2016 (8) TMI 1235 - HC - Income Tax

Reopening notice beyond statutory period invalid; withdrawn or quashed notice cannot justify later reassessment; no protective notice concept

HC held the impugned second notice of reopening invalid. The court ruled there is no concept of an alternative or protective reassessment notice; the ... Reopening of assessment - notice under section 148 - reason to believe that income has escaped assessment - true and full disclosure - pendency of reassessment proceedings - power to issue successive reopening noticesReopening of assessment - pendency of reassessment proceedings - power to issue successive reopening notices - Validity of a second notice of reopening issued under section 148 while earlier reopening proceedings for the same assessment year were pending - HELD THAT: - The Court held that once a notice under section 148 has been validly issued and reassessment proceedings are pending, the Assessing Officer cannot issue a second notice for reopening the same assessment to create parallel or alternative assessments. The initiation of reassessment proceedings by the first notice places the assessment 'at large' and, until those proceedings are concluded, the Assessing Officer cannot form a fresh reason to believe that income has escaped assessment so as to validly issue another reopening notice for the same year. The Court reviewed earlier authorities and rejected the notion of allowing multiple concurrent notices for the same assessment; it also observed that an entirely void or nonest first notice (for example, issued without jurisdiction) would be a different situation because no proceedings would legally be pending in that case. Applying this principle, the Court set aside the impugned second notice dated 30.03.2012 as being bad in law.Second notice of reopening set aside as invalid when earlier reopening proceedings were pending.True and full disclosure - reason to believe that income has escaped assessment - Whether the assessee had made true and full disclosure of material facts so as to preclude reopening for escapement of income - HELD THAT: - The Court found that the assessee did not demonstrate true and full disclosure regarding the dates and numbers of shares relevant to the conversion from stock in trade to investment; the particulars furnished in the computation and capital gains schedule omitted the date of conversion claimed (1.4.2004), and material discrepancies in share quantities were apparent. The Court emphasised that production of books or documents during assessment which could, with due diligence, have been discovered by the Assessing Officer does not necessarily amount to true and full disclosure (citing explanation (1) to section 147). On this basis the Court held that the objection to reopening on the ground of full and true disclosure could not succeed and that the question of whether income had in fact escaped assessment must be decided in reassessment proceedings if the notice were otherwise valid.Assessee's disclosure held not to be true and full; escapement to be determined in assessment proceedings.Final Conclusion: Impugned notice dated 30.03.2012 set aside. While the Court found deficiencies in the assessee's disclosure of material facts (leaving the question of actual escapement of income to assessment), the second notice for reopening was held invalid because it was issued while earlier reopening proceedings for the same assessment year were pending; a second notice cannot lawfully create parallel reassessment for the same year unless the earlier notice is void ab initio. Issues Involved:1. Validity of the second notice of reopening during the pendency of the first notice.2. Failure to disclose truly and fully all material facts.3. Escapement of income chargeable to tax.Detailed Analysis:1. Validity of the Second Notice of Reopening:The petitioner challenged the second notice of reopening issued on 30.3.2012, arguing that it was not permissible to issue a second notice when the first notice of reopening dated 11.1.2011 was still pending. The court examined various precedents and concluded that once a notice under section 148 is issued, it triggers the initiation of reassessment proceedings. During the pendency of such proceedings, the Assessing Officer cannot issue another notice for reopening based on different reasons. The court held that there cannot be two parallel assessments based on two notices. Until the reassessment pursuant to the first notice is completed, the question of issuing a second notice does not arise. Therefore, the second notice dated 30.3.2012 was deemed invalid.2. Failure to Disclose Truly and Fully All Material Facts:The petitioner argued that there was no failure on their part to disclose all material facts truly and fully. The court, however, was not convinced by this argument. It was noted that during the original assessment, there was no direct reference to the transaction of converting shares from stock-in-trade to investment. The court observed that the petitioner had shown only 20,10,198 shares during the earlier proceedings, although they had received redeemable preference shares. The court emphasized that merely because certain data was available in some remote or obscure material, it does not satisfy the requirement of true and full disclosure. The petitioner had withheld the fact that shares were transferred from stock-in-trade to investment on 1.4.2004 while claiming long-term capital gain on the sale of 40,20,396 shares of Sun Pharma. This omission was considered a failure to disclose truly and fully all material facts.3. Escapement of Income Chargeable to Tax:The court addressed the issue of whether there was an escapement of income chargeable to tax. The Assessing Officer had alleged that the petitioner had shown 20,10,198 shares on 31.3.2004 but claimed to have converted 40,20,396 shares from stock-in-trade to investment on 1.4.2004. The petitioner had also shown the receipt from the sale of these shares as long-term capital gain instead of business income or short-term capital gain, thereby paying tax at a lower rate. The court noted that the petitioner had provided false information and manipulated accounts to evade taxes. This constituted an escapement of income chargeable to tax. However, since the second notice of reopening was invalid, this issue was left to be decided in the reassessment proceedings if the notice was otherwise valid.Conclusion:The court set aside the second notice of reopening dated 30.3.2012, deeming it invalid as it was issued during the pendency of the first notice of reopening. The court emphasized that there cannot be two parallel assessments based on two notices. Additionally, the court found that the petitioner had failed to disclose truly and fully all material facts and had manipulated accounts to evade taxes, leading to an escapement of income chargeable to tax. However, the invalidity of the second notice precluded further action based on these findings.