Case Law Details
Court: Gujarat High Court
Citation: Sadbhav Engineering Ltd. Vs. DCIT (OSD) [Special Civil Application No. 5846 & 5847 of 2010 date 20 July, 2010]
Brief : Reopening of tax assessment beyond four years on the basis of a retrospective amendment is not justified, if the assessee has fully and truly disclosed all the material facts necessary during the original assessment proceedings
Background:-The Gujarat High Court, in the case of Sadbhav Engineering Ltd. Vs. DCIT (OSD) [Special Civil Application No. 5846 & 5847 of 2010 date 20 July, 2010], quashing the notices issued under section 148 of the Income-tax Act, 1961 (“the Act”), has held that an assessment cannot be reopened on the basis of a retrospective amendment in law after the expiry of four years from the end of the relevant assessment year, if the assessee has fully and truly disclosed all the material facts necessary for the assessment.
Facts
The assessee, a civil contractor working for the Government, filed its tax returns for the assessment years 2003- 04 and 2004- 05 claiming deduction under section 80-IA of the Act. This was followed by a scrutiny assessment completed under section 143(3) of the Act, where a partial dis allowance in respect of section 80-IA of the Act was made by the Assessing Officer. The Commissioner of Income-tax (Appeals) (“CIT(A)”) dismissed the assessee’s appeal on the same ground. Being aggrieved, the assessee preferred a second appeal before the Income-tax Appellate Tribunal against the order of the CIT(A), which was pending disposal.
Meanwhile, a notice under section 148 of the Act for re-opening the assessment was issued to the assessee. The assessee filed a letter requesting to treat the original tax return as the return filed in response to the notice under section 148 of the Act and also requested for the reasons recorded while reopening the completed assessment. The tax department furnished the reasons to the assessee, which stated that the deduction under section 80-IA of the Act would not be allowed to an assessee who carried on business in the nature of a works contract in view of the insertion of the Explanation below sub-section (13) of section 80-IA of the Act vide Finance (No. 2) Act, 2009, with retrospective effect from 1 April, 2000. The tax department further deemed that the assessee had submitted untrue facts at the relevant point of time, which led to the invoking of reassessment proceedings under section 147 of the Act. The assessee filed objections against the reassessment proceedings notice which were rejected by the tax department.
Aggrieved, the assessee filed a writ petition before the High Court.
Issue
• Whether the notice issued under section 148 of the Act (after the expiry of four years from the end of the relevant assessment year) based on the retrospective amendment of section 80-IA of the Act was valid even if the assessee had disclosed all the material facts during the scrutiny assessment.
Assessee’s contentions
• The assessee had fully and truly disclosed all the material facts necessary for the assessment.
• The notices issued under section 148 of the Act were invalid in view of the first proviso to section 147 of the Act (See Note 1 given below) , which provided that an assessment could not be reopened after the expiry of four years from the end of the relevant assessment year, if the assessee had fully and truly disclosed all the material facts necessary for its assessment.
Revenue’s contentions:- Attention was invited to the reasons recorded for reopening the assessment under section 147 of the Act, which stated that in light of the amendment of section 80-IA of the Act vide Finance (No. 2) Act, 2009 with retrospective effect from 1 April, 2000, it was deemed that the assessee had submitted untrue facts at the relevant time and thus the case clearly fell within the ambit of the first proviso to section 147 of the Act.
High Court – Observations and Ruling
• In order to invoke the provisions of section 147 of the Act after the expiry of four years from the end of the relevant assessment years, the income chargeable to tax should have escaped assessment by reason of failure on the part of the assessee, either, to make a return under section 139 of the Act, or in response to a notice issued under sections 142(1) or 148 of the Act; or to disclose fully and truly all material facts necessary for its assessment.
• It was an undisputed position that there was no failure on the part of the assessee as regards condition (i) above.
• The reasons recorded were totally silent as regards the failure on the part of assessee to disclose full and true material facts. Thus, condition (ii) was also not fulfilled.
• From the reasons recorded, it was apparent that the assessments were sought to be reopened on the basis of the insertion of the Explanation below sub-section (13) of section 80-IA of the Act, which was made effective retrospectively from 1 April, 2000.
• Whether or not there was any failure on the part of the assessee in disclosing fully and truly all material facts necessary for its assessment, was a matter of fact and there could be no deemed failure.
• In the absence of any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, the notices issued under section 148 of the Act were quashed.
Conclusion:- The very initiation of the reassessment proceedings stands vitiated in case the assessment is reopened after the expiry of four years from the end of the relevant assessment year on the basis of a retrospective amendment, if the assessee has fully and truly disclosed all the material facts necessary for the tax assessment.
Notes to above:-
1. “Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year “
