2012 (4) TMI 273 - HC - Income Tax

Court upholds reopening of assessment for AY 2004-2005 under Section 148 of Income Tax Act.

The court upheld the reopening of the assessment for the Assessment Year 2004-2005 under Section 148 of the Income Tax Act, 1961. It found that there was ... Validity of re-opening of assessment beyond a period of four year from the end of relevant AY – Trust – AY 2004-05 - assessment reopened on ground of information received by A.O. of alleged misappropriation of funds – assessment of AY 2005-05 pending when FIR of misappropriation of funds was lodged – Held that:- A.O. formed belief on the basis of the material revealed in the investigation which was carried out by CID, Mumbai. The chargesheet which has been filed by the EOW would in our view constitute tangible material on the basis of which the A.O. could have reopened the assessment. Conclusion drawn by A.O. that there was a failure on the part of the assessee to fully and truly disclose material facts necessary for the assessment for the Assessment Year 2004-2005 is upheld – Decided against the petitioner. Issues Involved:1. Reopening of assessment under Section 148 of the Income Tax Act, 1961.2. Failure to disclose material facts necessary for assessment.3. Validity of the 'reason to believe' for reopening the assessment.4. Jurisdictional requirements under Section 147 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 148:The challenge in this proceeding under Article 226 of the Constitution of India is to the reopening of an assessment for Assessment Year 2004-2005 by a notice dated 29 March 2011. The assessee filed a return declaring nil income, claiming exemption under Section 11 of the Income Tax Act, 1961. The Assessing Officer (AO) determined the total income at Rs. 47,32,738/- and later issued a notice under Section 148 on 29 March 2011 to reopen the assessment.2. Failure to Disclose Material Facts:The reasons for reopening included an FIR lodged by the assessee on 16 March 2006 against certain individuals for misappropriation of funds, which was not disclosed during the assessment proceedings. The FIR, chargesheet, and investigation by the Economic Offences Wing (EOW) indicated that the assessee was not conducting its activities in accordance with its objects, affecting its claim for exemption under Section 11 and continuation of registration under Sections 12A/12AA. The AO believed there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment.3. Validity of 'Reason to Believe':The assessee argued that the reopening was based on a chargesheet filed by the EOW and that the AO did not apply his mind to any live material before forming a belief of income escapement. The Revenue contended that the reopening was based on information received during the assessment for Assessment Year 2008-2009, fulfilling the jurisdictional requirement under Section 147. The court noted that the AO formed his belief based on the material revealed in the EOW investigation, which led to the chargesheet, constituting tangible material for reopening the assessment.4. Jurisdictional Requirements under Section 147:Under Section 147, the AO can reopen an assessment if there is reason to believe that income chargeable to tax has escaped assessment. For assessments completed under Section 143(3), there must be a failure to disclose fully and truly all material facts necessary for the assessment. The court found that the AO had sufficient material to form a reason to believe that income had escaped assessment and that the jurisdictional requirement under the proviso to Section 147 was fulfilled. The court referenced the Supreme Court's decision in Commissioner of Income Tax Versus Kelvinator of India Ltd., emphasizing the need for tangible material before reopening an assessment.Conclusion:The court concluded that the AO had sufficient material to form a reason to believe that the income for Assessment Year 2004-2005 had escaped assessment and that the jurisdictional requirement under Section 147 was fulfilled. The petition was dismissed, and the interim relief restraining the AO from taking steps in pursuance of the notice under Section 148 was vacated to facilitate the completion of the assessment in accordance with the law.