2001 (3) TMI 44 - HC - Income Tax

High Court quashes invalid reassessment proceedings under IT Act 1961

The High Court quashed the notice issued under s. 148 of the IT Act, 1961 for the assessment year 1986-87 and subsequent reassessment proceedings ... Reassessment, Full And True Disclosure Issues:1. Challenge to notice issued under s. 148 of the IT Act, 1961 for the asst. yr. 1986-87.2. Validity of reassessment proceedings initiated by the ITO.3. Compliance with the proviso to s. 147 regarding the time limit for initiating proceedings.Analysis:1. The petitioner contested the notice issued under s. 148 of the IT Act, 1961 for the assessment year 1986-87. The original assessment allowed depreciation and investment allowance on machinery. Subsequent reassessment proceedings disallowed the investment allowance and reduced depreciation, leading to successful appeals by the assessee. The Tribunal and appellate authorities affirmed that there was no failure to disclose material facts for initiating reassessment proceedings under s. 147.2. Despite earlier unsuccessful reassessment proceedings, the ITO initiated fresh proceedings in 1997 based on the belief that tax had escaped assessment due to wrongful allowance of investment allowance. The reasons recorded highlighted the Supreme Court's decision affecting the investment allowance. However, the AO's belief was solely based on the incorrect allowance of investment, not on any failure by the assessee to disclose material facts. The initiation of proceedings in 1997 was beyond the statutory time limit for reassessment under s. 147, as it should have been completed by March 31, 1991.3. The proviso to s. 147 mandates that proceedings for escaped income tax assessment must be initiated within four years from the end of the relevant assessment year, unless there was a failure on the part of the assessee to disclose material facts. In this case, the initiation of proceedings in February 1997, well beyond the deadline, was deemed invalid as it was not based on any failure by the assessee to disclose relevant information. Therefore, the High Court allowed the petition, quashing the notice and subsequent proceedings, with no order as to costs.