2014 (10) TMI 6 - HC - Income Tax

Reopening of assessment u/s 147 Full and true disclosure bar of limitation - Held that - The return of income was furnished by the assessee on 31.10.2001 and the assessment was framed by the AO u/s 143(3) - The notice u/s 148 was issued by the AO on 31.03.2007 after a period of four years from the end of the relevant assessment year relying upon Ganga Saran & Sons P. Ltd. Vs. Income-Tax Officer and others 1981 (4) TMI 5 - SUPREME Court - It there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income Tax Officer could not have reason to believe that any part of the income of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to he struck down as invalid - the Tribunal was justified in holding that the initiation of proceedings u/s 148 was barred by limitation Decided against revenue.

Summary

Issues:
Validity of notice under Section 148 of the Income Tax Act based on failure to disclose fully and truly all material facts necessary for assessment.

Analysis:
The High Court addressed the issue of whether the Tribunal was legally justified in quashing the initiation of proceedings under Section 147 due to notices being issued beyond four years without mentioning the failure of the assessee to disclose all material facts necessary for assessment. The Court referred to the decision in Ganga Saran & Sons P. Ltd. Vs. Income-Tax Officer, emphasizing the requirement that the Income Tax Officer must have reason to believe that income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The Court highlighted that the belief must be based on relevant and material reasons, and if there is no rational nexus between the reasons and the belief, the notice issued would be invalid. Additionally, the Court cited Phool Chand Bajrang Lal and another Vs. Income Tax Officer, stating that the Income-tax Officer can reopen assessment only if specific, reliable, and relevant information leads to a belief that income has escaped assessment due to the assessee's failure to disclose material facts.

The Court found that the return of income was furnished by the assessee on a specific date, and the assessment was framed by the Assessing Officer after a certain period. However, the notice under Section 148 was issued after four years from the end of the relevant assessment year, without mentioning that the assessee had failed to disclose all material facts necessary for assessment. The Court concluded that the Tribunal was justified in holding that the initiation of proceedings under Section 148 was barred by limitation. The Court upheld the Tribunal's decision, stating that there was no manifest error in the order passed by the Tribunal. Consequently, the answer to the substantial question of law favored the assessee, and the appeal filed by the Department was dismissed.