2012 (4) TMI 494 - HC - Income Tax

Court upholds reopening of tax assessments beyond 4-year limit, stresses alternative remedy under Income Tax Act

The court dismissed the writ petitions challenging the reopening of assessments under Section 148 of the Income Tax Act, 1961, for the years 1995-96 and ... Reopening of assessment under Section 147 and notice under Section 148 - reopening beyond four years - proviso to Section 147 requiring failure to disclose fully and truly all material facts - change of opinion not a ground for reassessment - finality of assessment and disclosure of material facts - availability of efficacious alternative remedy and scope of Article 226 jurisdictionReopening of assessment under Section 147 and notice under Section 148 - change of opinion not a ground for reassessment - finality of assessment and disclosure of material facts - Whether the notices under Section 148 for AYs 1995-96 and 1996-97 are liable to be quashed at the threshold on the petitioner's contention that reassessment is based on change of opinion and that there was full disclosure in original returns. - HELD THAT: - The High Court declined to quash the impugned Section 148 notices at the threshold. The court observed that the assessing authority recorded reasons to believe that income chargeable to tax had escaped assessment and that the statutory time limits for issuance of notices were satisfied. It reiterated the settled principle that reassessment cannot be sustained if founded only on a mere change of opinion, but held that the present proceedings could not be terminated by writ on the material placed before the Court. Where an efficacious alternative statutory remedy exists, the court will ordinarily refrain from exercising extraordinary writ jurisdiction in assessment matters. The petitioner was directed to raise objections before the assessing officer and to produce records to substantiate its accounting method and disclosures; the assessing officer would consider those objections and pass reasoned orders. The court thus refused to accept the petitioner's submission for quashing at this stage and left the merits to be examined by the tax authority. [Paras 19, 24, 25, 26]Impugned notices under Section 148 are not quashed at this stage; petitioner must raise objections before the assessing officer and the notices stand.Availability of efficacious alternative remedy and scope of Article 226 jurisdiction - reopening beyond four years - proviso to Section 147 requiring failure to disclose fully and truly all material facts - Whether the High Court should entertain writ petitions challenging the reopening notices instead of permitting the assessing officer to consider objections and record reasons. - HELD THAT: - The court affirmed the principle that when an adequate statutory remedy exists, writ jurisdiction under Article 226 should not normally be invoked to short-circuit assessment proceedings. It noted that the assessing officer had recorded reasons for reopening and that the petitioner had not sought those reasons before the authority. Consequently, the Court directed the petitioner to file objections within a limited period and directed the assessing officer to consider and decide them on merits by a reasoned order within a fixed timeframe. This leaves open the challenge to any final order by the appellate remedies provided in the statute. [Paras 25, 26]Writ petitions dismissed; petitioner permitted to file objections and assessing officer directed to decide them on merits within prescribed periods.Final Conclusion: Writ petitions dismissed. The petitioner is directed to file objections to the Section 148 notices within four weeks; the assessing officer shall consider those objections and pass a reasoned order on merits and in accordance with law within eight weeks thereafter; the question of validity of reassessment remains open for decision by the tax authority and appellate fora. Issues Involved:1. Reopening of assessment under Section 148 of the Income Tax Act, 1961.2. Validity of notices issued beyond the period of four years.3. Jurisdiction of the assessing authority to reopen assessments based on a change of opinion.4. Disclosure of material facts by the petitioner.5. Availability of an alternative remedy under the Income Tax Act.Detailed Analysis:Reopening of Assessment under Section 148:The petitioner, a company involved in manufacturing cement machinery and turnkey projects, challenged the reopening of assessments for the years 1995-96 and 1996-97 under Section 148 of the Income Tax Act, 1961. The petitioner argued that the reopening was based on a mere change of opinion by the assessing authority, which is not permissible under the law. The assessments had been completed earlier under Section 143(3) after detailed scrutiny and had become final.Validity of Notices Issued Beyond Four Years:The petitioner contended that the notices issued on 22.3.2002 were beyond the statutory period of four years as prescribed under Section 147. The petitioner argued that the reopening of assessments beyond this period is permissible only if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, which was not the case here.Jurisdiction of the Assessing Authority:The petitioner asserted that the reopening of assessments was based on a change of opinion regarding the allowance of provisions for warranty and guarantee claims, which had been consistently accepted by the assessing authorities in previous years. The petitioner cited several judicial precedents to support the argument that a mere change of opinion does not justify reassessment.Disclosure of Material Facts:The petitioner maintained that all necessary particulars relating to the accounts, including the warranty and guarantee claims, were fully disclosed during the original assessment proceedings. The petitioner argued that there was no omission or failure to disclose material facts, and hence, the reopening of assessments was without jurisdiction.Alternative Remedy:The court noted that the petitioner has an efficacious alternative remedy under the Income Tax Act to challenge the reassessment proceedings. The court emphasized that it would not exercise its extraordinary jurisdiction under Article 226 of the Constitution of India to interfere with the proceedings initiated by the tax authorities unless there is an infringement of fundamental rights or a clear lack of jurisdiction by the tax authorities.Conclusion:The court dismissed the writ petitions, stating that the impugned notices issued under Section 148 of the Income Tax Act, 1961, could not be quashed at this stage based on the grounds raised by the petitioner. The court held that the petitioner should raise its objections before the assessing authority, which would then consider and pass appropriate orders on merits, after providing an opportunity for a hearing. The court reiterated that it would not interfere with the tax proceedings when an alternative remedy is available, unless there is a clear jurisdictional error or infringement of fundamental rights.