2001 (6) TMI 52 - HC - Income Tax

Income-tax reassessment reopening after four years u/s147 based on audit objection struck down; notices quashed for no failure.

Reopening under s.147 beyond four years was challenged on the ground that there was no omission or failure to disclose fully and truly all material facts, ... Validity of notice issued u/s 147 - Reassessment - beyond four years - income escaping assessment - omission or failure on the part of the assessee to disclose fully and truly all material facts - HELD THAT:- When the matter was taken up for hearing on April 10, 2001, on the basis of the aforesaid notification, the reasons recorded and the averments made in the affidavit-in-reply, it was contended on behalf of the Revenue that the petitioner was aware that its factory was situated in the Urban Agglomeration Area of Bhavnagar City and, hence, the petitioner was not entitled to claim deduction under section 80HH as the necessary conditions were not fulfilled by the petitioner, and in such circumstances, the claim made by the petitioner was not a true claim even if there was full disclosure, and hence reassessment proceedings were rightly initiated. Even from the affidavit-in-reply it is absolutely clear that there had been no omission or failure on the part of the petitioner but it is the say of the respondent that the Assessing Officer had committed an error. Without entering into the controversy as to whether there was any error committed by the Assessing Officer or not, suffice it to state that as the assessment is sought to be reopened after a period of four years and there is admittedly no omission or failure on the part of the petitioner, the Assessing Officer, i.e., the respondent, cannot assume jurisdiction under section 147 of the Act. As we have already stated the annexures to the affidavit-in-reply formed part of the petitioner's written submissions before the Assessing Officer. However, an impression was sought to be created that the relevant notification, etc., had not been taken into consideration by the petitioner before making the claim for deduction under section 80HH of the Act, and hence the audit party had pointed out a factual omission or failure on the part of the petitioner which would entitle the respondent to assume jurisdiction to reopen the completed assessment. The facts as they exist on record are otherwise and we strongly deprecate the attempt on behalf of the Revenue to support an action which is otherwise not defendable at ail. The action of the respondent in referring to the notification, etc., as if it was pointed out by the internal revenue audit party is to say the least, an attempt to mislead the court and is not expected from an officer of the rank of Joint Commissioner of Income-tax. To conclude : (i) the petitioner had disclosed ail the primary facts necessary for the purpose of the assessment, (ii) on the facts there was no material for holding a belief and the respondent could not have reason to believe that there was any escapement of income chargeable to tax, (iii) the reasons recorded show that instead of independent application of mind the Assessing Officer merely chose to adopt the line of action pointed out by the internal revenue audit, (iv) the entire affidavit-in-reply goes to show that though the respondent was aware that there was no omission or failure on the part of the petitioner, the recording of reasons was a colourable exercise for assumption of jurisdiction. We hereby quash and set aside the impugned notices . Issues Involved:1. Validity of reassessment proceedings initiated u/s 147 of the Income-tax Act, 1961.2. Jurisdictional prerequisites for reopening assessments beyond four years.3. Role and influence of internal audit party in reassessment proceedings.Summary:1. Validity of Reassessment Proceedings Initiated u/s 147:The court examined whether the reassessment proceedings initiated u/s 147 were valid. The petitioner, a registered partnership firm, had its assessments for the years 1990-91, 1991-92, and 1992-93 scrutinized. The original assessment for 1990-91 was completed on March 25, 1991, but was later revised, and deductions u/s 80HH and 80-I were withdrawn due to non-filing of audit reports. The petitioner appealed, and the Commissioner of Income-tax (Appeals) allowed the deductions. However, a notice u/s 148 was issued on February 5, 2001, stating income had escaped assessment. The court found the notice invalid as there was no omission or failure on the part of the petitioner to disclose material facts fully and truly.2. Jurisdictional Prerequisites for Reopening Assessments Beyond Four Years:The court emphasized that for reassessment beyond four years, the Assessing Officer must show failure or omission by the assessee to disclose fully and truly all material facts necessary for assessment. The court referenced the Supreme Court's decision in Calcutta Discount Co. Ltd. v. ITO, which mandates two conditions: (1) reason to believe income was underassessed, and (2) such underassessment was due to the assessee's omission or failure to disclose material facts. The court concluded that the Revenue failed to establish these jurisdictional facts.3. Role and Influence of Internal Audit Party in Reassessment Proceedings:The court scrutinized the role of the internal audit party in initiating reassessment. It was noted that the audit party pointed out the location of the petitioner's unit, suggesting it was not in a backward area, thus ineligible for deductions u/s 80HH. However, the court found that the reassessment was based on a mere change of opinion rather than new material facts. The court cited the Supreme Court's ruling in Indian and Eastern Newspaper Society v. CIT, emphasizing that the opinion of the audit party cannot form the basis for reassessment. The court concluded that the Assessing Officer had not independently applied his mind and merely followed the audit party's suggestion.Conclusion:The court held that the reassessment proceedings initiated u/s 147 were without jurisdiction, as the Revenue failed to show any omission or failure by the petitioner to disclose material facts. The notices dated February 5, 2001, were quashed and set aside, and costs of Rs. 2,500 each were awarded to the petitioner. The court reiterated the necessity for Assessing Officers to act in a judicial spirit and not merely as prosecutors.