2014 (7) TMI 559 - HC - Income Tax

Validity of notice u/s 148 of the Act Reason to believe - Assessee engaged in trading of various industrial products Failure to disclose material facts - Held that - At the time of issuing a notice u/s 148 of the Act, it is not necessary for the AO to conclusively arrive at a finding that there has been escapement of income - At the stage of issue of the notice the only requirement is to examine whether on the available material a reasonable person could form a reasonable view to believe that income chargeable to tax has escaped assessment - the satisfaction of the AO to form a reasonable belief that income chargeable to tax has escaped assessment is not unreasonable. The recording or non-recording of the words failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment would not by itself bestow or oust jurisdiction one would necessarily have to read the reasons as a whole to find out whether or not there has been a failure to disclose truly and fully all necessary facts for assessment - the reasons recorded clearly indicates that scrutiny proceedings for AY 2008-09 and survey action taken u/s 133A of the Act has brought on record evidence indicating bogus purchase bills from various parties, one of them being M/s. Rahul Industries for the AY 2005-06 as indicated in the chart annexed to the reasons recorded the notice and the reasons recorded does indicate that there is relevant material obtained during the survey and assessment proceedings for assessment year 2008-09 on the basis of which a reasonable person could reasonably form the belief that income chargeable to tax has escaped assessment thus, there was no reason to interfere in the notice of reassessment u/s 148 of the Act Decided against Assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reopening of the assessment was beyond the period of 4 years.
3. Whether there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment.
4. Whether the reopening of the assessment constitutes a change of opinion.

Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 7 December 2010 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2005-06. The petitioner argued that the reopening was not warranted as all material facts were already disclosed during the original assessment under Section 143(3) of the Act. The Assessing Officer, however, contended that fresh information obtained during subsequent scrutiny and survey proceedings indicated that certain suppliers were bogus, leading to the belief that income chargeable to tax had escaped assessment.

2. Whether the reopening of the assessment was beyond the period of 4 years:
The petitioner argued that the notice was issued beyond the period of 4 years from the end of the relevant assessment year, and thus, the reopening was not justified. The court examined whether the jurisdictional requirement of having a reason to believe that income chargeable to tax had escaped assessment due to the failure of the petitioner to disclose all material facts was satisfied. The court noted that the information regarding bogus suppliers was obtained during survey proceedings and assessment for the year 2008-09, suggesting that the petitioner did not fully disclose all necessary facts during the original assessment.

3. Whether there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment:
The court observed that the reopening of the assessment was based on information obtained during the survey and scrutiny proceedings for subsequent years, which indicated that certain purchases were made from non-existent or bogus dealers. The court held that the shield under the proviso to Section 147 of the Act could only aid the petitioner if there was a full and true disclosure of all facts necessary for assessment. Since there was prima facie doubt about the truthfulness of the disclosures made during the original assessment, the court found that the conditions for reopening the assessment were satisfied.

4. Whether the reopening of the assessment constitutes a change of opinion:
The petitioner argued that the reopening of the assessment was based on the same set of facts that were already examined during the original assessment, and thus, it constituted a change of opinion. The court, however, noted that the information regarding bogus bills from Rahul Industries was not examined during the original assessment. The court held that the reopening was based on fresh information obtained during subsequent proceedings, and therefore, it did not constitute a change of opinion. The court emphasized that the satisfaction of the Assessing Officer to form a reasonable belief that income chargeable to tax had escaped assessment was not unreasonable.

Conclusion:
The court dismissed the petition at the stage of admission, holding that the reopening of the assessment was justified based on the fresh information obtained during subsequent survey and scrutiny proceedings. The court clarified that its observations were prima facie and made in the context of whether to exercise its writ jurisdiction under Article 226 of the Constitution of India. The petitioner was allowed to contest the merits of the reopening during the reassessment proceedings before the Assessing Officer.

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