2017 (9) TMI 671 - HC - Income Tax

Reopening of assessment - set off brought forward losses - eligible reasons to believe - Held that - In the reasons for reopening of the assessment in the present case, the AO recorded that the Assessee was allowed to set off brought forward losses of ₹ 5,32,18,761/- whereas, according to the AO, as per the assessment records of the AY 2007-08, no loss was available for set off in subsequent year as the Assessee-company was assessed at an income of ₹ 19,73,01,700/- in AY 2007-08. Without indicating the manner in which there was failure on the part of the Assessee to disclose fully and truly, material facts necessary for the assessment, the AO has simply reproduced the words to that effect as occurring in the first proviso to Section 147 (1) of the Act. This, therefore, does not fulfil the mandatory requirement of the law. The fact of the matter is that for three AYs earlier to the AY in question, the assessments, after scrutiny under Section 143 (3) of the Act, were completed at a loss, although at a figure lower than that claimed by the Assessee. The assessment for AY 2005-06 was completed only on 25th November, 2008 whereas the Assessee filed its return for the AY in question on 30th September, 2008 and a revised return on 14th October, 2008. Consequently, the Assessee did not have benefit of the assessment order passed for AY 2005-06 at the time of filing its return for the AY in question. There was therefore no failure by the Assessee to make a full and true disclosure of the material facts relevant for the assessment.- Decided in favour of assessee.

Issues:
Challenge to notices seeking to reopen assessment for AY 2008-09 under Section 148 of the Income Tax Act, 1961.

Analysis:
The petitioner challenged the notices dated 18th March 2015, 24th March 2015, and 18th January 2016 issued by the Deputy Commissioner of Income Tax (DCIT) seeking to reopen the assessment for AY 2008-09. The challenge also extended to the order dated 8th March 2016 passed by the DCIT regarding the petitioner's objections against the notice dated 18th March 2015. The assessment for AY 2008-09 was completed under Section 143(3) of the Act on 16th December 2011. The notices to reopen the assessment were issued more than four years after the AY, triggering the requirement to comply with the first proviso of Section 147 of the Act. This proviso mandates that the assessing officer must record reasons for reopening the assessment based on the failure of the assessee to make a full and true disclosure of material facts relevant to the assessment for the AY in question.

In the present case, the reasons for reopening the assessment highlighted that the assessee was allowed to set off brought forward losses, but the assessing officer claimed there was no loss available for set off in the subsequent year based on the assessment records of AY 2007-08. However, the assessing officer failed to indicate how there was a failure on the part of the assessee to fully and truly disclose material facts necessary for the assessment, as required by law. The assessments for three AYs prior to the AY in question were completed at a loss, albeit at a lower figure than claimed by the assessee. The assessment for AY 2005-06 was finalized after the assessee filed its return for the AY in question, meaning the assessee did not have the benefit of the assessment order for AY 2005-06 at the time of filing its return. Therefore, there was no failure on the part of the assessee to disclose material facts relevant for the assessment.

As the threshold requirement for reopening the assessment under the proviso to Section 147(1) of the Act was not met, the court set aside the three notices under Section 148 of the Act seeking to reopen the assessment for AY 2008-09. Consequently, the court also nullified the order dated 18th January 2016 passed by the DCIT rejecting the petitioner's objections. The writ petition was allowed in favor of the petitioner.

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