2016 (5) TMI 477 - HC - Income Tax

Court Invalidates Tax Notice, Rules in Favor of Petitioner disclosing all facts, citing legal precedents

The Court set aside the notice and order issued under Sections 147 and 148 of the Income Tax Act, 1961, for the assessment year 1994-1995, in favor of the ... Reopening of assessment - failure to disclosure fully and truly all relevant facts for the allowance of claim under Section 35AB - Held that:- The petitioner had entered into an agreement with a foreign supplier for the purpose of acquiring technical knowhow. This agreement was disclosed to the Assessing Officer. The petitioner had sought permission from the Assessing Officer to remit the technical knowhow fees to the foreign supplier. This fact would appear from the exchange of correspondence between the petitioner and the assessment officer dated June 22, 1993, December 13, 1996 and December 19, 1996. In fact, the Assessing Officer had granted permission by writing dated December 19, 1996 to make the remittance. The petitioner has also disclosed its audited balance-sheet as also the quantum of remittance made and the manner calculated and arriving at the quantum of deductions claimed by the petitioner for the relevant assessment year. The assessment year was assessed on scrutiny under Section 143(3) of the Income Tax Act, 1961. The Assessing Officer was silent on account of the deductions claimed. He had allowed the amount of deductions claimed on such head in the order of assessment under Section 143[3} of the Income Tax Act, 1956. The petitioner is not guilty of disclosing fully and truly all materials facts necessary for its assessment for the relevant assessment year. - Decided in favour of assessee Issues:1. Validity of notice under Section 148 of the Income Tax Act, 1961 for assessment year 1994-1995.2. Allegation of excessive deduction on acquisition of technical knowhow.3. Jurisdiction under Sections 147 and 148 of the Income Tax Act, 1961.4. Failure to disclose fully and truly all material facts for assessment.Analysis:1. The petitioner challenged a notice under Section 148 dated March 31, 2001, related to the assessment year 1994-1995. The Assessing Officer invoked Sections 147 and 148 of the Income Tax Act, 1961, claiming excessive deduction on technical knowhow acquisition. The petitioner had previously disclosed the agreement with a foreign supplier and sought permission for remittance, which was granted. The Assessing Officer had allowed the claimed deduction in the assessment order under Section 143(3) for the same year. The petitioner contended that the notice and order were invalid as all relevant facts were disclosed during assessment, citing precedents like Gemini Leather Stores and Ganesh Housing Corporation Ltd.2. The Assessing Officer alleged that the petitioner made an excessive deduction on technical knowhow acquisition, necessitating the notice under Section 148. However, the petitioner had provided all necessary information regarding the agreement with the foreign supplier, permission for remittance, audited balance-sheet, and calculation of deductions. The Assessing Officer had approved the deduction in the original assessment order, indicating no failure to disclose material facts. The petitioner argued that even if there was an oversight, Section 147 cannot be used to remedy the Assessing Officer's error, as per legal precedents.3. The petitioner's Senior Advocate argued that the Assessing Officer lacked jurisdiction under Sections 147 and 148 due to the absence of conditions precedent for assumption of jurisdiction. The Advocate cited cases like Gemini Leather Stores and Ganesh Housing Corporation Ltd to support the contention that the notice and order should be quashed. The Department's Advocate maintained that the Assessing Officer correctly issued the order but lacked further instructions to make submissions. The Court considered both arguments and the materials on record to determine the validity of the notice and order.4. The Court found that the petitioner did not withhold any material facts necessary for assessment, as all details regarding the technical knowhow acquisition were disclosed to the Assessing Officer. Relying on legal precedents, the Court concluded that even if there was an oversight by the Assessing Officer, invoking Section 147 was not justified. Consequently, the Court set aside the impugned notice and order dated May 22, 2001, in favor of the petitioner. WP No. 1280 of 2001 was allowed with no costs awarded.