2002 (10) TMI 74 - HC - Income Tax

This petition by an assessee is directed against notices issued under section 147 read with section 148 of the Income-tax Act 1961 (hereinafter referred to as the Act ). They have been impugned principally on the ground that they suffer from serious legal infirmity since they were issued after the expiry of four years from the end of the relevant assessment years even in the absence of the condition or conditions as envisaged by a proviso to section 147 - Learned counsel for the respondents could not satisfy that there was any failure on the part of the assessee as envisaged by the proviso to section 147 or in any manner by suppression or omission he took advantage and escaped the assessment. - In the result we allow the petition and quash the impugned notices

Summary

Issues:
Challenge to notices issued under section 147 read with section 148 of the Income-tax Act, 1961 for reassessment beyond the prescribed period of four years without meeting the conditions of the proviso to section 147.

Analysis:
The petitioner, a limited foreign company, submitted returns for various assessment years offering one per cent of gross receipts as income for assessment. The Assessing Officer issued notices for reassessment beyond four years, alleging income had escaped assessment. The petitioner challenged the notices, arguing they were issued without any failure on their part as required by the proviso to section 147.

The proviso to section 147 restricts reassessment after four years unless there is failure on the part of the assessee. The court found the notices were issued beyond the prescribed period without any indication of failure by the assessee. The respondent's reliance on section 151 for permission from the Commissioner was deemed insufficient as it does not override the conditions of the proviso.

The assessing authority had the option to assess ten per cent of gross receipts for work done outside India, contrary to the one per cent offered by the assessee. However, this difference did not constitute a failure or omission on the part of the assessee justifying reassessment beyond four years.

The reasons provided by the authority for reassessment did not establish any failure or omission by the assessee, as required by the proviso. The reliance on Explanation 2 to section 147 was deemed misplaced, as it did not absolve the need to comply with the conditions of the proviso for reassessment beyond four years.

The court emphasized that information about legal positions or judicial decisions does not constitute failure on the part of the assessee justifying reassessment. Relying on previous case law, the court held that the assessing authority cannot reopen assessments based on incorrect legal inferences without any failure on the part of the assessee.

The court concluded that there was no failure on the part of the assessee justifying reassessment beyond four years and allowed the petition, quashing the impugned notices dated March 30, 2000, and March 29, 2001.