Court quashes assessment notice and order, emphasizing adherence to legal principles

The court quashed the notice dated 09.03.2018 and the order dated 08.11.2018, ruling in favor of the petitioner. It held that the reopening of the assessment was unjustified as the Assessing Officer failed to determine expenditure correctly, which cannot be a basis for reassessment. Additionally, the notice issued beyond the four-year limitation period was deemed invalid due to the absence of any failure on the part of the assessee to disclose material facts. The court underscored the significance of adherence to legal principles and preventing arbitrary exercise of power.

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Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Alleged failure of the assessee to disclose fully and truly all material facts.
3. Applicability of the limitation period for issuing notice under Section 148.
4. Jurisdiction of the court under Article 226 of the Constitution of India to quash the impugned notice and order.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 of the Income Tax Act, 1961:
The core issue is whether the first respondent is justified in reopening the assessment for the assessment year 2011-12. The reasons cited for reopening were twofold: the disallowance under Section 14 A was not computed as per the prescribed method, and the assessee did not use the 2011 census figures for determining the status of rural branches for bad debt provisioning. The court emphasized that Section 147 allows the Assessing Officer to reassess income if there is a reason to believe it has escaped assessment. However, this power is conditional and cannot be used merely for a change of opinion. The court held that the Assessing Officer failed to determine the amount of expenditure correctly, which cannot be a ground for reopening the assessment.

2. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts:
The respondents argued that the assessee did not disclose all material facts, particularly regarding the expenditure towards earning income exempt from tax. The court, however, found that the assessee had provided all relevant account books and documents. The duty to determine the expenditure correctly lies with the Assessing Officer. The court concluded that there was no failure on the part of the assessee to disclose material facts.

3. Applicability of the Limitation Period for Issuing Notice under Section 148:
The notice under Section 148 was issued beyond four years from the end of the assessment year, which is beyond the permissible limit unless there is a failure on the part of the assessee to disclose material facts. The court referred to the first proviso to Section 147, which restricts reopening after four years unless there is such a failure. Since the court found no failure on the part of the assessee, the reopening was deemed invalid.

4. Jurisdiction of the Court under Article 226 of the Constitution of India:
The respondents contended that the writ petition was not maintainable as the petitioner did not challenge the order dated 29.11.2018, which rejected their objections to reopening. The court, however, held that when the issue pertains to the jurisdiction of the authority, the existence of an alternative remedy does not bar the petitioner from seeking relief under Article 226. The court found that the conditions precedent for exercising jurisdiction under Section 147 did not exist, and thus the notice and order were invalid.

Conclusion:
The court quashed the impugned notice dated 09.03.2018 and the order dated 08.11.2018, allowing the writ petition. The court emphasized that the failure to determine the expenditure correctly by the Assessing Officer cannot be a ground for reopening the assessment and that the reopening was beyond the permissible period without any failure on the part of the assessee. The court also highlighted the importance of adhering to legal maxims and ensuring that the exercise of power is not arbitrary.

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