2022 (5) TMI 247 - HC - Income Tax

Reopening of assessment u/s 147 - payment received by the appellant from two companies as compensation for cancellation of agreements for non-compete / non-solicitation and termination of related rights - HELD THAT - The said amount has been taxed during the assessment year 2005-2006, which has also been accepted by the respondent / assessing authority by assessment order dated 14.12.2007. Without considering the same, the respondent reopened the assessment, stating that the appellant failed to truly and fully disclose the material particulars at the time of passing the order of assessment. The learned Judge also, directed the respondent to pass re-assessment order, in accordance with law. Having regard to the above stated position, this court, in order to provide an opportunity to the appellant and also in the interest of justice, is inclined to set aside the order of the learned Judge in the writ petition as well as the order of the respondent rejecting the objection filed by the appellant for reopening the assessment and are acco6rdingly set aside, in the following terms (i) The appellant is directed to submit all the material evidence along with additional objection meeting out the proposal raised by the respondent/Assessing Authority for reopening the assessment under Section 148 of the Act, before the respondent, within a period of two weeks from the date of receipt of a copy of this judgment. (ii) On receipt of such material evidence and additional objection, the respondent is directed to consider the same and pass appropriate orders on merits and in accordance with law, within a period of two weeks thereafter.

Summary

Issues:
Reopening of assessment under Section 148 of The Income Tax Act, 1961 for the assessment year 2003-2004 based on non-disclosure of material facts by the appellant.

Analysis:
1. The appellant, engaged in the business of manufacturing and selling Drilling Rigs and Spares, filed a return of income for the assessment year 2003-2004. Subsequently, the Assessing Officer issued a notice under Section 148 of the Income Tax Act in 2010, alleging that income chargeable to tax had escaped assessment. The appellant objected to the reopening, citing vagueness in reasons provided. The objections were rejected, leading to a writ petition filed by the appellant.

2. The learned Judge dismissed the writ petition, emphasizing that the re-assessment order should be passed in accordance with the law, uninfluenced by the observations in the judgment. The Judge directed the respondent to pass the re-assessment order within three months, allowing the petitioner to present its case. The Judge also highlighted that all issues were left open for the petitioner to address before the respondent.

3. The appellant contended that the assessment for the year 2005-2006 included the compensation received from a company for canceling a non-compete agreement. The respondent invoked Section 147 to reopen the assessment after four years, alleging non-disclosure of material facts. The appellant argued that the reopening was unjustified as all relevant details were disclosed earlier. The Judge, however, did not set aside the respondent's order, citing uncertainties regarding tax payments and disputed factual matters.

4. The respondent argued that the appellant failed to disclose material facts regarding an agreement with an associate company, justifying the reassessment. The Judge upheld the respondent's decision, directing a re-assessment after providing a hearing to the appellant. The respondent urged the court to dismiss the writ appeal, as the Judge's order did not warrant interference.

5. The Court reviewed the case and observed that the issue revolved around the compensation received by the appellant for canceling agreements related to non-compete and non-solicitation. The amount in question had been taxed in the assessment for 2005-2006, accepted by the assessing authority. The Court set aside the Judge's order and directed the appellant to submit all material evidence and objections to the respondent for further consideration within two weeks.

6. In conclusion, the Court provided directions for the appellant to submit additional evidence and objections for the respondent's review, emphasizing compliance with the law. The writ appeal was disposed of with these directions, and no costs were awarded.