2014 (10) TMI 1061 - HC - Income Tax

Notice under Income Tax Act Section 148 Quashed: Petitioner Complied with Disclosure Requirements

The court quashed the notice issued under Section 148 of the Income Tax Act, 1961 for reopening an assessment for the year 1999-2000. The court found that ... Failure to truly and fully disclose material facts - reopening of assessment beyond four years - notice under Section 148 - first proviso to Section 147 - Explanation 1 to Section 147 - return of income with Balance sheet and Profit & Loss AccountFailure to truly and fully disclose material facts - reopening of assessment beyond four years - notice under Section 148 - return of income with Balance sheet and Profit & Loss Account - Whether the impugned notice under Section 148 reopening assessment for AY 1999-2000 (beyond four years) is valid in the absence of failure to truly and fully disclose material facts. - HELD THAT: - The Court held that where a return of income is filed along with the audited Profit & Loss Account and Balance sheet, particulars contained in the Notes to Annual Accounts which are part of the Balance sheet form part of the return. The petitioner's Schedule 21 (Notes to Annual Accounts), filed with the return, disclosed the loans, reasons for non recovery and the basis for not accruing interest. The reasons recorded by the Assessing Officer for reopening themselves rely on Schedule 21. Consequently, there was no failure on the part of the petitioner to truly and fully disclose material facts necessary for assessment and the additional condition in the first proviso to Section 147 for reopening beyond four years was not satisfied. The Court rejected the Revenue's submission that the Schedule was 'hidden' or unnoticed by the Assessing Officer, noting that the reopening reasons relied on the same Schedule. The petition was allowed on this ground. [Paras 8, 9, 11]Impugned notice under Section 148 reopening the assessment for AY 1999-2000 (issued beyond four years) is without jurisdiction and liable to be quashed for lack of failure to truly and fully disclose material facts.Explanation 1 to Section 147 - return of income with Balance sheet and Profit & Loss Account - Whether Explanation 1 to Section 147 excludes disclosure made in the Balance sheet and Notes to Annual Accounts filed with the return. - HELD THAT: - The Court found that Explanation 1 to Section 147 does not refer to the Balance sheet and Profit & Loss Account which are mandatorily filed with the return of income under Section 139; a return without these documents is treated as defective. Therefore Explanation 1 could not be invoked to contend that the Notes to Annual Accounts, which accompanied the return, were not a true and full disclosure. The Revenue's contention that the Notes could only have been discovered with due diligence was rejected on this basis. [Paras 10]Explanation 1 to Section 147 is not attracted to exclude material disclosed in the Balance sheet and Notes to Annual Accounts filed with the return.Notice under Section 148 - reopening of assessment beyond four years - Validity of the order rejecting the petitioner's objection to the reasons for reopening and consequence for the impugned notice. - HELD THAT: - Given the conclusions that the petitioner had truly and fully disclosed the material facts and that Explanation 1 did not apply, the Court held that the Assessing Officer's order rejecting the objection (which rested on the view of non disclosure) and the notice of reopening were unsustainable. The Court observed that it did not accept the petitioner's alternative contention that the reasons were wholly devoid of particulars, because the reasons did indicate the Assessing Officer's view; however, that view could not cure the lack of jurisdiction to reopen. [Paras 11, 12]The order rejecting the objection and the notice dated 13 March 2006 are quashed and set aside.Final Conclusion: The petition is allowed: the reopening notice dated 13 March 2006 under Section 148 for AY 1999-2000 and the order dated 10 November 2006 rejecting the petitioner's objection are quashed and set aside; no order as to costs. Issues:1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening an assessment for the assessment year 1999-2000.2. Challenge against the order rejecting the petitioner's objection to the reasons in support of the notice.Analysis:Issue 1:The petitioner challenged a notice issued under Section 148 of the Income Tax Act, 1961 to reopen an assessment for the year 1999-2000. The petitioner contended that all material facts were fully disclosed during the regular assessment proceedings, as evidenced by Schedule 21 of the Notes to Annual Accounts in the Balance-sheet filed with the return of income. The Assessing Officer's reasons for reopening the assessment were based on the information disclosed by the petitioner in its Balance-sheet. The petitioner argued that there was no failure to disclose all material facts necessary for assessment. The court noted that for reopening an assessment beyond four years, there must be a failure to disclose fully and truly all material facts. The court found that the petitioner had provided sufficient information in the Balance-sheet, which was part of the return of income, and the reasons for reopening relied on the same information. The court rejected the revenue's argument that the information was hidden in the Balance-sheet and not noticed by the Assessing Officer, as the Notes to Annual Accounts were integral to the Balance-sheet.Issue 2:The petitioner objected to the notice, arguing that it was issued beyond the prescribed period and without jurisdiction due to the absence of any failure to disclose material facts. The Assessing Officer rejected the objection, stating that the information disclosed was not true and full. The court held that the reasons for reopening the assessment did indicate a prima facie conclusion of income escapement, but the petitioner had indeed disclosed all necessary material facts. The court quashed the notice and the order rejecting the objection, emphasizing that the reasons for the notice were not devoid of particulars and did provide a basis for the Assessing Officer's belief of income escapement.In conclusion, the court allowed the petition, quashing the notice and the order rejecting the objection, as the petitioner had fully and truly disclosed all material facts necessary for assessment, as required by law.