2010 (5) TMI 68 - HC - Income Tax

Validity of assessment under section 147 - original assessments had been completed prior to four years of their reopening and therefore the notices under Section 148 could only be issued by invoking the proviso to Section 147 of the Income Tax Act 1961. The said proviso makes it clear that no case can be re-opened after four years from the end of the relevant assessment year unless there is any income chargeable to tax which has escaped assessment for such assessment year inter alia by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. Held that It is clear that for invoking the proviso to Section 147 beyond the period of four years there must be failure on the part of the assessee to either make a return under Section 139 or in response to a notice under Section 147/148 or to disclose fully and truly all material facts necessary for the assessment for that assessment year. Insofar as the filing of the return is concerned that is not in dispute and therefore the focus is entirely on whether the assessee had failed to disclose fully and truly all material facts necessary for the assessment. Decided in favor of assessee It was not expected of the assessee to foresee or forecast a future amendment which was to be brought into effect retrospectively. Therefore The Tribunal has rightly concluded that the proviso to Section 147 could not be invoked merely because there was an amendment in the future which was introduced retrospectively and covered the period in question.

Summary

Issues:
1. Validity of assessment under Section 143/147 of the Income Tax Act, 1961.

Analysis:
The judgment pertains to appeals against an order passed by the Income Tax Appellate Tribunal concerning the validity of assessments made by the Assessing Officer under Section 143/147 of the Income Tax Act, 1961 for the Assessment Years 2001-02 and 2002-03. The main issue raised was the challenge to the invocation of the provisions of Section 147 for the re-opening of assessments completed earlier. The proviso to Section 147 restricts the reopening of cases after four years from the end of the relevant assessment year unless there is undisclosed income due to the assessee's failure to fully disclose material facts. In this case, an amendment to Section 80 HHC was made with retrospective effect, imposing new conditions for deduction under Section 80HHC, which were not applicable when the original assessments were filed. The Revenue sought to reopen assessments based on this retrospective amendment.

The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal both agreed with the assessee's argument that the invocation of Section 147 was invalid in this scenario. They held that the conditions for reopening were not met, and the re-assessments under Section 147/148 were set aside. The court examined the orders and concluded that the assessee had not failed to disclose material facts necessary for assessment, as the retrospective amendment was not in place when the original assessments were filed. The Tribunal rightly held that it was unreasonable to expect the assessee to predict a future retrospective amendment, and thus, the proviso to Section 147 could not be invoked solely based on this amendment. The court upheld the Tribunal's decision, stating that no substantial question of law arose for consideration. It clarified that the jurisdictional issue regarding the validity of the Section 147 proceedings was assessed, not the merits of the case.

In conclusion, the appeals were dismissed, affirming the Tribunal's decision on the validity of the Section 147 proceedings. The judgment focused on the legal aspects of disclosure requirements and the impact of retrospective amendments on assessment validity, emphasizing the need for a factual basis for reopening assessments under Section 147 of the Income Tax Act, 1961.