2015 (1) TMI 1162 - HC - Income Tax

Reopening of assessment - proceedings are sought to be initiated after the period of four years from the end of relevant Assessment Year - As the provisions of 195 of the IT Act is very clear the amount of ₹ 1064281/- required to be disallowed and added back to the total income of U/s 40(A) failure to do so has resulted into u/a of income of ₹ 1064281/- - Held that - The reasons supplied to the Petitioner do not disclose that there was any failure on the part of the Petitioner to provide all the material facts. That being the position, this ground could not have been taken up against the Petitioner at the time of disposing of the objections. Once this was not the basis for issuance of notice for Reassessment, it cannot be held against the Petitioner that the Petitioner had failed to make a true and full disclosure. It will have to be held that the Petitioner did not fail to make full and true disclosure of all material facts. The jurisdictional requirement for carrying out the reassessment, after the expiry of period of four years, is not fulfilled in the present case. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2005-2006 and rejection of objections raised by the Petitioner.

Analysis:
The Petitioner, a Private Limited Company engaged in printing and publishing, filed its income tax return for the Assessment Year 2005-2006 with a declared loss. An expenditure for advertising was debited in the books of accounts. The Respondent issued a notice under Section 142(1) for scrutiny, seeking particulars of the advertising expenses. The Petitioner explained the expenses related to promotion and publicity outside India, which was accepted by the Assessing Officer, and no disallowance was made. However, after four years, a notice under Section 148 was issued in 2012, alleging that income had escaped assessment due to incorrect allowance of advertising expenses to a non-resident company. The Petitioner's objections were rejected in 2014.

The reassessment proceedings were initiated after four years, necessitating a belief that income escaped assessment due to failure to disclose all material facts. The Reasons supplied to the Petitioner highlighted the incorrect allowance of advertising expenses. The Petitioner's objections were based on providing correct details, including the non-resident status of the advertising company. The court emphasized that the Reasons for reopening should notify the assessee of the reasons for believing income escaped assessment. Failure to disclose material facts is a jurisdictional requirement for reassessment after four years, as established in previous case law.

The court found that the Reasons did not indicate any failure on the Petitioner's part to provide all material facts, which is crucial for reassessment after the statutory period. As such, the Petitioner was not at fault for failing to disclose all relevant information. The court cited case law to support the principle that the duty of the assessee is to present primary facts, leaving the inference to the Assessing Officer. Consequently, the court ruled in favor of the Petitioner, stating that the reassessment proceedings lacked jurisdiction.

In conclusion, the court granted the Petitioner's requested reliefs by quashing the notice and order, and directing the Respondents to refrain from initiating any reassessment proceedings for the relevant assessment year. No costs were awarded in the judgment.