2006 (5) TMI 424 - AT - Income Tax

Tribunal overturns unlawful reassessment under Income Tax Act section 147.

Motor Industries Co. Ltd. Versus Joint Commissioner of Income-tax, Special Range-6, Bangalore

Motor Industries Co. Ltd. Versus Joint Commissioner of Income-tax, Special Range-6, Bangalore - [2007] 11 SOT 478 (BANG.) Issues Involved:1. Validity of reopening under section 147 of the Income Tax Act.2. Alleged failure to disclose fully and truly all material facts necessary for assessment.3. Treatment of excise duty refund as income.Detailed Analysis:1. Validity of Reopening under Section 147 of the Act:The primary issue in this appeal is the validity of the reopening of the assessment under section 147. The assessee argued that the reopening was invalid as the notice under section 148 was issued beyond the statutory period of four years from the end of the relevant assessment year without fulfilling the necessary conditions stipulated in the proviso to section 147. Specifically, the assessee contended that there was no failure on their part to disclose fully and truly all material facts necessary for their assessment.2. Alleged Failure to Disclose Fully and Truly All Material Facts:The assessee's counsel pointed out that the reasons recorded by the Assessing Officer for reopening the assessment did not mention any failure on the part of the assessee to disclose all material facts. The counsel cited the decisions of the Hon'ble Bombay High Court in Hindustan Lever Ltd. v. R.B. Wadkar and the Hon'ble Gujarat High Court in Vareli Weavers (P.) Ltd. v. Dy. CIT, emphasizing that the reasons for reopening must explicitly state the failure to disclose material facts. The Tribunal agreed with this argument, noting that the reasons recorded by the Assessing Officer did not contain any allegation of non-disclosure of material facts by the assessee.3. Treatment of Excise Duty Refund as Income:The Assessing Officer had issued the notice under section 148 on the grounds that the refund of excise duty received by the assessee was not shown as income for the relevant assessment year, leading to the escapement of income. The assessee countered this by explaining that the refund was shown as a current liability because the Excise Department had directed them to return the amount, and the matter was under litigation before the Karnataka High Court. The Tribunal found that the Assessing Officer's reasons for reopening the assessment were based on his opinion that the refund should be treated as income, rather than on any failure by the assessee to disclose material facts.Conclusion:The Tribunal concluded that the reopening of the assessment was not justified as the necessary conditions under the proviso to section 147 were not met. Specifically, the Assessing Officer did not demonstrate that the assessee had failed to disclose fully and truly all material facts necessary for the assessment. Consequently, the Tribunal held that the reassessment was bad in law and directed the Assessing Officer to cancel the order of assessment. As a result, the appeal was allowed, and the Tribunal did not address the other grounds related to the merits of the appeal.