2008 (10) TMI 327 - HC - Income Tax

Section 148 notice invalid where taxpayer fully disclosed facts; Explanation I to Section 147 inapplicable; assessing officer must record reasons

The HC allowed the petition, holding the section 148 notice invalid. The court found the taxpayer had fully disclosed material facts in the return and ... Reassessment - validity and jurisdiction of the notice u/s 148 - Period of limitation - fulfilment of the pre-requisite conditions, as contained in the proviso to section 147 - notice issued after the expiry of four years from the end of the relevant assessment year - reason to believe - failure to disclose fully and truly all material facts - Burden of proof - HELD THAT:- We find from the material on record, that the petitioner has made a full disclosure of material facts in the return of income filed by him for the relevant assessment year, which is accompanied with several enclosures, including enclosure B in which a summary of short-term and long-term capital gains has been disclosed meticulously, and item-wise. The enclosure runs into as many as seven pages and the schedule attached to the balance-sheet also provides details of the investments, purchases and sales during the relevant year. We, therefore, find that all primary facts have been disclosed by the petitioner at the time of filing his return of income. In view of the disclosure of material facts by the petitioner, Explanation I to section 147 will have no application and the reference thereto, in the order dated August 28, 2008, is misconceived. In fact, the order dated August 28, 2008, travels far beyond the reasons recorded as have been communicated, which is not permissible and, therefore, we cannot look into the contents thereof, which seek to supplement the reasons recorded. It is the statutory duty of the Assessing Officer to record reasons for issuing notice under section 148 of the Act and reasons recorded cannot further be supplemented or explained by a subsequent order so as to give an entirely different complexion to the case. Thus, we are of the view that the petition deserves to be allowed. Issues: Whether the notice issued under Section 148 of the Income-tax Act, 1961, reopening the assessment for assessment year 2001-02 beyond four years from the end of the relevant assessment year is valid in the absence of omission or failure by the assessee to disclose fully and truly all material facts necessary for assessment.Analysis: The original return and accompanying enclosures disclosed primary facts including detailed schedules of short-term and long-term capital gains and item-wise computations. The reasons recorded for reopening relied on a subsequent assessment for a later year and concluded that amounts assessed as capital gains should have been assessed as business income; the reasons recorded did not state any failure by the assessee to disclose fully and truly all material facts. A later order rejecting objections attempted to supplement the originally recorded reasons by alleging non-disclosure of transactional details; such supplementation is not permissible to justify reopening beyond the statutory period. Where primary facts are placed on record by the assessee, it is for the assessing authority to draw inferential conclusions; absence of an express finding of failure to disclose in the reasons recorded means the proviso to Section 147 permitting reopening after four years is not attracted.Conclusion: The notice under Section 148 is invalid and is quashed.