2003 (11) TMI 59 - HC - Income Tax

Notice u/s 148 proposing to reopen the completed assessment disclosure of necessary facts - claim of deduction on account of loss in share value - petitioner-assessee had furnished all material facts truly and fully before the assessing authority at the relevant point of time - Where full and true disclosure of facts was made by an assessee the Department cannot reopen the assessment even if there is loss of revenue or even if legal inference drawn by the assessing authority was erroneous in the first place

Issues Involved:

1. Legality of the notice issued under section 148 of the Income-tax Act, 1961.
2. Alleged failure of the assessee to disclose fully and truly all material facts.
3. Justification for reopening the assessment beyond the stipulated period of four years.
4. Validity of the claim of speculative loss and its set-off against business income.

Issue-wise Detailed Analysis:

1. Legality of the notice issued under section 148 of the Income-tax Act, 1961:

The petitioner challenged the notice dated August 19, 2002, issued by the first respondent under section 148 of the Income-tax Act, proposing to reopen the completed assessment for the assessment year 1996-97. The petitioner argued that the notice was illegal and sought to restrain the respondents from proceeding further. The court examined the provisions of sections 147 and 148 of the Act and the conditions under which an assessment can be reopened. It was noted that the notice was issued after the expiry of four years from the end of the relevant assessment year, which is only permissible if the income chargeable to tax escaped assessment due to the failure of the assessee to disclose fully and truly all material facts.

2. Alleged failure of the assessee to disclose fully and truly all material facts:

The respondents justified the reopening of the assessment by alleging that the assessee failed to disclose all material facts necessary for the completion of the assessment. Specifically, the assessee claimed a speculative loss on account of the falling share value without providing details or material support for the claim. The court examined the material papers and found that the petitioner had furnished all necessary particulars and disclosed all material facts under various schedules. The court concluded that the petitioner had disclosed all material facts truly and fully, and the assessing authority had all the information required to make the original assessment.

3. Justification for reopening the assessment beyond the stipulated period of four years:

The petitioner argued that the notice was time-barred as it was issued beyond the stipulated period of four years from the end of the relevant assessment year. The court referred to the Supreme Court's observations in various cases, emphasizing that the power to reopen an assessment is not unbridled and is subject to several safeguards to prevent abuse. The court found that the petitioner had disclosed all material facts necessary for the assessment, and there was no failure on the part of the assessee to disclose fully and truly all material facts. Therefore, the respondents were not justified in reopening the assessment beyond the stipulated period.

4. Validity of the claim of speculative loss and its set-off against business income:

The respondents contended that the loss claimed by the assessee was speculative and could not be set off against business income. The court examined the particulars furnished by the petitioner and found that the assessee had disclosed all details regarding the investment in shares and the loss arising from their revaluation. The court referred to the Supreme Court's observations on the accepted methods of commercial practice and accountancy, which allow for the valuation of closing stock at cost or market price, whichever is lower. The court concluded that the petitioner had disclosed all material facts, and the assessing authority had all the details to allow the claim. Thus, the respondents were not justified in reopening the assessment based on the claim of speculative loss.

Conclusion:

The court held that the petitioner had disclosed fully and truly all material facts necessary for making the assessment, and the respondents were not justified in issuing the impugned notice seeking to reopen the assessment. The notice dated August 19, 2002, was set aside, and the writ petition was allowed.

← Previous Next →