2022 (5) TMI 529 - HC - Income Tax

Reopening of assessment u/s 147 - Notice beyond period of limitation prescribed u/s 149 - HELD THAT - The observations of the Tribunal in its order dated 24th November, 2010 that there appears to be some confusion with respect to the fact that the project was completed in Assessment Year 2003-2004 was the same project which was shown as work in progress in Assessment Year 2000-2001 and thereafter, restoring the matter to Respondent No.1 for the limited purpose of ascertaining whether the two projects referred to in the assessment order of Assessment Year 2000-2001 was part of the project completed in Assessment Year 2003-2004 and offered for taxation in that year, cannot be stated to be either a finding or a direction as contemplated by Section 150 of the Act. There is no specific finding that income chargeable to tax has escaped assessment for the Assessment Years in question nor there is a direction to Respondent No.1 to initiate reassessment proceedings by issuing notices under Section 148 of the Act. On the contrary, the Tribunal recorded specific findings that following the project completion method the assessee offered income in respect of these project in Assessment Year 2003-2004 which has been accepted by the Revenue. Once income is taxed in Assessment Year 2003-2004 on the completion of the project, there cannot be any question of taxing the same amount in the earlier years by applying a particular percentage on the amount of work in progress shown in the balance-sheet. Even for a moment we assume that the observations of the Tribunal could be stated to be a finding or a direction as contemplated by Section 150 of the Act, still in view of the proviso to Section 147 of the Act, the reopening cannot be stated to be valid. There is nothing in the reasons for reopening to indicate that there was any escapement of income due to failure on the part of the assessee to truly and fully disclose material fact. We would say that even in the reasons recorded, there is not even a finding that there was any such failure. Even otherwise after the order of the Tribunal dated 24th November, 2010, the Assessment Officer had passed the fresh Assessment Order dated 29th December, 2011 making certain additions. Appeal was filed against the said order, which came to be allowed during the pendency of present Petition on 12th March, 2014.

Summary

Issues Involved:
1. Validity of the notices issued under Section 148 of the Income-Tax Act, 1961.
2. Applicability of the limitation period under Section 149 of the Income-Tax Act, 1961.
3. Interpretation of findings and directions under Section 150 of the Income-Tax Act, 1961.
4. Validity of reopening the assessment based on the Tribunal’s directions.

Detailed Analysis:

1. Validity of the Notices Issued under Section 148 of the Income-Tax Act, 1961:
The petitions challenge the notices dated 19th January 2012, issued under Section 148 of the Income-Tax Act, 1961, for reopening assessments for the Assessment Years 2001-02, 2002-03, and 2003-04. The petitioner argued that these notices were issued beyond the permissible period and lacked the necessary grounds for reopening.

2. Applicability of the Limitation Period under Section 149 of the Income-Tax Act, 1961:
The petitioner contended that the notices were issued beyond the six-year limitation period prescribed under Section 149 of the Act. It was argued that the assessment completed under Section 143(3) could not be reopened after four years unless there was a failure to disclose fully and truly all material facts, which was not the case here.

3. Interpretation of Findings and Directions under Section 150 of the Income-Tax Act, 1961:
The respondents argued that the limitation under Section 149 did not apply as the notices were issued to give effect to the Tribunal’s order dated 24th November 2010, under Section 150 of the Act. The Tribunal had observed confusion regarding the work in progress and directed the Assessing Officer (AO) to ascertain whether the projects referred to in the assessment order for the year 2000-01 were part of the project completed in 2003-04.

4. Validity of Reopening the Assessment Based on the Tribunal’s Directions:
The court analyzed whether the Tribunal’s observations constituted a "finding" or "direction" under Section 150 of the Act. It was concluded that the Tribunal’s observations were not specific findings or directions to reassess income for the years in question. The Tribunal had accepted the petitioner’s method of accounting and had not directed the AO to initiate reassessment proceedings.

Conclusion:
The court held that the notices issued under Section 148 were beyond the limitation period prescribed under Section 149 and did not fall within the exceptions provided under Section 150. The Tribunal’s observations did not constitute a finding or direction as required for reopening under Section 150. Additionally, there was no failure on the part of the petitioner to disclose material facts. Consequently, the impugned notices and the order on objections were quashed, and all writ petitions were allowed and disposed of accordingly.