2014 (11) TMI 51 - HC - Income Tax

Reopening of assessment u/s 148 Amount recognised as claim u/s 35D was a sufficient disclosure of material facts or not Reopening of claim beyond four years without any basis - Held that - Notice for reopening has been issued beyond the period of four years from the end of the relevant AY - As per section 35D of the Act, the expenditure clarifying such deduction would be spread over a span of ten assessment years - when such claim was made and as pointed out by the assessee in the note forming part of the return, the same was accepted in a scrutiny assessment for the first year of the claim, the rest was a matter of computation - the assessee disclosed all the material facts - as held in Calcutta Discount Co. Ltd. v. ITO 1960 (11) TMI 8 - SUPREME Court - the duty is on the assessee to disclose all the facts which had a bearing on the question of a claim - if the AO had doubt about the validity of the claim in law, during scrutiny the same could have been examined - beyond the period of four years, it would not be open for the AO to disturb such claim in the absence of failure on the part of the assessee to disclose fully and truly all material facts Decided in favour of assessee.

Summary

Issues:
1. Validity of notice issued under section 148 of the Income-tax Act, 1961 beyond the prescribed period.
2. Reopening of assessment based on the claim of deduction under section 35D of the Act.
3. Consideration of whether the assessee made full and true disclosure of all material facts.
4. Assessment of whether the notice of reopening was justified.

Issue 1: Validity of Notice Issued Beyond Prescribed Period
The petitioner challenged a notice issued by the Assessing Officer under section 148 of the Income-tax Act, proposing to reopen the assessment for the year 1999-2000, which was framed after scrutiny and issued beyond the four-year period from the end of the relevant assessment year. The petitioner contended that the notice was beyond the statutory limit for reopening assessments.

Issue 2: Reopening Based on Claim of Deduction under Section 35D
The Assessing Officer issued the notice for reopening based on the claim of excess deduction under section 35D of the Act. The petitioner argued that the claim had been accepted in previous assessments, and all necessary facts were disclosed. The Assessing Officer's reasons for reopening the assessment were scrutinized, focusing on the adequacy of the reasons recorded.

Issue 3: Full and True Disclosure of Material Facts
The court examined whether the assessee made full and true disclosure of all material facts regarding the deduction claimed under section 35D. It was noted that the claim had been made for the fifth year, and previous assessments had accepted the claim after scrutiny. The court analyzed the sufficiency of the disclosure made by the assessee and the Assessing Officer's ability to ascertain the validity of the claim.

Issue 4: Assessment of Justification for Notice of Reopening
In the context of the Supreme Court's decision emphasizing the duty of the assessee to disclose all facts relevant to a claim, the court concluded that the assessee had sufficiently disclosed material facts regarding the deduction under section 35D. The court held that the Assessing Officer could have examined the claim during scrutiny if there were doubts about its validity. Since the notice was issued beyond the four-year period without any failure on the part of the assessee to disclose material facts, the petition was allowed, and the notice of reopening was quashed.

The judgment delves into the validity of a notice issued beyond the prescribed period under section 148 of the Income-tax Act, focusing on the reassessment for the year 1999-2000 based on the claim of excess deduction under section 35D. The court analyzed the disclosure of material facts by the assessee, emphasizing the acceptance of the claim in previous assessments and the Assessing Officer's ability to scrutinize the claim during the specified period. Ultimately, the court allowed the petition, quashing the notice of reopening due to the absence of any failure on the part of the assessee to disclose fully and truly all material facts, as required by law.