2016 (6) TMI 1214 - AT - Income Tax

Invalid reassessment order quashed by ITAT, emphasizing need for AO to allege non-disclosure of material facts

ACIT, Cir. 4, Ahmedabad Versus GSL Nova Petrochemicals Ltd.

The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue's appeal, upholding the decision of the Commissioner of Income Tax (Appeals) to quash the ... Validity of reopening of assessment - Held that:- The interdiction provided in the proviso appended to section 147 of the Income Tax puts an embargo upon the powers of the AO to issue notice under section 148 of the Income Tax Act, in cases where, the original assessment was made under section 143(3) and four years have expired. The AO has been denuded from his powers to issue notice in such cases unless it is established that income chargeable to tax has escaped the assessment on account of failure of the assessee to disclose all the material facts fully and truly in respect of its income. The AO has nowhere alleged any failure of the assessee. The ld.CIT(A) has rightly appreciated the facts - Decided against revenue. Issues Involved:1. Validity of reassessment order under section 148 of the Income Tax Act after four years.2. Requirement for the Assessing Officer (AO) to allege failure on the part of the assessee to disclose all material facts fully and truly.Detailed Analysis:1. Validity of Reassessment Order under Section 148 of the Income Tax Act after Four Years:The Revenue appealed against the order of the CIT(A) quashing the reassessment order. The assessee filed a return declaring a total loss, and the original assessment was completed under section 143(3). The AO reopened the assessment and issued a notice under section 148 after four years. The CIT(A) quashed the reassessment order because the AO did not allege that the income had escaped assessment due to the assessee's failure to disclose all material facts fully and truly.The ITAT referred to authoritative pronouncements by the High Courts and the Supreme Court, emphasizing that for reopening an assessment after four years, the AO must show that the income escaped due to the assessee's failure to disclose material facts. The Tribunal cited several cases, including:- CIT vs. Pradeshiya Industrial and Investment Corporation of Uttar Pradesh Ltd: The Allahabad High Court ruled that reopening after four years requires a clear case of failure to disclose material facts by the assessee.- Bhavesh Developers vs. A.O. & Others: The Bombay High Court held that the reasons must show a failure to disclose necessary facts for reopening after four years.- ITO vs. Lakhmani Mewal Das: The Supreme Court emphasized a direct nexus between the material and the belief of income escapement.- CIT vs. Kelvinator India Ltd: The Supreme Court held that mere change of opinion does not justify reopening an assessment.In the present case, the reasons recorded by the AO did not reflect any failure on the part of the assessee to disclose material facts. The ITAT concluded that the reopening was a change of opinion, which is not permissible after four years.2. Requirement for the Assessing Officer (AO) to Allege Failure on the Part of the Assessee to Disclose All Material Facts Fully and Truly:The ITAT examined the reasons recorded by the AO, which were reproduced by the CIT(A). The AO noted discrepancies in depreciation and interest expenses but did not allege any failure by the assessee to disclose material facts. The Tribunal reiterated that the proviso to section 147 requires the AO to establish that the income escaped assessment due to the assessee's failure to disclose material facts fully and truly.The ITAT found that the AO's reasons lacked the necessary allegations of failure by the assessee. The Tribunal upheld the CIT(A)'s order quashing the reassessment, as the AO did not meet the requirements of the proviso to section 147.Conclusion:The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision to quash the reassessment order. The Tribunal emphasized that the AO's failure to allege that the income escaped assessment due to the assessee's non-disclosure of material facts rendered the reassessment invalid. The appeal was dismissed, and the order was pronounced on 7th June 2016 at Ahmedabad.