2013 (6) TMI 164 - HC - Income Tax

Reopening of assessment - income assessed as loss under the had Profit and Gains of business or profession as against the head Income from other sources has escaped assessment as banking license had been cancelled by the Reserve Bank of India and its business had been in the process of winding up by the Official Liquidator - Held that - There was no failure on the part of the assessee to disclose truly and fully all material facts. The crucial fact that the banking licence of the petitioner has been cancelled by the Reserve Bank of India was disclosed in the original return itself. The averment of the counsel for the Revenue that despite such cancellation of the banking licence, the petitioner lodged a false claim, even if were to be corrected, would not per se indicate that there was any failure on the part of the assessee to disclose truly and fully all material facts. As long as this requirement is satisfied, it was simply not open for the Assessing Officer to reopen the assessment beyond the period of four years from the end of relevant assessment year. In favour of assessee.

Summary

Issues involved:
Challenge to notice issued under section 148 of the Income Tax Act, 1961 for reopening assessment beyond the prescribed period.

Analysis:
The petitioner, a cooperative bank in liquidation, filed its return for Assessment Year 2005-06 showing a total loss. The Assessing Officer accepted the return after scrutiny. However, the respondent sought to reopen the assessment beyond the four-year period from the end of the relevant assessment year, citing that the petitioner's banking license was canceled, and it was not engaged in any business activity after a certain year. The notice issued highlighted that the income had escaped assessment due to the petitioner's failure to disclose all material facts necessary for assessment.

The key question was whether the respondent could validly reopen the assessment beyond the prescribed period. The Assessing Officer contended that the petitioner's loss should not be treated as a business loss since its banking license was canceled. However, it was found that the cancellation of the banking license was clearly disclosed in the petitioner's return and other records. The petitioner explicitly stated that its banking activities were limited to recovery and payment to depositors post-license cancellation. The Assessing Officer's verification and draft assessment order also confirmed the cancellation of the banking license. As there was no failure on the petitioner's part to disclose material facts, the assessment could not be reopened beyond the stipulated time limit.

Therefore, the court held that the notice issued beyond the four-year period was unjustified and quashed it, allowing the petition in favor of the petitioner, the cooperative bank in liquidation.