2024 (5) TMI 1551 - AT - Income Tax

Reopening of assessment u/s 147 - notice issued by the revenue authorities after the expiry of four years - HELD THAT - Three issues raised by the Revenue Audit Party viz. depreciation stores written off bond issue expenses which were claimed as revenue in nature AO has recorded reasons on the issue of depreciation and stores written off. After recording the reasons the AO has issued notice u/s 148 on 18.03.2013. The same reasons have been provided to the assessee on 26.11.2013 in response to the request of the assessee. We observe that the issue of depreciation and written off of stores are already part of the record before the AO while completing the assessment u/s 143(3). The depreciation claimed is available clearly in the depreciation schedule and the writing off of stores is decipherable from the P L account. Thus we find that there was no failure on the part of the assessee to disclose fully and truly all the material facts required for assessment for the year. The audit party has raised objections only after going through the assessment record before them. There was no new information available to the revenue nor there was any default on the assessee to disclose all the required material facts. Hence we hereby hold that the notice issued u/s 148 on 18.03.2013 after the expiry of four years from the end of the relevant assessment year a period of 4 years for the Assessment Year 2006-07 after completion of the assessment u/s 143(3) on 26.11.2007 is invalid and hence the entire assessment is liable to be quashed. We observe that the notice would have been valid had it been issued before 31.03.2011 as the proviso to Section 147 are not attracted if the notice is issued before expiry of 4 years. The revenue gladly waited for a period of 5 years for the reasons best known to them to issue notice in the year 2013 after the receipt audit objections u/s 148 in the year 2008. Appeal of the assessee is allowed.

ISSUES PRESENTED and CONSIDERED

The primary issue considered by the Tribunal was whether the notice issued by the revenue authorities under Section 148 of the Income Tax Act, 1961, after the expiry of four years from the end of the relevant assessment year, was valid. Specifically, the Tribunal examined if there was any escapement of income chargeable to tax due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Notice under Section 148

Relevant Legal Framework and Precedents: The Tribunal examined the provisions of Section 147 of the Income Tax Act, which allows the Assessing Officer to reassess income if they have reason to believe that income has escaped assessment. The proviso to Section 147 stipulates that no action can be taken after four years from the end of the relevant assessment year unless the income escaped due to the assessee's failure to disclose fully and truly all material facts.

Court's Interpretation and Reasoning: The Tribunal noted that the issues of depreciation and stores written off were already part of the record during the original assessment under Section 143(3). The audit party's objections were based on existing records, and no new information was presented to justify reopening the assessment.

Key Evidence and Findings: The audit objections raised by the Revenue Audit Party pertained to the depreciation, stores written off, and bond issue expenses. The assessee had responded to these objections, clarifying the nature of the claims and the basis for the deductions.

Application of Law to Facts: The Tribunal found that the assessee had disclosed all material facts necessary for the assessment. The depreciation and stores written off were evident from the records, and there was no failure on the part of the assessee to disclose these facts. Therefore, the conditions for invoking the proviso to Section 147 were not met.

Treatment of Competing Arguments: The Tribunal considered the revenue's argument that the notice was valid due to the alleged failure of the assessee to disclose material facts. However, it concluded that the facts were already on record, and the revenue had no new information to justify the reopening.

Conclusions: The Tribunal concluded that the notice issued under Section 148 was invalid as it was issued after the expiry of four years from the end of the relevant assessment year without any failure on the part of the assessee to disclose material facts.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal reinforced the principle that for a notice under Section 148 to be valid after four years, there must be a failure by the assessee to disclose fully and truly all material facts necessary for the assessment. The mere presence of audit objections does not constitute new information or evidence of such failure.

Final Determinations on Each Issue: The Tribunal held that the notice issued was invalid and quashed the entire assessment. It emphasized that the revenue's delay in issuing the notice, despite having the audit objections since 2008, further invalidated the action.

In conclusion, the Tribunal allowed the appeal of the assessee, ruling that the notice under Section 148 was invalid due to the lack of any new information or failure by the assessee to disclose material facts. The assessment was quashed, and the appeal was decided in favor of the assessee.

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