2011 (6) TMI 138 - HC - Income Tax

Reassessment - Income escaping assessment - Since the first two conditions are not pleaded by the Respondents, it is the submission of the Petitioner that the notice is wholly unwarranted and invalid since there is no allegation whatsoever that the Petitioner has failed to disclose all material facts necessary for assessment - long term capital gains have been wrongly claimed by the assessee which have been wrongly considered for the set off of the Unit of Kundaim which has resulted in escapement of income - it is necessary for the Assessing Officer to first observe whether there is a failure to disclose fully and truly all material facts necessary for assessment and having observed that there is such a failure to proceed under Section 147 - There is a well known difference between a wrong claim made by an assessee after disclosing all the true and material facts and a wrong claim made by the assessee by withholding the material facts fully and truly - the Writ Petition is allowed

Summary

Issues:
Challenge to notice under Section 147 of the Income Tax Act for re-opening assessment beyond four years.

Analysis:
The petitioner, an assessee under the Income Tax Act, challenged a notice issued under Section 147 for re-opening assessment beyond four years. The petitioner filed a return of income for the assessment year 1997, which was assessed under Section 143(3) of the Act. Subsequently, the respondents issued a notice for re-opening the assessment on the grounds that income had escaped assessment due to incorrect claims made by the petitioner. The petitioner contended that the notice was unwarranted as there was no failure to disclose material facts necessary for assessment. The court emphasized that the power under Section 147 does not allow correcting an incorrect assessment unless there was a failure to fully disclose material facts by the assessee. The court referred to a previous decision where it was held that the failure to disclose all material facts must be recorded by the assessing officer to proceed under Section 147. In this case, the assessing officer did not record such a failure but only noted incorrect claims made by the petitioner. Therefore, the court found the notice unsustainable and quashed it.

The court held that the impugned notice was not sustainable and ordered it to be quashed and set aside. The writ petition was allowed in favor of the petitioner. The court made the rule absolute in terms of the prayer clauses presented by the petitioner, which sought the issuance of a writ of Certiorari to quash the notice and reassessment proceedings for the assessment year 1997-98. Additionally, a writ of Prohibition was requested to permanently restrain the respondent from taking any further action based on the impugned notice dated 18th March 2004 and reassessing the petitioner's income for the said assessment year.