2006 (6) TMI 81 - HC - Income Tax

Validity of notices issued under section 148 - reopening of the assessment is based on the presumption that the assessee might have recovered higher amount than what was declared by the assessee and there is no material on record to suggest that the assessee had received higher amount which has escaped assessment. In these circumstances, it cannot be said that there was any failure on the part of the assessee to disclose fully and truly all materials. Consequently, the reopening of the assessment by the impugned notice cannot be sustained

Issues Involved:
1. Validity of the notice issued under section 148 of the Income-tax Act, 1961.
2. Alleged failure of the assessee to disclose fully and truly all material facts relevant for the assessment.
3. Comparison of the business operations and sales figures with M/s. Omega Rolling Mills Ltd.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income-tax Act, 1961:
The petition challenges the validity of the notice dated March 26, 1992, issued under section 148 of the Income-tax Act, 1961, by the Assistant Commissioner of Income-tax, Central Circle-31, Mumbai. The notice aimed to reopen the assessment for the assessment year 1981-82 for M/s. Devidayal Rolling Mills. The court admitted the petition on August 12, 1992, and stayed further proceedings pursuant to the impugned notice.

2. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts:
The assessee, engaged in converting copper wire bars into copper rods or coils, disclosed the sale of waste residue amounting to Rs. 4,52,874 in its books for the assessment year 1981-82. The Assessing Officer initially accepted these figures after calling for and receiving full particulars regarding the collection and sale of waste residue. The reopening notice was based on the belief that there was a prima facie concealment of net income due to unaccounted sales of copper oxide, calculated based on a comparison with M/s. Omega Rolling Mills Ltd.

The court emphasized that reopening an assessment beyond four years requires proof of the assessee's failure to disclose fully and truly all material facts. The court found that the Assessing Officer had not alleged any failure on the part of the assessee in the reasons recorded for reopening the assessment. Additionally, there was no material evidence to suggest that the amounts received from the sale of waste residue were higher than those disclosed by the assessee.

3. Comparison of Business Operations and Sales Figures with M/s. Omega Rolling Mills Ltd.:
The reopening was partly based on the observation that M/s. Omega Rolling Mills Ltd. claimed a higher recovery and sale price for similar waste residue during the assessment year 1991-92. The court noted that the market price of waste residue in 1991-92 could not be applied to the assessment year 1981-82 due to varying market conditions. The court also highlighted that the income-tax authorities had consistently verified and accepted the sales figures declared by the assessee in previous years, including the assessment years 1977-78 and 1978-79.

The court concluded that there was no evidence to show that the assessee had received higher amounts than declared. The mere possibility of a higher sale price did not constitute a failure to disclose material facts. The court stated that the reopening of the assessment based on presumptions without concrete evidence was unsustainable.

Conclusion:
The court held that the reopening of the assessment for the assessment year 1981-82 was not justified as there was no failure on the part of the assessee to disclose fully and truly all material facts. The impugned notice dated March 26, 1992, was quashed and set aside. The rule was made absolute with no order as to costs.

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