2015 (7) TMI 920 - HC - Income Tax

Validity of reopening of assessment - Held that - Firstly, there is no failure to make full and true disclosure of necessary facts which is the jurisdictional requirement for initiating reopening proceedings after period of four years as per the proviso to Section 147. Secondly, the reasons do not show that there was any failure to disclose. Mr. Malhotra, on behalf of the respondent-revenue contended that the Petitioner filed a return before a wrong authority and, therefore, that earlier return was not a return in the eyes of law. This is not the reason stated by the Assessing Officer and, therefore, it cannot be permitted to be taken at this stage. It is a settled position as held by this Court in Hindustan Lever Ltd. v/s R.B. Wadkar 2004 (2) TMI 41 - BOMBAY High Court , that the reopening notice stands or falls by the reasons recorded at the time of reopening notice is issued. It is not permissible to add further reasons to those recorded while issuing of the reopening notice. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice under Section 148 issued by Income Tax authorities seeking to reopen assessment for the year 2001-02.
2. Interpretation of Sections 147 and 148 of the Income Tax Act, 1961.
3. Requirement of jurisdictional conditions for initiating reassessment proceedings.
4. Disclosure of reasons for reassessment proceedings.
5. Assessment of whether necessary facts were fully and truly disclosed by the assessee.

Analysis:

1. The petitioner, a Cooperative Housing Society, challenged a notice issued by the Income Tax authorities under Section 148 seeking to reopen the assessment for the year 2001-02. The petitioner had filed its return and replied to a notice of scrutiny assessment in 2002. However, the reassessment notice was issued in 2007, beyond the four-year period. The petitioner contended that the notice was invalid as it did not meet the jurisdictional requirements specified in Section 147 of the Act.

2. Sections 147 and 148 of the Income Tax Act empower the Assessing Officer to reassess income if it has escaped assessment. The jurisdictional requirements under these sections are crucial, and the initiation of reassessment proceedings can be challenged by the assessee if these requirements are not met. The Assessing Officer must disclose reasons for initiating reassessment, and these reasons cannot be improved upon later. The validity of reassessment proceedings is determined based on the reasons furnished to the assessee.

3. In this case, the reasons for reopening the assessment were provided to the petitioner by the Assessing Officer. The reasons indicated that income chargeable to tax had allegedly escaped assessment due to receipts from outside parties not being disclosed as taxable income by the petitioner. However, the reasons did not suggest any failure on the part of the petitioner to fully and truly disclose necessary facts for assessment, which is a jurisdictional requirement for initiating reassessment after the four-year period.

4. It was observed that all necessary and relevant facts were furnished by the petitioner during the assessment, and there was no indication in the reasons that there was a failure to disclose such facts. The petitioner's argument that there was no failure to make full and true disclosure of necessary facts was supported by the fact that the reasons did not show any such failure. The Assessing Officer's contention that the earlier return filed by the petitioner was before the wrong authority was not a reason recorded for reopening and could not be considered at that stage.

5. The court held that the reopening notice stands or falls based on the reasons recorded at the time of issuance, and it is not permissible to add further reasons later. As the reasons did not establish a failure to disclose necessary facts, the petition was allowed, and the rule was made absolute in favor of the petitioner. No costs were awarded in the matter.