Gujarat H.C : Reassessment Not Vaild if AO did not mention failure of assessee to disclose fully and truly all material

High Court Of Gujarat

Kanak Fabrics VS. ITO

Assessment Year : 1989-90

Section : 147

Ms. Harsha Devani And H.B. Antani, Jj.

Special Civil Application No. 335 Of 2001

March 3, 2011

JUDGMENT

Ms. Harsha Devani, J. – By this petition under article 226 of the Constitution of India, the petitioner has challenged the notice dated March 30, 2000, issued by the respondent under section 148 of the Income-tax Act, 1961 (“the Act”) reopening the assessment of the petitioner for the assessment year 1989-90.

2. The petitioner filed its return for the assessment year 1989-90, declaring income of Rs. 4,90,211. Assessment came to be framed under section 143(3) of the Act on January 22, 1991, assessing the petitioner’s income at a much higher income. Subsequently, the petitioner was informed that the audit wing of the Department had raised certain issues and the respondent required the petitioner to give certain clarifications pertaining to which the petitioner, vide letter dated March 13, 2000, issued such clarifications. Thereafter, the petitioner received the impugned notice dated March 30, 2000, under section 148 of the Act. The petitioner, thereupon objected to the said notice, however, the respondent did not drop the proceedings. It is under these circumstances that the petitioner has approached this court by way of the present petition.

3. Mr. S. N. Soparkar, learned senior advocate appearing on behalf of the petitioner, invited attention to the fact that the original assessment for the assessment year 1989-90, was framed under section 143(3) of the Act and that the same is sought to be reopened beyond a period of four years, from the end of the said assessment year, to submit that when an assessment is framed under section 143(3) of the Act, the same can be reopened beyond a period of four years, if and only if an income chargeable to tax has escaped assessment by reason of failure on the part of the assessee :

(i) to make a return under section 139 or in response to notice issued under sub-section (1) of section 142 or section 148 ; or

(ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year.

4. It was submitted that in the facts of the present case, admittedly the first situation does not exist. As regards the second situation, it was submitted that there is nothing in the reasons recorded for reopening the assessment, which may indicate that there is any failure on the part of the petitioner to disclose fully and truly all material facts, necessary for its assessment for the assessment year under consideration. It was accordingly submitted that in the aforesaid premises the assumption of jurisdiction under section 147 of the Act by issuing notice under section 148 of the Act, is without jurisdiction.

5. On the other hand, Mr. M. R. Bhatt, learned senior advocate appearing on behalf of the respondent, placed reliance upon the averments made in the affidavit dated March 16, 2001, made by the respondent.

6. As noted earlier, in the present case, notice under section 148 of the Act has been issued on March 30, 2000, in relation to the assessment year 1989-90. Hence, admittedly the same has been issued after the expiry of a period of four years from the end of the relevant assessment year. In the circumstances, in the light of the proviso to section 147 of the Act, in case where assessment has been framed under section 143(3) of the Act, no action can be taken under section 147, unless income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts, necessary for its assessment for the assessment year.

7. Examining the facts of the present case in the light of the aforesaid legal position, a perusal of the reasons recorded shows that there is not even a whisper to the effect that income has escaped assessment on account of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. Even in the affidavit-in-reply filed by the respondent, there is no allegation of any such failure on the part of the petitioner. In the circumstances, it is apparent that the requirements of the proviso to section 147 of the Act are not satisfied. Consequently, in the absence of any satisfaction having been recorded by the Assessing Officer that income has escaped assessment by reason of failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the assumption of jurisdiction under section 147 of the Act, is invalid. The impugned notice under section 148 of the Act, therefore, cannot be sustained.

8. For the foregoing reasons, this petition succeeds and is accordingly allowed. The impugned notice dated March 30, 2000 (“annexure A” to the petition) is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs.

[Citation : 359 ITR 447]