2015 (7) TMI 811 - HC - Income Tax

Reopening of assessment - Validity of reasons recorded - Held that - in this case, in fact, the reasons indicate that the basis of the impugned notice is the declaration made by the petitioner in its profit and loss account and its balance sheet read with its notes to the accounts. These clearly show that the petitioner had claimed higher depreciation in view of reestimation of the written down value of its assets over the remaining revised useful life. This information was available with the Assessing Officer at the time when he passed the assessment order dated 29/08/2011 under Section 143(3) of the Act. Thus, the reasons ex-facie do not even remotely suggest that there was a failure on the part of the petitioner to disclose all material facts necessary for assessment. However, the Assessing Officer seeks to draw an inference from the facts which were already available that in view of claiming higher depreciation, there was suppression of book profits, resulting in lower tax payable under the MAT provision i.e. Section 115JB of the Act. In the course of submissions, even the Revenue accepted that there was no failure on the part of the appellant to disclose all material facts necessary for assessment. It is not permissible to the Revenue to draw inferences from the reasons recorded that all material facts, though fully disclosed, are not truly disclosed. Even otherwise, the Revenue was not able to show the facts, which have not been truly disclosed by the appellant, during the assessment proceedings.Accordingly, we find that the primary requirement for issuing the two impugned notices beyond period of 4 years, namely failure to disclose fully and truly all material facts necessary for assessment is not satisfied in the facts of both the impugned notices. Therefore, the impugned notices are without jurisdiction. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening assessments beyond the period of four years.
2. Failure to disclose fully and truly all material facts necessary for assessment.
3. Alleged suppression of book profits due to higher depreciation claims.
4. Jurisdiction of the Assessing Officer under Section 148 of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening Assessments Beyond Four Years:
The petitions challenge the notices dated 22/03/2011 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, seeking to reopen the petitioner's assessments for the assessment years 2004-05 and 2005-06. The notices were issued beyond the period of four years from the end of the relevant assessment year. The court emphasized that for reopening assessments beyond four years, it is mandatory that there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

2. Failure to Disclose Fully and Truly All Material Facts:
The petitioner argued that all material facts necessary for assessment were fully and truly disclosed in their return of income. The reasons recorded for reopening the assessments did not allege any failure to disclose material facts. The court noted that the reasons for reopening were based on information already disclosed by the petitioner in its profit and loss account and balance sheet. The court referenced the case of Allanasans Ltd. Vs. Dy. CIT, stating that the absence of the words "failure to disclose" is not fatal, but the reasons must indicate a failure to disclose fully and truly all material facts. In this case, the reasons did not suggest any such failure.

3. Alleged Suppression of Book Profits Due to Higher Depreciation Claims:
The Assessing Officer claimed that the petitioner's higher depreciation charge led to a suppression of book profits, resulting in lower tax payable under Section 115JB of the Act. The petitioner contended that the higher depreciation was disclosed and approved by statutory auditors and the general body of shareholders. The court found that the reasons recorded for reopening did not indicate any false declaration or suppression of facts. The court highlighted that claiming a particular amount as depreciation, whether eligible or not, is different from not disclosing fully and truly material facts necessary for assessment.

4. Jurisdiction of the Assessing Officer Under Section 148:
The court reiterated that the jurisdictional requirement for issuing a notice under Section 148 beyond four years includes both the belief that income chargeable to tax has escaped assessment and a failure to disclose fully and truly all material facts necessary for assessment. Since the reasons recorded did not allege any failure to disclose material facts, the court held that the primary requirement for issuing the notices was not satisfied, rendering the notices without jurisdiction.

Conclusion:
The court ruled that the impugned notices dated 22/03/2011 were issued without jurisdiction as they did not satisfy the requirement of failure to disclose fully and truly all material facts necessary for assessment. Consequently, the court did not consider the other issues raised by the petitioners. Both petitions were allowed, and the rule was made absolute with no order as to costs.

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