2015 (2) TMI 765 - HC - Income Tax

Interpretation of Income Tax Act's limitation period clarified by Gujarat High Court

Sky Diamonds Versus Asstt. Commissioner of Income Tax

The Gujarat High Court ruled in a case concerning the interpretation of the four-year limitation under section 147 of the Income Tax Act. The court held ... Reopening of assessment - Whether the bar of four years provided by first proviso of section 147 can be made applicable to the facts of the present case or not? - Held that:- No reason to believe that true and full disclosure was not made by the assessee to come out from the bar of four years as provided by first proviso to section 147 of the Act. Once the bar operates upon the power by express statutory provision, the action can be said as without jurisdiction. If the action of issuance of notice is without jurisdiction, it would be a case for interference under Article 226 of the Constitution. Thus the impugned action under section 147 and consequently issuance of notice under section 148 (Annexure-E) including disposal of the objection dated 10.10.2014 (AnnexureI) may not stand in the eye of law. Hence, they are quashed and set aside. - Decided in favour of assessee. Issues:1. Applicability of the four-year bar under section 147 of the Income Tax Act to the case.Analysis:The judgment delivered by the Gujarat High Court in this case primarily revolves around the interpretation and application of the four-year limitation provided in the first proviso of section 147 of the Income Tax Act. The key issue at hand was whether the bar of four years could be enforced in the situation where the assessing officer sought to reopen an assessment for a particular assessment year. The court considered the timeline of events starting from the original scrutiny assessment under section 143(3) for the assessment year 2008-2009, followed by the subsequent notice issued under section 148 in 2014, informing the petitioner of escaped income. The petitioner had raised objections, arguing that full disclosure had been made during the initial assessment, and therefore, the four-year limitation should apply.Upon analyzing the provisions of section 147 of the Act, the court highlighted that the first proviso restricts the assessing officer from taking action after the expiry of four years from the end of the relevant assessment year, unless income has escaped assessment due to the assessee's failure to disclose all material facts. The court emphasized that unless the exceptional circumstance of failure to disclose fully and truly all necessary facts exists, reopening the assessment after the four-year period is impermissible. The judges clarified that if full and true disclosure had been made by the assessee during the initial assessment, the four-year bar should be upheld.The court examined the contentions presented by both parties, noting that the petitioner had demonstrated that full disclosure, including details of partner remuneration, had been provided during the scrutiny assessment. The respondent did not dispute these facts. Consequently, the court concluded that there was no basis to believe that the assessee had not made a complete and accurate disclosure, thereby meeting the requirements to invoke the four-year limitation as per the first proviso of section 147. As a result, the court held that the actions taken under section 147 and the subsequent notice issued under section 148 were without jurisdiction and, therefore, quashed and set aside.In the final verdict, the court allowed the petition to the extent of quashing the impugned actions under the Income Tax Act, emphasizing that adherence to statutory provisions, particularly regarding the limitation on reopening assessments, is crucial for maintaining the legality and validity of tax proceedings.