2017 (7) TMI 367 - HC - Income Tax

Reopening of assessment - unsecured loans from the share holders - escapement of income - Held that - The documents available before us including Exts.P13 document produced by the petitioner, which is an extract from the balance sheet of the company that was made available before the Assessing Officer at the time of initial assessment, clearly reveal that the figure mentioned above was wrongly adopted by the Assessing Officer as representing the total unsecured loans from the share holders. As a matter of fact, the figure adopted by the Assessing Officer is one that is inclusive of the interest component of the unsecured loans. Assessing Officer arrived at a wrong conclusion that there had been an escapement of income in the assessment. If the correct figures had been taken, then there would have been no escapement of income. Thus the proceedings initiated against the petitioner under Section 148, on a wrong premise, cannot be legally sustained. It is also relevant to note that, there is nothing to suggest that there was any non-disclosure, by the petitioner assessee, of the full and true facts that were necessary for the purposes of the assessment, so as to justify the invocation of the 1st Proviso to Section 147, while issuing the notice under Section 148 to the petitioner - Decided in favour of assessee.

Issues:
1. Validity of notice issued under Section 148 of the Income Tax Act for reopening assessment for the assessment year 2008-2009.
2. Compliance with procedural requirements under Section 147 to 153 for reassessment.
3. Establishment of escapement of income due to failure to disclose material facts by the assessee.
4. Justification of reassessment proceedings based on reasons provided in the notice.
5. Interpretation of the 1st Proviso to Section 147 concerning reassessment after the expiry of four years from the end of the relevant assessment year.

Analysis:
1. The petitioner challenged the notice issued under Section 148 for reopening the assessment for the year 2008-2009, contending that the notice did not specify reasons prompting reassessment. The petitioner argued that the notice was legally unsustainable as it did not meet the requirement of establishing escapement of assessment due to failure to disclose material facts. The petitioner further claimed that the reasons provided in the subsequent communication were vague and flawed, leading to a change of opinion rather than a legitimate reassessment.

2. The court examined the provisions of Section 147 of the Income Tax Act, allowing reassessment if income has escaped assessment, subject to procedural requirements. The Assessing Officer can reassess income within four years, ensuring it is not based solely on a change of opinion. The 1st Proviso to Section 147 permits reassessment after four years if the assessee failed to disclose material facts. In this case, the notice was issued after the four-year period, necessitating proof of escapement due to non-disclosure by the assessee.

3. The court found that the Assessing Officer wrongly adopted a figure for unsecured loans, including interest, leading to an incorrect conclusion of income escapement. The petitioner had disclosed all necessary facts during the initial assessment, and there was no evidence of non-disclosure justifying reassessment under the 1st Proviso to Section 147. As the proceedings were initiated on a flawed premise, the court declared them illegal and without jurisdiction, quashing the notice and subsequent proceedings.

4. The respondents attempted to justify the reassessment based on excess interest reckoned by the Department, attributing it to the assessee's failure to provide relevant facts during the initial assessment. However, the court found that the reassessment was unjustified as the Assessing Officer's conclusions were based on incorrect figures and there was no evidence of non-disclosure by the petitioner.

5. The court emphasized the importance of establishing escapement of income due to failure to disclose material facts for reassessment after the four-year period. As the reassessment in this case was based on incorrect figures and lack of non-disclosure by the assessee, the court ruled the proceedings initiated under Section 148 to be illegal and invalid, thereby allowing the writ petition and quashing the notice and subsequent proceedings.

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