Reopening not permissible beyond four years if no failure on full disclosure

Brief of the case:

In this case reopening u/s 148 was challenged by way of writ on the ground that assessment was reopened after the expiry of four years and reason recorded did not indicate any material which the petitioner has not fully and truly disclosed in the assessment proceedings. Also it was ground of the assessee that there was no application of mind and assessment was reopened on the basis of mere change of mind. It was requested to quash the notice u/s 148. Hon’ble HC after considering the facts and various case relied upon have allowed the writ petition.

Facts of the case:

• AO had passed an order dated 27-01- 2003 under Section 143(3) of the Act by which the total income was determined at Rs.2,56,02,060/- after making certain dis-allowances.
• One of the partial disallowances was a deduction under section 33AC of the Act which was claimed by the petitioner on the ground that the petitioner is engaged in the business of ‘Operation of Ships.’
• On this count the petitioner had inter alia claimed a deduction of Rs.2,15,94,598/- however the Assessing officer allowed the same to an extent of Rs.1,82,28,205/-.
• It is an admitted position that the notice in question issued under section 148 of the Act is issued by the Assessing Officer after expiry of a period of four years from the end of the relevant assessment year.
• AO assumed that deduction u/s 33AC was wrongly granted to the assessee.
• Assessee filed its objection against reopening of the case but same was rejected by AO after receiving a letter from the office of CIT (A) in which claim of deduction was rejected by CIT (A).

Contention of the revenue:

• There was nothing inappropriate or illegal on the part of the Assessing Officer to re-open the assessment for the assessment year in question.
• The reopening was initiated on the basis of the information received from the CIT (A) for the reasons as set out in the letter dated 13.2.2007 of the CIT (A) addressed to the CIT making observations on the nature of business of the petitioner which justified the reopening of the assessment as could be very well inferred that the income had escaped assessment.

Contention of the assessee:

• The return of income for A.Y.2000-01 was filed along with all supporting documents including those required for claiming under section 33AC of the Act;
• On the scrutiny and examination of the material documentary evidence placed before the Assessing Officer in the assessment proceedings, the assessment was completed by an order dated 27-1-2013, passed under section 143 (3) of the Act wherein deduction under section 33AC was allowed at Rs.1,82,28,705/- against the petitioner claim of Rs.2,15,94,598/-.
• In re-opening the assessment the conditions prescribed under section 147 conferring jurisdiction for re-opening the assessment are not satisfied before issuing of a notice under section 148 of the Act as there was no failure to disclose fully and truly all material facts.
• Mere change of opinion without any fresh tangible material could not be a ground to re-open an assessment.
• The reopening could not have been at the suggestion of another authority.
• As regards the partial dis-allowance under section 33AC in the assessment order dated 27.1.2003, the petitioner had filed a First Appeal before the CIT (A). The dis-allowance being maintained in the First Appeal the petitioner had approached the Tribunal. The Tribunal by an order dated 3.7.2007 had restored/remanded the issue in regard to the admissibility of the said deductions to be decided afresh by the Assessing Officer.
• There are numerous documents which were produced before the AO which disclosed fully and truly all facts regarding claim u/s 33 AC.
• Assessee drew attention of the court that assessment order dated 27.1.2003 passed under Section 143(3) of the Act in which the Assessing Officer has recorded that the petitioner is engaged in the business of owning and operating ships and barges. The Assessment Order also takes into consideration the claim of the petitioner for deductions under Section 33AC which was partially disallowed. The claim of the petitioner for deduction under Section 33AC of the Act was for an amount of Rs.2.15 crores. The Assessing Officer, however, allowed the same to the extent of Rs.1.82 crores. The Assessing Officer in partially disallowing the claim furnished detail reasons.
• There was no material which can be said to be not fully and truly disclosed by the petitioner to the revenue during the course of assessment proceedings. It is thus, urged that action on the part of the revenue in reopening the assessment is wholly without jurisdiction and deserves to be quashed and set aside.

Held by the Court:

• When an assessment is sought to be re-opened after expiry of four years from the end of the relevant assessment year, the proviso to section 147 of the Act stipulates a requirement that there must a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of income for that year. This is the primary and jurisdictional requirement being the mandate of the proviso to provision of section 147of the Act.
• A perusal of the reasons as recorded by the AO, to reopen the assessment, even when they are read in its entirety do not indicate that the petitioner has not disclosed fully and truly all the material facts.
• The petitioner by its letter dated 12.2.2002 had categorically disclosed the nature of its business activity as being engaged in ‘shipping operations.’ The petitioner in various documents as sought by the assessing officer in the course of assessment proceedings had disclosed nature of its activity to be operation of ships.
• The AO attempt to reopen the petitioner’s assessment on the petitioner’s own disclosure can in no manner be termed as an appropriate exercise of his jurisdiction and authority under Section 147 so to reopen the assessment beyond the period of four years as this can in no manner be said to be any failure on the part of the petitioner to disclose fully and truly all the facts necessary for assessment.
• The AO in issuing the impugned notice under section 148 of the Act has acted without jurisdiction and merely on a change of opinion and in the absence any material which could be said to be not disclosed fully and truly by the petitioner to the Assessing Officer so as to come to a conclusion that there is escapement of income from assessment.
• The reason as furnished by the Assessing Officer to reopen the assessment does not indicate any material which the petitioner has not fully and truly disclosed in the assessment proceedings.

The petitioner has made full and true disclosure during the course of assessment proceedings in regard to the nature of its business. In the absence of these jurisdictional requirements the impugned notice is rendered wholly arbitrary and thus deserved to be quashed and set aside.