2006 (2) TMI 113 - HC - Income Tax

Notices issued under section 148 - reopening of the assessments - where the assessment is sought to be reopened beyond four years from the end of the relevant assessment year then unless it is established that there was failure on the part of the assessee to disclose fully and truly all material facts the question of invoking Explanation 2 to section 147 does not arise at all - notices issued for the reopening of the assessments do not fulfil the preconditions required to be fulfilled for reopening the assessment. Accordingly we quash and set aside the impugned notices issued under section 148 of the Income-tax Act 1961

Summary

Issues:
Challenging notices under section 148 of the Income-tax Act and order rejecting objections for reopening assessments for the assessment years 1998-99 and 1999-2000.

Analysis:
The petitioners challenged the notices issued under section 148 of the Income-tax Act and the order rejecting objections for reopening assessments for the years 1998-99 and 1999-2000. The petitioners argued that there was no failure on their part to disclose all material facts, as the reasons for reopening were based on records available with the department. They contended that the market value adopted by them for Hexapeptide was consistently accepted by the assessing authorities since 1994-95. The petitioners highlighted that even in the assessment year 1999-2000, the issue of market value was raised, and after consideration, the price was adjusted. They further argued that the Assessing Officer could not reopen the assessment without any failure on their part to disclose the basis of pricing. The petitioners also objected to the Assessing Officer's attempt to supplement reasons beyond the permissible scope. They emphasized that the revenue had not made a case for reopening the assessment beyond four years, and the reasons given by the Assessing Officer were factually incorrect.

The respondents, on the other hand, supported the orders passed by the authorities below. They argued that the transfer price shown by the petitioners was not just and proper, leading to the justification for reopening the assessment. The respondents contended that the consistency in the transfer price since 1994-95 indicated an error in pricing. They asserted that the Assessing Officer was justified in invoking section 148 for reassessment based on the directors' report and submissions made during the assessment proceedings for the year 2002-03. The respondents maintained that the petitioners could raise all contentions during reassessment, and interference was not warranted at that stage.

The court considered the submissions and established that for reopening an assessment under section 148 beyond four years, there must be a failure on the part of the assessee to disclose all material facts. In this case, the reasons for reopening were not based on any such failure but on existing records. The court noted discrepancies in the Assessing Officer's conclusions, as the petitioners had made profits on the final product despite the officer's claim of losses. The court also dismissed the reliance on the directors' report and the submission in the assessment year 2002-03 as grounds for reopening, as they did not indicate a failure to disclose material facts. The court ruled that the notices for reopening assessments did not meet the necessary preconditions and thus quashed them.

In conclusion, the court set aside the impugned notices issued under section 148 of the Income-tax Act, ruling in favor of the petitioners. The court found that the reopening of assessments lacked the required grounds and did not fulfill the conditions for reassessment. The judgment favored the petitioners, quashing the notices without costs.