2010 (1) TMI 44 - HC - Income Tax

Issuance of notice u/ 148 challenge under article 226 of the constitution claim of deduction u/s 80IB assessment was completed u/s 143(3) held that - Though an attempt was made on behalf of the Revenue to urge that the assessee should be relegated to the ordinary remedy of an appeal against the order of the assessment we are of the view that a petition under Article 226 of the Constitution would be maintainable for questioning reopening of the assessment in a case such as this where the preconditions for the exercise of the power have not been fulfilled. - recourse to the power under Section 147 cannot be sustained on a mere change of opinion there being no failure of the assessee to disclose fully and truly all material facts necessary for assessment. The basic condition prescribed by the statute for the exercise of the power has not been fulfilled decided in favor of assessee

Issues Involved:
1. Validity of notice issued under Section 148 of the Income Tax Act, 1961, for reopening assessment.
2. Compliance with the conditions stipulated in the proviso to Section 147 of the Income Tax Act, 1961.
3. Alleged failure of the assessee to disclose fully and truly all material facts necessary for the assessment.

Issue-wise Detailed Analysis:

1. Validity of notice issued under Section 148 of the Income Tax Act, 1961, for reopening assessment:
The petitioner challenged the notice issued under Section 148, which proposed to reassess the income for the Assessment Year 2002-03 on the grounds that the income had escaped assessment. The petitioner argued that the notice was issued after the expiry of four years from the relevant Assessment Year, which is beyond the permissible period for reopening assessments under Section 147, unless specific conditions are met.

2. Compliance with the conditions stipulated in the proviso to Section 147 of the Income Tax Act, 1961:
The court noted that Section 147 allows the Assessing Officer to reassess income if there is reason to believe that income chargeable to tax has escaped assessment. However, the proviso to Section 147 stipulates that no action can be taken after four years from the end of the relevant Assessment Year unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court emphasized that the conditions prescribed by the statute for the exercise of such power must be strictly fulfilled.

3. Alleged failure of the assessee to disclose fully and truly all material facts necessary for the assessment:
The court scrutinized the reasons provided for reopening the assessment, which indicated that the assessee had disclosed other income in the amount of Rs.50,13,307/- in the profit and loss account. The reasons for reopening stated that this income did not qualify for deduction under Section 80IB. However, the court found that the assessee had disclosed all relevant details, including the components of other income, in the return of income and during the assessment proceedings. The court concluded that the inference that income had escaped assessment was based on the disclosure made by the assessee itself, and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

The court referred to precedents set by the Supreme Court and the Division Bench of the Bombay High Court, which held that the duty of the assessee is to make true and full disclosure of primary facts. Once the assessee has done that, it is the responsibility of the Assessing Officer to draw the correct inference from the primary facts. A mere change of opinion by the Assessing Officer does not justify the initiation of action for reopening the assessment.

Conclusion:
The court held that the notice issued under Section 148 for reopening the assessment could not be sustained on a mere change of opinion, as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The basic condition prescribed by the statute for the exercise of the power had not been fulfilled. Consequently, the petition was allowed, and the impugned notice dated 30th March 2009 was quashed. The rule was made absolute, and there was no order as to costs.

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