2008 (11) TMI 2 - HC - Income Tax

Reassessment under Sections 147/148 invalid where AO accepted share application details under Section 143(3); reassessment quashed

HARYANA ACRYLIC MANUFACTURING COMPANY Versus COMMISSIONER OF INCOME-TAX IV and ANOTHER

HC held that reassessment proceedings under Section 147/148 could not be sustained where the AO had recorded receipt, verification and acceptance of ... Re-opening of assessment - share application money - Applicability of the proviso to Section 147 - escaped assessment within the meaning of Section 147 - carry forward unabsorbed depreciation - Whether the petitioner failed to make a full and true disclosure of all the material facts necessary for his assessment for the assessment year 1998-99 - HELD THAT:- The provisions of Section 147 after the 1989 amendment are somewhat different. Section 147 after the amendment does not contain any expression pertaining to 'information' in the possession of the Income-tax Officer. The only requirement is that the Assessing Officer has to have reason to believe that income chargeable to tax has escaped assessment. The proviso is by way of an exception to this provision. The proviso also does not speak of any 'information'. This discussion makes it clear that the ratio in Phool Chand [1993 (7) TMI 1 - SUPREME COURT] would not be strictly applicable to this case which relates to the provisions of Section 147 after the amendment of 1989. We have already noted above that in the assessment order itself, the Assessing Officer has recorded that the details as required were filed and verified. This in itself indicates that the Assessing Officer had applied his mind to the issue of the share application money and had accepted the assessee's claim after due verification. Furthermore, in the impugned order dated 02.03.2005 itself, the Assessing Officer has indicated that during the course of assessment proceedings, the petitioner had filed details in respect of share application money of Rs 5 lakhs in the name Hallmarks Healthcare Limited. However, the Assessing Officer has now sought to wriggle out of his remarks in the assessment order by stating that only photocopies for the application for equity shares were filed and that the copy of the bank account with the Indian Bank which was available did not indicate that verification had been done incorrectly and that the facts as presented by the petitioner had been accepted in the normal course of assessment proceedings. The Assessing Officer cannot be permitted to retract from the position that he did ask for specific information and that the information was supplied by the petitioner. And, more importantly, that the Assessing officer had examined and verified the information before finalizing the assessment under Section 143(3) of the said Act. In this background also, we feel that the petitioner had not failed to disclose fully and truly all material facts necessary for its assessment in respect of the assessment year 1998-99. Thus, we allow the writ petition. The impugned notice dated 29.03.2004 under Section 148 of the said Act as also the impugned order dated 02.03.2005 are set aside. All proceedings pursuant to the said notice are also set aside. The parties shall bear their own costs. This writ petition and all pending applications stand disposed of. Issues Involved:1. Legality of the notice under Section 148 of the Income Tax Act, 1961 for reopening the assessment.2. Applicability of the proviso to Section 147 of the Income Tax Act, 1961.3. Allegation of failure to disclose fully and truly all material facts necessary for assessment.4. Validity of the reasons provided for reopening the assessment.5. Compliance with the Supreme Court's directions in GKN Driveshafts (India) Limited v. Income Tax Officer and Others.6. Examination of whether the case involves a mere change of opinion.Detailed Analysis:1. Legality of the Notice under Section 148:The writ petition challenges the notice dated 29.03.2004 issued by the Assistant Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the assessment year 1998-99. The petitioner had filed a return declaring nil income, and the assessment was completed under Section 143(3) at nil income. The notice under Section 148 was issued on the grounds that the petitioner had allegedly taken accommodation entries from Hallmark Healthcare Limited.2. Applicability of the Proviso to Section 147:The case involves the issuance of a notice under Section 148 beyond four years from the end of the relevant assessment year. Therefore, the proviso to Section 147 is applicable. This proviso allows action after four years only if the income chargeable to tax has escaped assessment due to the assessee's failure to make a return or to disclose fully and truly all material facts necessary for the assessment.3. Allegation of Failure to Disclose Fully and Truly All Material Facts:The reasons supplied to the petitioner for reopening the assessment did not contain any allegation that the petitioner failed to disclose fully and truly all material facts necessary for the assessment. The petitioner had disclosed all relevant documents during the original assessment proceedings, including details of the share application money received from Hallmark Healthcare Limited. The assessment order noted that the details required were filed and verified.4. Validity of the Reasons Provided for Reopening the Assessment:The reasons provided to the petitioner indicated that the assessee had taken accommodation entries from Hallmark Healthcare Limited. However, the petitioner contended that the transaction was genuine and had been fully disclosed during the original assessment. The court found that the reasons supplied did not allege any failure to disclose material facts, which is a necessary condition for reopening the assessment after four years.5. Compliance with the Supreme Court's Directions in GKN Driveshafts (India) Limited v. Income Tax Officer and Others:The Supreme Court in GKN Driveshafts directed that the reasons for issuing a notice under Section 148 must be supplied to the assessee within a reasonable time, and the assessee is entitled to file objections to the notice. The Assessing Officer is then bound to dispose of the objections by passing a speaking order. In this case, the reasons were supplied to the petitioner after a significant delay, and the objections were not disposed of in a timely manner, violating the Supreme Court's directions.6. Examination of Whether the Case Involves a Mere Change of Opinion:The petitioner argued that the notice under Section 148 was based on a mere change of opinion, which is not permissible under law. The court observed that the original assessment had been completed after due verification of the details provided by the petitioner. The court held that the reopening of the assessment was based on a mere change of opinion and not on any new material or information.Conclusion:The court allowed the writ petition, setting aside the notice dated 29.03.2004 under Section 148 and the order dated 02.03.2005. The court held that the reasons supplied to the petitioner did not contain any allegation of failure to disclose material facts, which is a necessary condition for reopening the assessment after four years. The court also found that the proceedings were vitiated due to non-compliance with the Supreme Court's directions in GKN Driveshafts. All proceedings pursuant to the notice were set aside, and the parties were directed to bear their own costs.