33) without considering disallowance under Section 14A. The assessee clarified that no expenditure was incurred for earning the dividend income, and no administrative expenditure was involved. The Assessing Officer passed an assessment order without making any disallowance under Section 14A. Subsequently, a revisional order was passed directing consideration of Section 14A, leading to a notice for reopening the assessment under Section 147 on the grounds of escaped income.

The validity of invoking jurisdiction under Section 147 depended on whether there was a failure to disclose fully and truly all material facts necessary for assessment. The assessee contended that full disclosure was made during assessment proceedings, and the Assessing Officer had previously accepted a similar plea in earlier assessment years. The Revenue argued that each assessment year is independent, and past decisions do not bind the Assessing Officer.

The Court observed that the assessee had indeed disclosed all material facts necessary for assessment, including the absence of expenditure for earning the dividend income. The Assessing Officer had considered this issue in previous assessments as well. The condition precedent for reopening an assessment after four years was not met, as there was no failure to disclose material facts. Additionally, the Commissioner's order under Section 263 had directed consideration of Section 14A, which was not implemented by the Assessing Officer within the prescribed time limit.

Ultimately, the Court held in favor of the Petitioner, setting aside the notice to reopen the assessment for Assessment Year 2002-03. The judgment emphasized the importance of full and true disclosure of material facts by the assessee for a valid exercise of the power to reopen assessments.