2016 (6) TMI 650 - HC - Income Tax

Reopening of assessment - assessee has wrongly claimed exemption u/s 11(1)(a) of the Act on accumulated income and thereby has failed to disclose truly and fully all material facts - Held that - From the reasons recorded with the Assessing Officer for issuing notice for reopening, it can be seen that it was only upon verification of case records that he noticed certain discrepancies in the tax liability of the assessee. Neither in the reasons recorded there is any reference that income chargeable to tax escaped assessment due to failure on the part of the assessee to disclose truly and fully all material facts, nor such factor can be inferred upon giving all the reasons. In fact, the reasons start with the expression on verification of the case records, it is noticed that . Thus, the relevant facts were very much on record when the original assessment was framed and even according to the Assessing Officer, there was no failure on the part of the assessee to disclose material facts. Appellate Tribunal is correct in law on quashing the order passed u/s 143(3) r.w.s. 147 of the Act - Decided against revenue

Summary

Issues: Validity of proceedings for reopening of assessment

The judgment by the Gujarat High Court involved a challenge by the Revenue against the Income Tax Appellate Tribunal's decision regarding the reopening of assessment. The main question raised was whether the Tribunal was correct in quashing the order passed under section 143(3) read with section 147 of the Income Tax Act, particularly in a case where the assessee had wrongly claimed exemption under section 11(1)(a) on accumulated income without fully disclosing all material facts.

Analysis:

The issue in question pertained to the validity of the proceedings for reopening the assessment for the assessment year 2006-07. The Assessing Officer issued a notice for reopening the assessment beyond the four-year period from the end of the relevant assessment year. The reasons recorded for issuing the notice highlighted certain discrepancies in the tax liability of the assessee, specifically related to the claim of exemption under section 11(1)(a) on accumulated income. The Assessing Officer believed that income chargeable to tax had escaped assessment due to the incorrect claim of exemption on deemed income, which was not allowable as per relevant circulars.

The assessee challenged the validity of the notice for reopening before the Revenue Authorities and subsequently before the Tribunal. The Tribunal held that the proceedings for reopening were invalid. However, the High Court, upon a thorough examination of the reasons recorded by the Assessing Officer, concluded that the reopening of the assessment was indeed justified. The Court noted that the reasons did not indicate any failure on the part of the assessee to disclose material facts during the original assessment. The Assessing Officer had explicitly stated that the discrepancies were noticed upon verification of case records, indicating that the relevant facts were already on record during the original assessment.

Therefore, the High Court dismissed the Tax Appeal, upholding the validity of the proceedings for reopening the assessment. The Court found that there was no failure on the part of the assessee to disclose material facts, and the reopening beyond the four-year period was correctly permitted by the Tribunal.