2025 (3) TMI 1008 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - disallowing certain percentage of expenses on samples given to doctors on the ground that same constitutes sale promotion expenses incurred on the doctor - HELD THAT - We fail to understand if these items were not disallowed during the course of the assessment proceedings how there can be an allegation that the petitioner has failed to disclose full and true all material facts necessary for the assessment. If at all there has been failure it is on the part of the assessing officer of not disallowing the same. Certainly for such a failure of the assessing officer reopening cannot be initiated after expiry of four years from the end of the relevant assessment year. In the order rejecting the objection the officer has not rebutted the specific plea of the petitioner that there was no failure to disclose fully and truly all material facts necessary for the assessment. The order merely reproduces the reasons as recorded certain provisions of the reassessment and the decisions. Absence of any rebuttal of the specific objection raised by the petitioner it shall be deemed that the respondent has accepted that there was no failure to disclose fully and truly all material facts necessary for the assessment. Thus the impugned notice is required to be quashed on the non fulfillment of the condition prescribed in first proviso to section 147 of the Act itself. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The primary legal issue considered in this judgment is whether the notice issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the assessment year 2013-14, is valid. The core question revolves around whether there was a failure by the petitioner to disclose fully and truly all material facts necessary for the assessment, as required by the first proviso to Section 147 of the Act, given that the notice was issued after the expiry of four years from the end of the relevant assessment year.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework is centered around Sections 147 and 148 of the Income Tax Act, 1961. Section 147 allows for the reopening of an assessment if the Assessing Officer has reason to believe that income has escaped assessment. However, the first proviso to Section 147 stipulates that if an assessment has been made under Section 143(3), it cannot be reopened after four years from the end of the relevant assessment year unless there is a failure to disclose fully and truly all material facts necessary for the assessment.

Court's Interpretation and Reasoning

The Court examined whether the conditions under the first proviso to Section 147 were met. It noted that the reasons provided for reopening the assessment did not specify any failure on the part of the petitioner to disclose all material facts. The Court emphasized that the reasons must clearly state what material facts were not disclosed to justify reopening the assessment after four years.

Key Evidence and Findings

The Court reviewed the reasons furnished for reopening the assessment, which included references to amounts debited under various heads in the Profit & Loss account and balance sheet. The Court observed that these items were already disclosed in the original assessment proceedings and that there was no indication of any non-disclosure by the petitioner. The reasons admitted that certain expenses were disallowed during the original assessment, while others were not, suggesting no failure on the petitioner's part.

Application of Law to Facts

The Court applied the legal requirement of full and true disclosure to the facts presented. It found that the petitioner had disclosed the necessary facts during the original assessment, as evidenced by the references in the reasons for reopening. The Court concluded that the reopening was unjustified since the petitioner had not failed to disclose any material facts.

Treatment of Competing Arguments

The respondent's argument relied on the reasons recorded for reopening, which suggested non-disclosure. However, the Court found these reasons insufficient and lacking specific allegations of non-disclosure. The Court's queries to the revenue failed to elicit any concrete examples of undisclosed material facts, undermining the respondent's position.

Conclusions

The Court concluded that the conditions for reopening the assessment after four years were not met, as there was no failure by the petitioner to disclose fully and truly all material facts necessary for the assessment. Consequently, the notice under Section 148 and the order rejecting the objections were quashed.

SIGNIFICANT HOLDINGS

The Court held that the reopening of an assessment under Section 148 after four years requires a clear failure to disclose material facts by the assessee. The absence of such a failure invalidates the notice for reopening. The Court stated, "On a perusal of the reasons as recorded, we do not find any statement which states as to what are the requisites full and true disclosure of the material facts which have not been disclosed."

Core Principles Established

The judgment reinforces the principle that for an assessment to be reopened after four years, there must be a demonstrable failure by the assessee to disclose necessary facts. The burden is on the revenue to clearly articulate what facts were not disclosed.

Final Determinations on Each Issue

The Court determined that the notice under Section 148 and the order rejecting the petitioner's objections were invalid due to the lack of any failure to disclose material facts. The Court quashed the notice and the order, making the rule absolute without any cost order.

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