2024 (3) TMI 1501 - HC - Income Tax

Reassessment under Sections 147/148 invalid where notice issued after four years despite prior Section 143(3) scrutiny

HC quashed the reassessment proceedings initiated under Sections 147/148 as the notice was issued beyond four years from the end of the relevant ... Reopening of assessment - notice issued beyond the period of 4 years from the end of the relevant assessment year - HELD THAT:- We are satisfied that the proviso to Section 147 shall apply in view of an assessment order under Section 143(3) of the Act having been passed on 8th December, 2011 and the notice under Section 148 of the Act was issued four years after the expiry of the relevant assessment year. We are also satisfied that the issue was also a subject of consideration during the assessment proceedings. Reopening notice set aside. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the conditions of the proviso to Section 147 of the Income Tax Act, 1961 were satisfied so as to confer jurisdiction to reopen an assessment completed under Section 143(3) beyond four years from the end of the relevant assessment year. 1.2 Whether a subsequent decision of the Supreme Court on the interpretation of Section 36(1)(viia) of the Act, by itself, constituted valid 'reason to believe' to reopen an assessment where there was no failure by the assessee to fully and truly disclose all material facts. 1.3 Whether the issue of deduction under Section 36(1)(viia) had already been examined and considered in the original assessment proceedings, thereby barring reassessment on the same ground. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Applicability of the proviso to Section 147 for reopening beyond four years Legal framework: The judgment records that the assessment for the relevant year was completed under Section 143(3) and that the notice under Section 148 was issued beyond four years from the end of the relevant assessment year, thereby attracting the proviso to Section 147. Interpretation and reasoning: The Court noted that in such circumstances, jurisdiction to reopen depends on there having been a failure on the part of the assessee to truly and fully disclose all material facts necessary for assessment. The reasons recorded for reopening merely contained a general averment of failure to disclose, without indicating any specific material fact that had been withheld. The computation of income and notes thereto disclosed the claim under Section 36(1)(viia) limited to 7.5% of total income. During the original assessment, the assessee was called upon to, and did, furnish details relating to provision for bad and doubtful debts, including for rural branches, and expressly informed the Assessing Officer that no deduction was claimed for rural advances for the concerned year. The assessment order under Section 143(3) was passed after considering these disclosures. The recorded reasons did not specify any information that was not truly and fully disclosed. Conclusions: The Court held that the proviso to Section 147 applied and that, in the absence of any demonstrated failure by the assessee to truly and fully disclose all material facts, the conditions precedent for reopening beyond four years were not satisfied, rendering the notice under Section 148 without jurisdiction. 2.2 Effect of subsequent Supreme Court decision on power to reopen Interpretation and reasoning: The reasons for reopening relied on the Supreme Court decision interpreting Section 36(1)(viia) to conclude that the provision for bad and doubtful debts thereunder was available only in respect of rural advances, and that in the absence of rural branches such deduction could not be claimed. The Court assumed, for argument's sake, that the Supreme Court's decision supported the Revenue's understanding. However, it held that even if the legal position was clarified or altered by a subsequent decision, this, by itself, would not confer jurisdiction to reopen an assessment completed under Section 143(3) beyond four years where there was no failure on the part of the assessee to truly and fully disclose all material facts in the original assessment proceedings. Conclusions: The Court concluded that reliance on the subsequent Supreme Court decision could not override the statutory requirement under the proviso to Section 147, and therefore could not justify reassessment in the present facts. 2.3 Reopening on an issue already examined in the original assessment Interpretation and reasoning: The Court observed that during the original assessment proceedings the Assessing Officer had specifically called for details regarding the assessee's claim under Section 36(1)(viia), including particulars of rural branches and proof thereof. The assessee had disclosed that no claim for deduction in respect of rural advances was made for the relevant year and had restricted its claim to 7.5% of total income. The assessment order under Section 143(3) was passed after considering this material. The Court expressly recorded its satisfaction that the issue in question had been a subject of consideration during the assessment proceedings. Conclusions: The Court held that reassessment on the same ground amounted to reopening an issue already examined and considered, without any new material and without any failure to disclose on the part of the assessee, and thus was impermissible. Accordingly, the impugned notice under Section 148 and the consequential order were quashed and set aside.