2011 (12) TMI 63 - HC - Income Tax

Time limit for issue of notice under 147 - Assessee had specifically filed details with regard to allocation of expenses. The same was examined by the assessing officer and it is only then that the assessment was finalized under section 143 (3) of the said Act. - Held that - Where assessee had disclosed all the material facts necessary for the purposes of assessment -notice after the period of four years shall be time barred. Decided in favour of assessee.

Summary

Issues involved:
Assessment year 2004-05, Re-opening of assessment under section 147 of the Income Tax Act, 1961, Time-barred notice under section 148, Full and true disclosure of material facts, Change of opinion, Expenses incurred for earning exempt income, Retrospective applicability of section 14-A and Rule 8-D, Provisions of Explanation 3 and 1 to section 147, Jurisdiction to re-assess income, Bar of limitation, Quashing of notice and proceedings.

Analysis:

1. Re-opening of Assessment: The petitioner challenged the re-opening of assessment for the assessment year 2004-05 under section 147 of the Income Tax Act, 1961. The notice under section 148 was issued beyond the four-year limitation period from the end of the relevant assessment year, raising concerns about the validity of the re-opening.

2. Time-barred Notice: The petitioner argued that the notice under section 148 was time-barred as it was issued after the expiry of four years from the end of the assessment year. The court agreed with this contention, emphasizing that the notice issued on 30.03.2010 was beyond the permissible period, which led to the quashing of the notice and related proceedings.

3. Disclosure of Material Facts: The petitioner contended that all material facts necessary for assessment were fully and truly disclosed, including details of dividend income and expenses incurred. The court found that the petitioner had indeed provided necessary information during the original assessment proceedings, thereby meeting the disclosure requirements.

4. Change of Opinion: The petitioner argued that the re-opening was based on a mere change of opinion by the Assessing Officer, which was not a valid ground for reassessment. Citing relevant case law, the petitioner emphasized that a change of opinion alone cannot justify re-opening an assessment.

5. Expenses for Exempt Income: The petitioner disclosed expenses incurred for earning exempt dividend income, highlighting that these expenses were properly accounted for and excluded from claimed expenditure. The court noted the petitioner's compliance with section 14-A regarding expenses related to earning exempt income.

6. Retrospective Applicability: The revenue contended that the provisions of section 14-A and Rule 8-D were retrospective, justifying the re-opening. However, the court clarified that even if these provisions were retrospective, they could not serve as grounds for re-opening assessments, citing relevant precedents.

7. Explanation to Section 147: The revenue referred to Explanation 3 and Explanation 1 to section 147 to support the re-assessment, emphasizing the assessing officer's authority to investigate issues that may have escaped assessment. The court analyzed these provisions in the context of the case.

8. Jurisdiction and Bar of Limitation: The court ultimately held that the notice under section 148 was time-barred, as the petitioner had fully disclosed all material facts necessary for assessment. Consequently, the court set aside the impugned order and notice, ruling in favor of the petitioner on the plea of limitation.

9. Conclusion: The court allowed the writ petition, quashing the notice and related proceedings due to the time-barred nature of the notice under section 148. The court's decision was based on the petitioner's full disclosure of material facts and the expiration of the four-year limitation period, rendering the re-opening invalid.