2004 (3) TMI 22 - HC - Income Tax

Court Rules Against AO's Attempt to Reopen Assessment After Section 263 Revision

The court held that the Assessing Officer cannot invoke sections 147 and 148 of the Income-tax Act to reopen an assessment when the Commissioner of ... Reopening of assessment under sections 147 and 148 - administrative 'reason to believe' standard - income escaping assessment - failure to disclose fully and truly all material facts - revision under section 263 and remand to Assessing Officer - proviso to section 147 and reopening beyond four yearsReopening of assessment under sections 147 and 148 - revision under section 263 and remand to Assessing Officer - income escaping assessment - administrative 'reason to believe' standard - Whether the Assessing Officer could invoke sections 147/148 to reopen assessment after the Commissioner had set aside part of the original assessment under section 263 and remanded the matter for fresh assessment which remained pending - HELD THAT: - The Court held that where the Commissioner, exercising revisional jurisdiction under section 263, has validly set aside the original assessment insofar as it is prejudicial to the Revenue and remanded the matter to the Assessing Officer for fresh adjudication, the issue remitted remains pending until a final reassessment is made. The statutory concept of 'reason to believe' in section 147 requires an honest, reasonable belief based on relevant and material grounds; it cannot be invoked where a conclusive judicial or revisional finding on the same issue is already operative and reassessment proceedings pursuant to that finding are pending. Reliance was placed on the principle that income cannot be said to have 'escaped assessment' while assessment proceedings on that issue are pending, as laid down in Ghanshyamdas and explained by earlier authorities; an administrative formation of belief under sections 147/148 cannot displace a conclusive revisional order and thus the Assessing Officer was not entitled to issue a notice under section 148 in the peculiar facts of this case.Notice under section 148 issued after the order under section 263 and while reassessment pursuant to that order was pending was invalid and quashed.Failure to disclose fully and truly all material facts - proviso to section 147 and reopening beyond four years - Whether the assessee failed to disclose fully and truly all material facts necessary for determination of its claim for depreciation so as to justify reopening beyond four years under the proviso to section 147 - HELD THAT: - On the material placed on record the Court found that the assessee had filed the return, produced bills and a certificate of the chartered engineer and repeatedly furnished documents and attended hearings before the Assessing Officer; relevant evidence as to commissioning and calculation of depreciation was disclosed during assessment. There were no reasons recorded alleging omission or failure by the assessee to disclose material facts and the requisites of the proviso to section 147 for reopening after four years were not satisfied. The Court observed that an incorrect decision by the Assessing Officer does not by itself amount to non-disclosure that would justify reopening beyond the four-year period.There was no failure to disclose fully and truly all material facts; the recorded reasons did not establish the proviso's statutory requirement and the reopening was therefore unjustified and void.Final Conclusion: The notice dated 28 March 2003 under section 148 and the reasons recorded under section 147 were quashed and set aside; the petition is allowed and the rule made absolute in the terms prayed, with no order as to costs. Issues:1. Whether the Assessing Officer is denuded of his powers under sections 147 and 148 of the Act when the order setting aside the assessment with order of remand has become final and conclusive and the assessment proceedings pursuant to such order passed under section 263 are pending with the Assessing Officer for assessment in accordance with lawRs.2. Whether, in the facts and circumstances of the case, can it be said that there was a failure on the part of the petitioner/assessee to fully and truly disclose all the material facts necessary for determination of claim of depreciation on 'Tin Packaging Unit' of the petitionerRs.Issue 1: Powers of the Assessing Officer under Sections 147 and 148The primary issue is whether the Assessing Officer can invoke sections 147 and 148 of the Income-tax Act to reopen an assessment when the Commissioner of Income-tax has already set aside the original assessment under section 263 and remanded the matter for reassessment. The court examined the statutory provisions, particularly sections 147, 148, and 263, and concluded that both the Commissioner and the Assessing Officer have independent powers to reopen assessments. However, once the Commissioner has set aside the assessment and the matter is pending reassessment, the Assessing Officer cannot invoke sections 147 and 148 on the premise that income has escaped assessment. The court emphasized that the concept of 'reason to believe' that income has escaped assessment cannot apply when reassessment proceedings are still pending. The court cited various judicial precedents, including the Supreme Court's decisions in Sheo Nath Singh v. AAC of I.T. and ITO v. Lakhmani Mewal Das, which clarified that the belief must be based on reasonable grounds and not mere suspicion. The court held that during the pendency of reassessment proceedings, the income cannot be said to have escaped assessment, and therefore, the Assessing Officer's invocation of sections 147 and 148 was invalid, ab initio void, and illegal.Issue 2: Disclosure of Material Facts by the AssesseeThe court also addressed whether the assessee had failed to fully and truly disclose all material facts necessary for determining the claim of depreciation on the 'Tin Packaging Unit.' The court found that the assessee had disclosed all necessary documents, including the certificate of the chartered engineer and the statement of claim, during the original assessment proceedings. The court noted that the assessee's representative had attended the hearings and provided all relevant evidence. Therefore, the court concluded that there was no failure on the part of the assessee to disclose fully and truly all material facts. The court reiterated that a wrong decision by the Assessing Officer does not justify reopening the assessment beyond the period of four years, especially in the absence of any specific reasons alleging failure on the part of the assessee. Consequently, the court held that the invocation of powers under section 147 and the issuance of notice under section 148 were bad in law.Conclusion:The court quashed and set aside the impugned notice dated March 28, 2003, issued by the Assessing Officer under section 148 and the reasons recorded in support thereof under section 147. The petition was allowed, and the rule was made absolute in terms of prayer clauses (a) and (b) with no order as to costs.