2010 (9) TMI 391 - HC - Income Tax

Reassessment notice limitation Effect of section 147 and 149 Held that - Both sections 147 and 149 of the Act are to be read together. The proviso to section 147 of the Act specifically provides the limitation for taking action under the said section within four years and only in the exceptional case mentioned therein namely where there is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the assessment year the proceeding can be initiated beyond the period of four years. Department did not deny the followings in its counter affidavit - (i)That the petitioner had disclosed the matter fully and truly at the time of regular assessment proceedings. It had also furnished the details regarding closing stock specifically asserting that no provision of excise duty/liability in respect of goods manufactured and held in stock as on March 31 1995 was made and valuation of the closing stock of both the units were furnished. (ii) That the petitioner also furnished details of interest received in case of U. P. Straw Board and Agro Product Ltd. M/s. V. L. S. Finance Ltd. and Kotak Mahindra Finance Ltd. and the list of interest charged showing the basis of charging interest whereas at the time of proceeding it imposed interest on year end basis. (iii) That the third objection was also dealt with as per schedule 8 of the balance-sheet which was furnished by the assessing authority. Thus the petitioner had disclosed the matter fully and truly and the material facts necessary for assessment in course of the regular assessment proceeding under section 143(3) of the Income-tax Act. Notice for assessment year 1995-96 in March 2002 Notice barred by limitation

Summary

Issues Involved:
1. Legality of the notice issued under Section 148 of the Income-tax Act.
2. Limitation period for issuing the notice under Section 148.
3. Failure to disclose material facts by the assessee.
4. Reopening of assessment based on change of opinion.

Detailed Analysis:

1. Legality of the Notice Issued Under Section 148 of the Income-tax Act:
The petitioner challenged the notice dated March 5, 2002, issued by the Assistant Commissioner of Income-tax, Najibabad, for reassessment under Section 148 read with Section 147 of the Income-tax Act for the assessment year 1995-96. The petitioner argued that the notice was issued beyond the permissible period of four years and lacked any indication that the petitioner failed to disclose fully and truly all material facts necessary for the assessment.

2. Limitation Period for Issuing the Notice Under Section 148:
The petitioner contended that the notice was issued beyond the four-year limitation period specified under Section 147 of the Act. The relevant assessment year was 1995-96, and the four-year period expired on March 31, 2000, while the notice was issued on March 5, 2002. The court noted that the proviso to Section 147 restricts action beyond four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

3. Failure to Disclose Material Facts by the Assessee:
The petitioner argued that all material facts were fully and truly disclosed during the original assessment proceedings. The court examined the assessment order and found that the petitioner had provided complete details of the closing stock and interest, which were duly considered by the assessing authority. The court also noted that the reasons recorded for issuing the notice did not mention any failure on the part of the petitioner to disclose material facts.

4. Reopening of Assessment Based on Change of Opinion:
The petitioner asserted that the reassessment proceedings were initiated merely based on an audit objection and a change of opinion, which is not permissible under the law. The court referenced the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which established that reassessment based on a mere change of opinion is not valid. The court found that the original assessment had already considered the issues raised in the reassessment notice, and thus, reopening the assessment on these grounds was not justified.

Conclusion:
The court concluded that the notice issued under Section 148 was barred by limitation as it was issued beyond the permissible period of four years without any failure on the part of the assessee to disclose material facts. The court quashed the notice dated March 5, 2002, and allowed the writ petition.

Key Points:
- The notice under Section 148 was issued beyond the four-year limitation period.
- There was no failure on the part of the assessee to disclose material facts.
- Reopening the assessment based on a change of opinion is not permissible.
- The court quashed the notice and allowed the writ petition.