2015 (4) TMI 341 - HC - Income Tax

Court rules tax proceedings time-barred due to lack of disclosure, sets aside orders.

IBS Software Services Pvt Ltd Versus The Union of India And Others

IBS Software Services Pvt Ltd Versus The Union of India And Others - [2015] 379 ITR 66 (Ker) Issues Involved:1. Sustainability of proceedings under Section 147 of the Income Tax Act, 1961, initiated beyond four years on the ground of failure to 'fully and truly disclose all material facts.'2. Validity of re-opening assessments for the years 2004-05, 2005-06, and 2006-07.3. Examination of whether the assessee's conduct constituted a lack of full and true disclosure of material facts.4. Applicability of various legal precedents and interpretations of relevant provisions of the IT Act.Issue-Wise Detailed Analysis:1. Sustainability of Proceedings under Section 147 of the Income Tax Act, 1961:The central question was whether proceedings under Section 147, initiated to reassess escaped income beyond four years, were sustainable due to the assessee's failure to 'fully and truly disclose all material facts.' According to Section 147, reassessment is permissible if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The first proviso to Section 147 allows reopening of assessment after four years only if there was a failure on the part of the assessee to make a return under Section 139, respond to notices under Sections 142(1) or 148, or disclose all material facts fully and truly.2. Validity of Re-opening Assessments for the Years 2004-05, 2005-06, and 2006-07:The assessments for the years 2004-05, 2005-06, and 2006-07 were reopened on the grounds that the assessee failed to disclose fully and truly all material facts necessary for assessment. The notices for reopening were issued within six years but beyond four years from the end of the relevant assessment years. The Department contended that the exemption granted under Section 10A was incorrect due to the assessee's non-disclosure of the Business Corporation Agreement (BCA), which indicated that the business was formed by splitting up or reconstructing an existing business.3. Examination of Whether the Assessee's Conduct Constituted a Lack of Full and True Disclosure of Material Facts:The court examined whether the assessee's conduct constituted a lack of full and true disclosure of material facts. The assessee argued that the BCA was produced before the Assessing Officer during the assessment for the year 2003-04, thus refuting the Department's claim of non-disclosure. The court found that the BCA was indeed available in the records before the completion of the assessment for 2003-04, and thus, there was no absence of full and true disclosure for the subsequent years.4. Applicability of Various Legal Precedents and Interpretations of Relevant Provisions of the IT Act:The court considered several precedents, including the Supreme Court's decision in Calcutta Discount Co. Ltd. v. Income Tax Officer, which held that mere production of account books or evidence does not amount to full disclosure if material facts are not fully and truly disclosed. The court also referred to decisions such as Malegaon Electricity Co. P. Ltd. v. CIT and CIT v. Popular Vehicles & Service Ltd., which discussed the concept of 'reason to believe' and the adequacy of reasons for reopening assessments.Conclusion:The court concluded that the proceedings under Section 147 were not sustainable as they were initiated beyond four years without sufficient grounds for alleging a lack of full and true disclosure of material facts by the assessee. The court found that the BCA was available in the records before the completion of the assessment for 2003-04, and thus, there was no absence of full and true disclosure. Consequently, the impugned orders were set aside, and the writ petitions were allowed. The proceedings were deemed to be hit by limitation, and the period could not be extended by two years as provided under Section 153 of the IT Act.