2014 (12) TMI 936 - HC - Income Tax

Court quashes notice & reassessment order due to jurisdictional error under Income Tax Act.

The court quashed the notice and reassessment order as the assumption of jurisdiction under Sections 147 and 148 of the Income Tax Act was found to be ... Reopening of assessment after four years - proviso to Section 147 - failure to disclose fully and truly all material facts as jurisdictional prerequisite - assessment under Section 143(3) and consideration of disclosed material - change of opinion - violation of principles of natural justice in reassessment proceedingsReopening of assessment after four years - proviso to Section 147 - failure to disclose fully and truly all material facts as jurisdictional prerequisite - assessment under Section 143(3) and consideration of disclosed material - Validity of reopening assessment for AY 1999-2000 under Sections 147/148 where notice was issued after four years - HELD THAT: - The proviso to Section 147 prohibits action after four years from the end of the relevant assessment year unless income has escaped assessment by reason of failure to make a return or to disclose fully and truly all material facts necessary for assessment. The reasons supplied for reopening must disclose which fact or material was not fully and truly disclosed so as to demonstrate the jurisdictional 'reason to believe'. Here the notice dated 29 March 2006 and the reasons supplied (16 November 2006) do not allege or identify any particular fact or material that was not disclosed by the assessee during the original assessment. The assessee had filed a revised return and accompanying accounts disclosing the claim relevant to MAT computation and the Assessing Officer in the original assessment under Section 143(3) explicitly considered that disclosure in the assessment order. The recorded reasons therefore do not disclose cogent material showing failure to disclose and instead indicate matters already placed before and considered by the Assessing Officer. Consequently the jurisdictional precondition in the proviso to Section 147 is not fulfilled and the reopening is in excess of jurisdiction. [Paras 8, 12, 13]Impugned notice under Section 148 dated 29 March 2006 and reassessment order dated 26 December 2006 quashed as issued without jurisdiction as the proviso to Section 147 was not satisfied.Violation of principles of natural justice in reassessment proceedings - alternative remedy and writ jurisdiction - Permissibility of entertaining writ despite availability of statutory remedies given the facts - HELD THAT: - Although statutory appellate remedies existed against the reassessment order, the petition was filed after the reassessment order was passed but shortly after the reasons were furnished and objections disposed of; the reassessment order was passed within five working days after disposal of objections, with intervening days being holidays. The Court observed that the cumulative circumstances - late supply of reasons, disposal of objections and very prompt completion of reassessment on the next working day - together with the absence of jurisdiction in reopening, warranted exercise of extraordinary jurisdiction. The issues raised did not involve disputed questions of fact and the Court found it inappropriate to refuse relief solely on the basis of availability of alternative remedies. [Paras 15]Writ jurisdiction exercised; petition entertained notwithstanding availability of statutory remedies in view of the facts and prompt reassessment following late supply of reasons.Final Conclusion: Rule made absolute: the notice dated 29 March 2006 under Section 148 and the reassessment order dated 26 December 2006 are quashed for want of jurisdiction under the proviso to Section 147; no order as to costs. Issues involved:1. Assumption of jurisdiction under Sections 147 and 148 of the Income Tax Act, 1961.2. Issuance of notice beyond the period of four years.3. Alleged failure to disclose fully and truly all material facts.4. Change of opinion by the Assessing Officer.5. Violation of principles of natural justice and fair play.6. Availability of alternative remedies.Issue-wise detailed analysis:1. Assumption of jurisdiction under Sections 147 and 148 of the Income Tax Act, 1961:The petitioner challenged the assumption of jurisdiction by the Commissioner of Income Tax under Sections 147 and 148 by issuing a notice dated 29 March 2006 and the consequent reassessment order dated 26 December 2006. The court examined whether the conditions for invoking Sections 147 and 148 were met, particularly focusing on whether there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment.2. Issuance of notice beyond the period of four years:The notice under Section 148 was issued after the expiry of four years from the end of the relevant assessment year (1999-00). According to the proviso to Section 147, no action can be taken after four years unless income chargeable to tax has escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court found that there was neither an allegation nor circumstances indicating such a failure by the petitioner.3. Alleged failure to disclose fully and truly all material facts:The court noted that the reasons for reopening the assessment did not specify any failure on the part of the petitioner to disclose all material facts. The reasons provided were vague and did not indicate which particular facts or materials were not disclosed. The court emphasized that the reasons must be clear and unambiguous, and the absence of specific allegations of non-disclosure rendered the assumption of jurisdiction under Sections 147 and 148 ultra vires.4. Change of opinion by the Assessing Officer:The court observed that the issues raised in the reassessment notice, such as the computation of MAT liability and debiting of capital expenditure, were already considered by the Assessing Officer in the original assessment order dated 21 March 2002. The reassessment was based on a mere change of opinion, which is impermissible under the law.5. Violation of principles of natural justice and fair play:The reassessment order was issued in haste, immediately after the objections raised by the petitioner were disposed of. The court noted that the period between 22 December 2006 and 25 December 2006 were not working days, and the reassessment order was made on the immediate next working day, 26 December 2006. This approach was deemed to violate principles of natural justice and fair play, as the Assessing Officer did not wait for a reasonable period after disposing of the objections before proceeding with the reassessment.6. Availability of alternative remedies:The court addressed the objection that the petitioner should have availed of the ordinary remedies of appeal under the Act. However, given the circumstances, including the issuance of the reassessment order in violation of jurisdictional restraints and principles of natural justice, the court deemed it appropriate to exercise its extraordinary jurisdiction and not reject the petition on the ground of availability of alternative remedies.Conclusion:The court quashed the impugned notice dated 29 March 2006 and the reassessment order dated 26 December 2006, as the assumption of jurisdiction by the Commissioner of Income Tax was found to be ultra vires and in violation of the statutory provisions and principles of natural justice. The petition was allowed, and no order as to costs was made.