2014 (5) TMI 19 - HC - Income Tax

Court Invalidates Notices Under Section 148, Emphasizes Limitation Period

M/s. Amrit Corp. Ltd. (Formerly M/s. Amrit Banaspati Co. Ltd.) Versus The Additional Commissioner of Income Tax

The court invalidated the notices issued under Section 148 for multiple assessment years due to lack of fresh material supporting the reassessment. It ... Validity of re-assessment u/s 147 r.w. section 148 of the Act – Sale of land - Failure to disclose material facts – Mere change of opinion – Bar of limitation - Held that:- The proceeding u/s 147 cannot be initiated on account of change of opinion - Change of opinion and review of the assessment is not permissible – Relying upon Commissioner of Income Tax, Delhi Versus M/s. Kelvinator of India Limited [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts - Once he has done that his duty ends - It is for the Income-tax Officer to draw the correct inference from the primary facts - It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts - If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment - under Section 147, the assessing authority has no power to review and the proceeding cannot be taken on account of change of opinion. There is no failure on the part of the assessee to disclose fully and truly all material facts, in the assessment of the relevant assessment year, exception to proviso to Section 148 is not applicable - The limitation to take action is four years from the end of the relevant assessment year - The four years' period for the assessment year 2003-04 expired on 31st March, 2008, while notice u/s 148 has been issued on 8.7.2009, that is, after expiry of four years' period, which is barred by limitation – Relying upon Anil Radhakrishna Wani Vs. Income-tax Officer and others [2010 (3) TMI 316 - BOMBAY HIGH COURT] - when a regular order of assessment is passed u/s 143 (3) of the Act, a presumption could be raised that such an assessment order has been passed with due application of mind - the proviso to section 147 of the Act will be applicable – notice issued u/s 148 of the Act has been issued after expiry of four years from the end of the relevant assessment year – thus, the notice issued u/s 148 of the Act is barred by limitation and also invalid - The proceeding in pursuance of the notice is also invalid – Decided in favour of Assessee. Issues Involved:1. Validity of notices under Section 148 read with Section 147 of the Income Tax Act, 1961.2. Limitation period for issuing the notices.3. Failure to disclose material facts fully and truly.4. Application of Section 45(2) regarding the conversion of capital assets into stock-in-trade.5. Change of opinion as a basis for reassessment.Issue-Wise Detailed Analysis:1. Validity of Notices under Section 148 read with Section 147:The petitioner challenged the validity of notices dated 8.7.2009, issued under Section 148 read with Section 147 of the Income Tax Act for assessment years 2003-04, 2004-05, 2005-06, and 2006-07. The court observed that the initiation of proceedings under Section 147 by issuing a notice under Section 148 was illegal because it was based on a mere change of opinion without any fresh material. The court emphasized that the proceedings cannot be initiated merely on re-appraisal of the existing facts or change of opinion.2. Limitation Period for Issuing the Notices:For assessment years 2003-04 and 2004-05, the court noted that the notices were issued beyond the four-year limitation period specified under Section 149(1)(a). The court held that since there was no failure on the part of the assessee to disclose fully and truly all material facts, the limitation period was four years, and the notices issued on 8.7.2009 were barred by limitation.3. Failure to Disclose Material Facts Fully and Truly:The court found that the petitioner had fully disclosed all material facts necessary for assessment. The land details, conversion permissions, development charges, and sale transactions were all available on record. The court noted that complete details were furnished during the original assessment proceedings, and the assessing authority had accepted the 'Long Term Capital Gain' disclosed by the petitioner. Therefore, there was no failure on the part of the petitioner to disclose fully and truly all material facts.4. Application of Section 45(2) Regarding Conversion of Capital Assets into Stock-in-Trade:The court examined whether Section 45(2) was applicable, which deals with the conversion of capital assets into stock-in-trade. The court held that for Section 45(2) to apply, there must be a positive act of conversion by the owner. In this case, the petitioner had not converted the capital asset into stock-in-trade nor treated it as such. The court found that the assessing authority's inference of conversion was erroneous and not supported by any material evidence.5. Change of Opinion as a Basis for Reassessment:The court reiterated that reassessment proceedings under Section 147 cannot be initiated based on a change of opinion. The court cited several Supreme Court judgments, emphasizing that the 'reason to believe' must be based on tangible material and not merely on re-evaluation of existing facts. The court held that the reassessment proceedings in this case were initiated on a mere change of opinion, which is not permissible under the law.Conclusion:The court quashed the notices issued under Section 148 for all four assessment years and the proceedings initiated in pursuance thereof. The court also awarded costs of Rs. 25,000 to the petitioner. The judgments highlight the importance of adhering to the statutory limitation period and the necessity of having tangible material for initiating reassessment proceedings, rather than relying on a mere change of opinion.