2015 (5) TMI 433 - HC - Income Tax

Court rules against reassessment beyond 4 years under Section 148 of Income Tax Act.

Paladiya Brothers And Co. Versus Assistant Commissioner Of Income Tax, Circle-9

The court held that the reassessment proceedings initiated beyond the statutory period of four years under Section 148 of the Income Tax Act, 1961, were ... Reopening of assessment - initiation of the reassessment proceedings beyond the period of 4 years -additional depreciation claim - Held that:- Applying the decision of the Division Bench of this Court in the case of Niko Resources Ltd. (2014 (9) TMI 892 - GUJARAT HIGH COURT ) as well as Gujarat Lease Financing Limited (2013 (10) TMI 101 - GUJARAT HIGH COURT ), to the facts of the case on hand and as observed hereinabove, there does not appear to be failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment with respect to the additional depreciation claimed, the initiation of the impugned reassessment proceedings which are initiated beyond the period of four years, are not permissible and the same cannot sustain and on that ground alone, the impugned reassessment proceedings deserve to be quashed and set aside. The impugned notice under section 148 of the Income Tax Act for A.Y. 2007-2008 is hereby quashed and set aside and the impugned reassessment proceedings of reopening assessment for the A.Y. 2007-2008 are hereby terminated on the aforesaid ground alone. - Decided in favour of assessee. Issues Involved:1. Legality of the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961, beyond the period of four years.2. Whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.3. Applicability of the Supreme Court decision in Commissioner of Income Tax vs. Gem India Manufacturing Co. regarding the business of diamond cutting and polishing.4. Whether the reassessment proceedings were based on a mere change of opinion by the Assessing Officer.Detailed Analysis:1. Legality of the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961, beyond the period of four years:The petitioner challenged the reassessment proceedings initiated for the Assessment Year (A.Y.) 2007-2008 under Section 148 of the Income Tax Act, 1961, which were initiated beyond the statutory period of four years. The court noted that as per the first proviso to Section 147, reassessment can be initiated after four years only if the income has escaped assessment due to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. The court concluded that the reassessment proceedings initiated beyond the period of four years were not permissible and were without jurisdiction.2. Whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment:The court observed that the petitioner had disclosed all necessary details and material facts during the original assessment proceedings. The Assessing Officer had scrutinized these details and allowed the claim of additional depreciation. The court held that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Consequently, the conditions for initiating reassessment proceedings beyond the period of four years were not satisfied.3. Applicability of the Supreme Court decision in Commissioner of Income Tax vs. Gem India Manufacturing Co. regarding the business of diamond cutting and polishing:The respondent argued that the reassessment was justified based on the Supreme Court decision in Commissioner of Income Tax vs. Gem India Manufacturing Co., which held that cutting and polishing of diamonds cannot be considered as a business of manufacture or production. Therefore, the additional depreciation claimed by the assessee was not allowable. However, the court noted that the original assessment order had already considered and granted the claim of additional depreciation, and there was no failure on the part of the assessee to disclose material facts.4. Whether the reassessment proceedings were based on a mere change of opinion by the Assessing Officer:The court found that the reasons for reopening the assessment, as communicated to the petitioner, were based on a change of opinion by the Assessing Officer without any new material. The court reiterated that reassessment based on a mere change of opinion is not permissible. The court referenced the decisions in Niko Resources Ltd. and Gujarat Lease Financing Limited, which stated that reassessment proceedings beyond four years are not permissible if there is no failure on the part of the assessee to disclose material facts.Conclusion:The court concluded that the reassessment proceedings initiated beyond the period of four years were not permissible as the conditions under Section 147 were not satisfied. The court quashed and set aside the impugned notice under Section 148 and terminated the reassessment proceedings for A.Y. 2007-2008. The rule was made absolute, and there was no order as to costs.