2014 (9) TMI 8 - HC - Income Tax

Court quashes time-barred tax notice under Section 148, deems it without jurisdiction.

The court quashed and set aside the notice dated 26th March 2003 under Section 148 of the Income Tax Act, 1961, as it was found to be time-barred, issued ... Reopening of assessment u/s 147/148 – Reason to believe – True and full disclosure of necessary facts - Held that:- The notice is issued after a period of almost nine years from the end of the relevant AY i.e. 1993-94 - the order of the Tribunal dated 25th October 2002 was dealing with appeal for block assessment i.e. 1st April 1986 to 1st August 1996 - the scope of regular assessment is to ensure that there is no undue payment of tax while block assessment is only to assess the undisclosed income - the question of rate of depreciation cannot be subject of examination in block assessment as otherwise, there would be no finality to the regular assessment already completed prior to the search. Following the decision in ITO v/s. Murlidar B. Deo [1964 (1) TMI 5 - SUPREME Court] - a 'finding', can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year - The Appellate Assistant Commissioner may hold that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year - The finding in that context is that that income does not belong to the relevant year - the Tribunal in its order was concerned with an appeal from orders passed in block Assessment and held that the ambit/ scope for assessment for the block period under Chapter XIVB is only to assess the undisclosed income for the block period and not for the total income or loss suffered in the previous year which is subject matter of regular assessment. The reasons in support of the notice do not indicate even remotely that there has been any failure on the part of the Petitioner to disclose truly and fully all material facts necessary for the assessment - all the other conditions precedent to issue of reopening notice u/s 147/148 of the Act have to be satisfied - during the assessment proceeding u/s 143(3) of the Act, the AO called for details relating to the assets available and the claim for depreciation – assessee responded to the same and was subject matter of consideration by the AO inasmuch as he disallowed the claim of 100% depreciation in respect of three items i.e. Semi Conductor, Comber Machine restricting it to 25% - the AO had applied his mind to the depreciation claimed by the Petitioner during regular assessment proceeding – thus, the notice is also not sustainable as being issued on mere change of opinion – Decided in favour of assessee. Issues Involved:1. Legality of the notice dated 26th March 2003 under Section 148 of the Income Tax Act, 1961.2. Whether the notice is time-barred under Section 149 of the Act.3. Whether there was a failure to disclose true and complete facts necessary for assessment.4. Whether the reopening of the assessment is based on a mere change of opinion.Detailed Analysis:1. Legality of the Notice Dated 26th March 2003 Under Section 148 of the Income Tax Act, 1961:The petition challenges the notice dated 26th March 2003 issued under Section 148 of the Income Tax Act, 1961, which seeks to reopen the assessment for the Assessment Year 1993-94. The petitioner had filed its return of income for the said assessment year, and the assessment was completed in October 1995. A search was conducted on 1st August 1996, and a block assessment order was passed on 30th September 1997. The Tribunal, on 25th October 2002, allowed the petitioner's appeal and deleted the additions made on account of excess depreciation claimed. Consequently, the Assessing Officer issued the impugned notice on 26th March 2003 to reopen the assessment for the Assessment Year 1993-94.2. Whether the Notice is Time-Barred Under Section 149 of the Act:The petitioner argued that the notice is time-barred as it seeks to reopen the assessment almost nine years from the end of the relevant assessment year, beyond the period of limitation provided under Section 149 of the Act. The revenue contended that the notice is within time as it was issued to give effect to a finding recorded in the Tribunal's order dated 25th October 2002, thereby extending the period of limitation by virtue of Section 150 of the Act. The court examined the relevant sections, including Section 147, Section 148, Section 149, and Section 150, and concluded that the impugned notice is not saved from the bar of limitation as there was no finding in the Tribunal's order that necessitated the reopening of the assessment.3. Whether There Was a Failure to Disclose True and Complete Facts Necessary for Assessment:The petitioner contended that there was no failure on their part to disclose true and complete facts necessary for the assessment, and thus, the reopening beyond four years is without jurisdiction. The court noted that during the original assessment proceedings, the Assessing Officer had specifically inquired about the depreciation claimed, and the petitioner had provided the required details. The court found that the reasons in support of the impugned notice did not indicate any failure on the part of the petitioner to disclose all material facts necessary for the assessment, making the notice unsustainable.4. Whether the Reopening of the Assessment is Based on a Mere Change of Opinion:The court observed that during the assessment proceedings under Section 143(3) of the Act, the Assessing Officer had already considered the depreciation claimed by the petitioner and had disallowed the claim of 100% depreciation on certain items, restricting it to 25%. This indicated that the Assessing Officer had applied his mind to the depreciation claimed during the regular assessment proceedings. The court held that the impugned notice was issued on a mere change of opinion, which is not permissible for reopening an assessment.Conclusion:The court quashed and set aside the impugned notice dated 26th March 2003, allowing the petition. The notice was found to be time-barred, issued without jurisdiction, and based on a mere change of opinion.