2001 (7) TMI 100 - HC - Income Tax

Reassessment notice after four years quashed as change of opinion, proviso to section 147 and Explanation 2 unmet

HC set aside the reopening notice issued after four years, holding that reassessment was based on a condemned change of opinion rather than any failure by ... Reopening of the assessment - after the expiry of four years - reason to believe - time limit for giving notice - failure to disclose material facts - pre-condition for issue of a valid notice and for valid initiation of reassessment proceedings had not been fulfilled - Deduction under section 80HHC - manufacture of bulk drugs and formulations - HELD THAT:- In the present case, it is the case of the Department in the affidavit that the predecessor of respondent No. 1 had passed an order of assessment under section 143(3) on March 31, 1995, computing the total income of the assessee at Rs. 2.86 crores (approx.). That, subsequently, another predecessor in office of respondent No. 1 formed an opinion that the income chargeable to tax had escaped assessments. This was on March 16, 1999. We have gone through the reasons. The position of law after April 1, 1989, is not in disputer By virtue of a proviso to section 147, no action can be taken for reopening after four years unless the Assessing Officer has reason to believe that income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessments In the present case, the affidavit and the reasons disclosed indicate that the Department has purported to reopen the assessment only on the basis of change of opinion. This position is, in fact, conceded vide para. 3 of the affidavit-in-reply dated March 13, 2001. The reasons also do not spell out failure on the part of the assessee to disclose fully and truly all material facts. In the circumstances, the deeming provision in Explanation 2 to section 147 has no application to the facts of the present case. Section 149 only prescribes the time limit for giving notice. We are required in this case to look into the facts in order to ascertain whether the pre-condition for the issue of a valid notice under section 148 has been fulfilled or not. We are satisfied on the facts of the present case that reopening is sought on the basis of change of opinion. Further, even in the reasons, there is nothing to indicate that reopening is sought on the ground of the failure on the part of the petitioner to disclose fully and truly all material facts. The impugned notice is set aside. Issues involved: Challenge to notice u/s 148 of the Income-tax Act, 1961 for reopening assessment u/s 143(3) for the assessment year 1992-93 based on change of opinion and failure to disclose material facts.Facts: - Petitioner, an Export House, filed return of income for AY 1992-93 claiming deduction u/s 80HHC. - Assessment completed by respondent partially disallowing deduction claimed. - Impugned notice issued in 1999 alleging income escapement. - Petitioner requested reasons for notice issuance. - Petitioner filed return without prejudice to challenge notice, maintaining deduction claim. - Present petition filed against notice.Arguments: - Petitioner argued notice invalid as reopening based on change of opinion without fulfilling pre-conditions. - Department relied on Explanation 2 to section 147 and section 149 for validity of reopening assessment.Findings: - Court found merit in petition, noting the four-year limit for reopening assessment. - Department's reasons for reopening assessment based on change of opinion, not failure to disclose facts. - Deeming provision in Explanation 2 to section 147 deemed inapplicable. - Section 149 only prescribes time limit for notice, not grounds for reopening. - Court satisfied that reopening sought based on change of opinion without evidence of failure to disclose facts.Conclusion: - Impugned notice set aside, both writ petitions allowed with no costs.