2013 (1) TMI 153 - HC - Income Tax

Reopening of assessment - assessee has failed to disclose all material facts truly and fully - Held that - Revised return of income for the assessment year 2002-03 in March 2004 and filing the return of income for the assessment year 2003-04 on 2.12.2003 that the loss of Rs.2,52,14,220/- was not claimed in the revised return of income for the assessment year 2002-03 and the reversal of the aforesaid loss in the books of account for the year ended 31.03.2003, relevant to the assessment year 2003-04 could not be subjected to tax for that assessment year. This was consistent with the position that neither the income nor the loss relating to the paper board division could be considered to belong to the petitioner on and after 01.10.2001. The reduction of the income for the assessment year 2003-04 by the loss of Rs.2,52,14,220/- was therefore consistent with the memorandum of understanding, the petitioner had also reduced the income for the assessment year 2003-04 by the aforesaid loss. The ultimate position was that since the loss relating to the paper board division incurred between 01.10.2001 to 31.3.2002 was reduced from the loss of the petitioner company to show a reduced loss for that year, the profit shown for the year ended 31.3.2003 relating to the assessment year 2003-04 should correspondingly be reduced by the aforesaid loss. This position was duly informed to the assessing officer in the return and the documents and accounts accompanying it. The factual position thus show that the complete particulars relating to the memorandum of understanding and its impact on the profit and loss of the petitioner company was disclosed by the petitioner in its return of income. There was no failure on the part of the petitioner to disclose the primary facts causing no escapement of income - notice u/s 148 is therefore, without jurisdiction - in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 beyond the period of four years.
2. Disclosure of material facts by the petitioner.
3. Jurisdiction of the reassessment proceedings.

Detailed Analysis:

1. Legality of the Notice Issued Under Section 148 Beyond the Period of Four Years:
The primary issue is whether the notice issued under Section 148 on 26.03.2010, beyond the period of four years from the end of the assessment year 2003-04, is without jurisdiction. The court noted that under the first proviso to Section 147, an assessment made under Section 143(3) can only be reopened beyond the period of four years if the income chargeable to tax had escaped assessment due to the failure of the assessee to disclose fully and truly all material facts necessary for his assessment. The court emphasized that the explanation to Section 147 clarifies that merely producing account books or other evidence does not amount to disclosure if the material evidence could have been discovered by the assessing officer with due diligence.

2. Disclosure of Material Facts by the Petitioner:
The petitioner, a company engaged in the manufacturing of packing materials, had entered into a Memorandum of Understanding (MOU) with R.T. Paper Board Ltd. on 01.10.2001, transferring its paper board division. The approval for this transfer came after 31.12.2002. The petitioner accounted for the income and expenses of the paper board division in its books until the approval date. For the assessment year 2002-03, the petitioner initially included a loss of Rs.2,52,14,220/- in its return but later revised the return to exclude this loss, reducing it to Rs.38,49,710/-. This revised return was filed in March 2004 and was considered in the assessment order dated 28.3.2005. For the assessment year 2003-04, the petitioner reduced the loss of Rs.2,52,14,220/- from its books, which was disclosed in note No.B-29(e) of the audited accounts. The court found that the petitioner had disclosed all relevant facts and there was no failure on its part to disclose the primary facts necessary for assessment.

3. Jurisdiction of the Reassessment Proceedings:
The court examined the factual position and concluded that the petitioner had disclosed complete particulars relating to the MOU and its impact on the profit and loss in its return of income. When the assessment for the assessment year 2003-04 was first completed on 24.3.2006, all relevant facts were disclosed by the petitioner through the notes to the accounts. The court held that since all primary facts were disclosed by the petitioner in the original return, there was no escapement of income chargeable to tax due to the petitioner's failure to furnish the primary facts. Consequently, the notice issued under Section 148 was deemed to be without jurisdiction.

Conclusion:
The court quashed the notice issued under Section 148 and the order dated 6.12.2010 dismissing the petitioner's objections. The writ petition was allowed with no order as to costs.