2014 (11) TMI 187 - HC - Income Tax

Reopening of assessment u/s 147/148 Reopening beyond the period of four years Failure to diclose material facts or not - Held that - The reopening of the assessment has taken place beyond a period of four years of the end of the relevant AY 2007-08 - there is merit in the submission which has been urged on behalf of the petitioner that the reasons which have been disclosed, in fact, would indicate that it is from a perusal of the assessment records that the AO formed an opinion that income had escaped assessment - besides the fact that there is not even an averment in the reasons to the effect that the assessee had failed to fully and truly disclose all material facts necessary for the assessment, it is evident that the reasons for reopening are based on the assessment records - there was no failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment, for the relevant AY - The jurisdictional condition for reopening an assessment beyond four years has hence not been fulfilled - the reopening of the assessment is contrary to law since the requirement of the proviso to Section 147 has not been fulfilled Thus, the notice for reopening of assessment to be set aside Decided in favour of assessee.

Summary

Issues:
- Challenge to notice issued under Section 148 of the Income Tax Act, 1961 seeking to reopen an assessment for A.Y. 2007-08.
- Jurisdictional requirement for reopening assessment beyond four years.
- Failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
- Legal validity of the notice issued for reopening the assessment.

Analysis:
The petitioner challenged a notice issued under Section 148 of the Income Tax Act, 1961 seeking to reopen an assessment for A.Y. 2007-08, which was beyond the four-year period. The original assessment was completed under Section 143(3) by the Assessing Officer, where the assessee had disclosed closing manufacturing activities and entering into a lease agreement. The Assessing Officer made a partial disallowance while computing income under Section 115 JB. The notice for reopening was issued based on the belief that income had escaped assessment due to depreciation claimed on assets not allowable under Section 32(1).

The jurisdictional requirement for reopening an assessment beyond four years mandates a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. In this case, the reasons for reopening were based on assessment records, indicating no failure on the part of the assessee to disclose material facts. The court highlighted that the jurisdictional condition for reopening an assessment beyond four years was not fulfilled, rendering the reopening contrary to law.

The court emphasized that where a reopening of an assessment occurs within four years, the Assessing Officer must have tangible material to conclude an escapement of income. The decision cited a case distinguishing between reopening within and beyond four years, emphasizing the need for tangible material for reopening within four years. The court concluded that the reopening of the assessment was unlawful as the jurisdictional condition was not met, thereby quashing the notice to reopen the assessment for A.Y. 2007-08.

The court did not delve into the merits of the case regarding the claim for depreciation, as the unlawful reopening of the assessment beyond four years made the notice invalid. The petition was allowed, and the notice dated 31 March 2014 to reopen the assessment under Section 148 for A.Y. 2007-08 was quashed and set aside, with no costs imposed.