2011 (3) TMI 1391 - HC - Income Tax

Re-opening of assessment - notice after expiry of 4 years - held that - condition precedent for invoking the proviso to section 147 of the Act, viz., failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, is clearly not satisfied. In the circumstances, the assumption of jurisdiction under section 147 of the Act, is not valid and as such, the impugned notice under section 148 of the Act, cannot be sustained - income stated to have escaped assessment under the second ground is concerned, the same having been subject matter of appeal would not fall within the ambit of section 147 of the Act and as such the Assessing Officer lacks jurisdiction to reopen the assessment on the said ground - petition succeeds and is accordingly allowed

Summary

Issues:
1. Validity of re-opening assessment under section 147 of the Income Tax Act, 1961 beyond the prescribed time limit.
2. Requirement of failure on the part of the assessee to disclose fully and truly all material facts for assessment.
3. Jurisdiction of Assessing Officer to re-open assessment based on specific grounds.

Analysis:

Issue 1: Validity of re-opening assessment under section 147
The petitioner challenged the notice re-opening assessment for the year 2003-2004 issued beyond the four-year period. The Assessing Officer must have two-fold satisfaction for re-opening, which includes income escaping assessment and failure to disclose material facts. The notice was challenged on the grounds of jurisdictional validity.

Issue 2: Failure to disclose material facts
The petitioner argued that there was no failure to disclose all material facts necessary for assessment. The reasons recorded for re-opening did not indicate any such failure on the part of the petitioner. The satisfaction of the Assessing Officer was based on material disclosed by the petitioner and subsequent legislative amendments, rather than a failure to disclose necessary facts.

Issue 3: Jurisdiction to re-open assessment based on specific grounds
The Assessing Officer sought to re-open assessment based on two grounds: deduction of provision written back and depreciation claim. The first ground was based on material disclosed by the petitioner, and the second ground was due to a legislative amendment. However, there was no indication of failure to disclose material facts. The Assessing Officer lacked jurisdiction to re-open assessment on these grounds.

The judgment concluded that the re-opening of assessment was not valid as the condition of failure to disclose material facts was not met. The Explanation 2(c) of section 147 was rejected as it does not override the proviso to section 147. Additionally, the second proviso to section 147 excludes income subject to appeal from re-assessment. Therefore, the petition was allowed, and the impugned notice re-opening the assessment was quashed and set aside.