2004 (2) TMI 40 - HC - Income Tax

Invalid notices under Section 148 of Income-tax Act quashed for non-existent company, assessments beyond limit

The court held that issuing notices under Section 148 of the Income-tax Act to a non-existent company, and reopening assessments beyond four years without ... Notice u/s 148 - whether there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment - Assessing Officer arrived at the conclusion that there is failure on the part of the assessee to disclose fully and truly all material facts solely on the ground that the assessee had claimed in its return of income depreciation at 40 per cent, on leased vehicles instead of depreciation at 20 per cent - There being no failure on the part of the assessee to disclose fully and truly all material facts, the impugned notices issued beyond the period of four years from the end of the relevant assessment years, are liable to be held to have been issued in contravention of the provision of the Income-tax Act. – Notices are quashed Issues Involved:1. Validity of notices issued under Section 148 of the Income-tax Act to a non-existent company.2. Validity of reopening assessments beyond the period of four years due to alleged failure to disclose material facts.Issue-wise Detailed Analysis:1. Validity of Notices Issued to a Non-Existent Company:The ICICI Bank Ltd. challenged the notices dated October 17, 2002, issued under Section 148 of the Income-tax Act, 1961, to Anagram Finance Ltd., which had ceased to exist due to its merger with ICICI Ltd. effective April 1, 1998. The petitioner argued that issuing notices to a non-existent company is in contravention of the conditions precedent required for initiating proceedings under Section 148 and renders the notices ab initio void. The Revenue contended that the issuance of notices in the name of Anagram Finance Ltd. is a mere irregularity saved under Section 292B of the Income-tax Act and not an illegality. The court noted that the fact of Anagram Finance Ltd. ceasing to exist was communicated to the Income-tax authorities, and thus, the notices should not have been issued in its name.2. Validity of Reopening Assessments Beyond Four Years:The second issue was whether reopening the assessments beyond the period of four years from the end of the relevant assessment years is valid in the absence of any failure on the part of the assessee to disclose fully and truly all material facts. The court examined the reasons recorded for reopening the assessment and found that the Assessing Officer concluded there was a failure to disclose material facts solely because the assessee claimed depreciation at 40% instead of 20% on leased vehicles. The court observed that the Assessing Officer had scrutinized the documents and allowed the depreciation claim after investigation. Therefore, the grant of depreciation was a conscious decision, and any change in opinion by another officer does not constitute a failure to disclose material facts by the assessee. The court emphasized that under Section 147, assessments can only be reopened beyond four years if there is a failure to disclose material facts, which was not the case here. The court referred to previous judgments, including IPCA Laboratories Ltd. and Bhor Industries Ltd., to support its conclusion.Conclusion:The court concluded that there was no failure on the part of the assessee to disclose fully and truly all material facts. Consequently, the notices issued beyond the period of four years were held to be in contravention of the Income-tax Act. The court quashed and set aside the impugned notices dated October 17, 2002, making the rule absolute in terms of prayer clause (a) in both petitions, with no order as to costs.