2014 (9) TMI 4 - HC - Income Tax

Validity of notice u/s 148 Full and True disclosure - Held that - While the AO mentioned that income had escaped assessment because of the failure on the part of the assessee to fully and truly disclose the material facts for assessment, he has not indicated as to which material fact had not been fully and truly disclosed by the assessee - Relying upon Rural Electrification Corporation Ltd. vs. Commissioner of Income Tax 2013 (5) TMI 388 - DELHI HIGH COURT - merely having a reason to believe that income had escaped assessment is not sufficient for reopening the assessment beyond the four year period - It is essential that the escapement of income from assessment must be occasioned by the failure on the part of the assessee to, disclose material facts, fully and truly - it has not been specifically indicated as to which material fact or facts was/were not disclosed by the petitioner in the course of its original assessment u/s 143(3) of the Act - the AO had in mind the fact that the petitioner was carrying out its activities on job work basis when he observed that the petitioner had failed to disclose fully and truly all material facts - even on this presumption the AO was not correct. In the Transfer Pricing Report submitted by the assessee it had been clearly indicated that it had processed raw beads to the extent of 1,03,213 Kgs into finished imitation pearls in the financial year 2004-2005 which related to the AY 2005-2006 thus, the entire activity and particularly the nature of manufacturing/production activity carried out by the petitioner on job work basis was clearly revealed before the AO in the original round as well as in the round of re-assessment - the statement of the AO in support of the notice dated 23.03.2012 that there had been failure on the part of the petitioner/assessee to fully and truly disclose the material facts, is completely belied by the records of the case thus, the notice for reopening of assessment is set aside Decided in favour of Assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Compliance with the first proviso to Section 147 of the Income Tax Act, 1961.
3. Alleged failure of the assessee to disclose fully and truly all material facts necessary for assessment.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner sought a writ of certiorari to quash the notice dated 23.03.2012 issued by the Assistant Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, and the order dated 25.02.2013 passed by the Deputy Commissioner of Income Tax. The notice under Section 148 was issued beyond the period of four years from the end of the relevant assessment year (2005-2006). The court noted that the issuance of the notice under Section 148 was beyond the four-year period, making the first proviso to Section 147 applicable.

2. Compliance with the First Proviso to Section 147 of the Income Tax Act, 1961:
The first proviso to Section 147 stipulates that no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment due to the assessee's failure to make a return or to disclose fully and truly all material facts necessary for the assessment. The court highlighted that the reasons provided by the Assistant Commissioner did not specify which material facts were not fully and truly disclosed by the assessee.

3. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts Necessary for Assessment:
The court examined whether the petitioner failed to disclose all material facts necessary for assessment. It was observed that the petitioner had filed its return of income on 31.10.2005, claiming a deduction under Section 10B of the Act, and the assessment order was passed on 28.11.2008 under Section 143(3) after considering the Transfer Pricing Officer's report. The petitioner had responded to a notice under Section 154 and provided detailed submissions, indicating eligibility for the deduction under Section 10B. The court found that the petitioner had disclosed its activities, including the processing of raw beads into finished imitation pearls, both in the Transfer Pricing Report and in response to the Assessing Officer's queries during the original assessment proceedings.

The court referenced previous judgments, including Haryana Acrylic Manufacturing Co. vs. Commissioner of Income-Tax and Another, and Rural Electrification Corporation Ltd. vs. Commissioner of Income Tax, which emphasized that merely having a reason to believe that income had escaped assessment is not sufficient for reopening assessments beyond the four-year period. It must be shown that the escapement of income was due to the assessee's failure to disclose fully and truly all material facts necessary for assessment.

The court concluded that the petitioner had fully and truly disclosed all material facts necessary for assessment, and the Assessing Officer's statement that there had been a failure to disclose material facts was not supported by the records. Consequently, the notice dated 23.03.2012 and the order dated 25.02.2013 were quashed, and all proceedings pursuant to the said notice were also quashed.

Conclusion:
The writ petition was allowed, and the impugned notice and order were set aside. The court ordered that there shall be no order as to costs.

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