2008 (11) TMI 2 - HC - Income Tax

Re-opening of assessment - AO had examined and verified the information before finalizing the assessment u/s 143(3) - petitioner submitted various details including bank statements, particulars of cheques received towards share application money and confirmation relating to the share application money received during the year - petitioner had not failed to disclose fully and truly all material facts necessary - Impugned notice issued u/s 148 & proceedings pursuant to this are set aside

Issues Involved:
1. Legality of the notice under Section 148 of the Income Tax Act, 1961 for reopening the assessment.
2. Applicability of the proviso to Section 147 of the Income Tax Act, 1961.
3. Allegation of failure to disclose fully and truly all material facts necessary for assessment.
4. Validity of the reasons provided for reopening the assessment.
5. Compliance with the Supreme Court's directions in GKN Driveshafts (India) Limited v. Income Tax Officer and Others.
6. Examination of whether the case involves a mere change of opinion.

Detailed Analysis:

1. Legality of the Notice under Section 148:
The writ petition challenges the notice dated 29.03.2004 issued by the Assistant Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the assessment year 1998-99. The petitioner had filed a return declaring nil income, and the assessment was completed under Section 143(3) at nil income. The notice under Section 148 was issued on the grounds that the petitioner had allegedly taken accommodation entries from Hallmark Healthcare Limited.

2. Applicability of the Proviso to Section 147:
The case involves the issuance of a notice under Section 148 beyond four years from the end of the relevant assessment year. Therefore, the proviso to Section 147 is applicable. This proviso allows action after four years only if the income chargeable to tax has escaped assessment due to the assessee's failure to make a return or to disclose fully and truly all material facts necessary for the assessment.

3. Allegation of Failure to Disclose Fully and Truly All Material Facts:
The reasons supplied to the petitioner for reopening the assessment did not contain any allegation that the petitioner failed to disclose fully and truly all material facts necessary for the assessment. The petitioner had disclosed all relevant documents during the original assessment proceedings, including details of the share application money received from Hallmark Healthcare Limited. The assessment order noted that the details required were filed and verified.

4. Validity of the Reasons Provided for Reopening the Assessment:
The reasons provided to the petitioner indicated that the assessee had taken accommodation entries from Hallmark Healthcare Limited. However, the petitioner contended that the transaction was genuine and had been fully disclosed during the original assessment. The court found that the reasons supplied did not allege any failure to disclose material facts, which is a necessary condition for reopening the assessment after four years.

5. Compliance with the Supreme Court's Directions in GKN Driveshafts (India) Limited v. Income Tax Officer and Others:
The Supreme Court in GKN Driveshafts directed that the reasons for issuing a notice under Section 148 must be supplied to the assessee within a reasonable time, and the assessee is entitled to file objections to the notice. The Assessing Officer is then bound to dispose of the objections by passing a speaking order. In this case, the reasons were supplied to the petitioner after a significant delay, and the objections were not disposed of in a timely manner, violating the Supreme Court's directions.

6. Examination of Whether the Case Involves a Mere Change of Opinion:
The petitioner argued that the notice under Section 148 was based on a mere change of opinion, which is not permissible under law. The court observed that the original assessment had been completed after due verification of the details provided by the petitioner. The court held that the reopening of the assessment was based on a mere change of opinion and not on any new material or information.

Conclusion:
The court allowed the writ petition, setting aside the notice dated 29.03.2004 under Section 148 and the order dated 02.03.2005. The court held that the reasons supplied to the petitioner did not contain any allegation of failure to disclose material facts, which is a necessary condition for reopening the assessment after four years. The court also found that the proceedings were vitiated due to non-compliance with the Supreme Court's directions in GKN Driveshafts. All proceedings pursuant to the notice were set aside, and the parties were directed to bear their own costs.

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