Reopening of assessment beyond 4 years not permitted without finding assessee’s failure to produce material facts

Brief of the Case

Delhi High Court held In the case of The Principal CIT vs. Samcor Glass Ltd. & M/s Samtel Color Ltd. that it is a settled position of law that reopening of assessment beyond 4 years is not sustainable unless there was a failure by the Assessee to disclose any material particulars on the basis of which there were reasons to believe that the income has escaped assessment. In the given case, the AO has not recorded any such failure on the part of the assessee; accordingly reopening of assessment is not valid in law.

Facts of the Case

There are 2 parties but the issue involved is similar in both the cases. The question raised in both the appeals is whether the reopening of the assessment under Section 147/148 of the Act is valid?

Held by ITAT

ITAT dismissed the appeal of the revenue.

Held by High Court

High court held that the assessment in both the cases did not satisfy the basic requirement of the law, in at least in two aspects. One was that the reopening was of assessment beyond four years after the AY for which the original assessment was framed and yet the reasons for reopening did not categorically state that there was a failure by the Assessee to disclose any material particulars on the basis of which there were reasons to believe that the income has escaped assessment. In the case of CIT v. Multiplex Trading & Industrial Co. Ltd. ITA No. 356 of 2013 dated 22^nd September 2015, it was held that in cases where reopening of assessment is beyond four years from the end of the relevant assessment, the condition that there has been a failure on the part of the Assessee to truly and fully disclose all material facts must be concluded with certain level of certainty.

Secondly, the Court finds that at least in respect of one of the issues, viz., payment of interest on fixed deposits, the Assessee drew the attention of the AO to the fact that the amount has already been offered to tax and tax had been paid and yet, in the order disposing of the objections, the AO is completely silent as regards this objection.

The Court is of the view that notwithstanding several decisions of the Supreme Court as well as this Court clearly enunciating the legal position under Section 147/148 of the Act, the reopening of assessment in cases like the one on hand give the impression that reopening of assessment is being done mechanically and casually resulting in unnecessary arassment of the Assessee.

Advisory to revenue

The Court directs the Revenue through the Principal CIT to issue instructions to the AOs to strictly adhere to the law explained in various decisions of the Supreme Court and the High Court in regard to Sections 147/148 of the Act and make it mandatory for them to ensure that an order for reopening of an assessment clearly records the compliance with each of the legal requirements. Secondly, the AOs must be directed to strictly comply with the law explained by the Supreme Court in GKN Driveshafts (India) Ltd v. Income Tax Officer (2003) 259 ITR 19 (SC) as regards the disposal of the objections raised by the Assessee to the reopening of the assessment.

Accordingly, appeal of the revenue dismissed.