2016 (12) TMI 1196 - HC - Income Tax

Reopening of assessment - registration under Section 12A(a) withdrawn retrospectively with effect from 01.04.2002 - Held that - Considering the fact that at the relevant time and during the years under consideration the registration under Section 12A(a) of the I.T. Act in favour of the petitioner assessee was in force and in existence and accordingly the assessee claimed the deduction under Section 11 of the IT Act, which came to be granted / allowed by the Assessing Officer. Therefore it cannot be said that there was any failure on the part of the assessee in not disclosing the true and correct facts necessary for assessment. Under the circumstances, the condition precedent to assume the jurisdiction to reopen the assessment under Section 147 of the IT Act beyond the period of 4 years are not satisfied. Under the circumstances, on the aforesaid ground alone, the impugned / assessment proceedings which are beyond the period of 4 years deserve to be quashed and set aside. - Decided in favour of assessee

Summary

Issues involved:
1. Validity of notice under Section 148 of the Income Tax Act for reopening assessments for AY 2003-04 and 2004-05.
2. Whether the condition precedent for assuming jurisdiction under Section 147 of the IT Act was satisfied.
3. Impact of withdrawal of registration under Section 12A(a) of the IT Act on the deduction claimed under Section 11.

Detailed Analysis:
Issue 1:
The petitioner challenged the impugned notices under Section 148 of the Income Tax Act seeking to reopen assessments for AY 2003-04 and 2004-05. The Assessing Officer initiated reassessment proceedings beyond the 4-year period, prompting the petitioner to file Special Civil Applications to quash the notices.

Issue 2:
The Court noted that for assessments beyond the 4-year period, the condition precedent under Section 147 of the IT Act must be satisfied. The proviso to Section 147 allows reopening if there was a failure on the part of the assessee in not disclosing true and correct facts necessary for assessment. The petitioner argued that since there was no failure in disclosing facts, the reassessment proceedings should be quashed.

Issue 3:
The withdrawal of registration under Section 12A(a) of the IT Act was a key aspect. The Director of Income Tax (Exemption) canceled the registration retrospectively from 01.04.2002. However, during the relevant assessment years, the petitioner had claimed deductions under Section 11 based on the existing registration. The Court found that the withdrawal of registration did not constitute a failure to disclose facts by the assessee, as the registration was valid when the deductions were claimed.

The petitioner's counsel argued that the withdrawal of registration had been challenged before the Tribunal, and an appeal was pending in the High Court. The Revenue's counsel contended that the withdrawal justified reopening the assessments.

The Court held that as the condition precedent for reopening assessments beyond 4 years was not met, the reassessment proceedings for AY 2003-04 and 2004-05 were quashed. This decision was made without prejudice to the pending appeal regarding the withdrawal of registration. The Court ruled in favor of the petitioner, setting aside the reassessment proceedings without costs.