The Income Tax Appellate Tribunal (ITAT), Bengaluru, has recently, in an appeal filed before it, held that reopening of assessment is impossible beyond 4 years, once the assessment is completed under Section 143(3) of the Income Tax Act.
The aforesaid observation was made by the Bengaluru ITAT, when an appeal was preferred before it by the Assessee, as directed against the order of the CIT(A), Bangalore dated 31.03.2004, for the AY 1995-06.
The ground of the assessee’s appeal being that the reasons recorded for issue of notice under section 148 of the Act without making any allegation that the appellant has failed to disclose fully and truly all material facts necessary for the assessment as per proviso to section 147 of the Act, makes the proceedings of issue of notice under section 148, as bad in law and without jurisdiction on the facts and circumstances of the case, the brief facts of the case were that the assessee company, engaged in the
business of garment exports, had filed the return of income for the impugned assessment year on 31.10.1995, declaring total income of Rs.73,45,020/- which was processed under Section 143(1) of the Income Tax Act, 1961.
Thereafter, the case of the assessee was selected for scrutiny, and statutory notices were issued to the assessee. And in response to the notice assessee had filed detail also.
After considering the submissions of the assessee, the Assessing Officer (AO), passed order under Section 143(3) of the Income Tax Act on, 15.03.1998. Thereafter, the case was reopened under Section 147/148 of the Income Tax Act, by issuing notice dated 30.07.2001 after recording reasons.
In pursuant to the above notice issued under Section 148 of the Income Tax Act, the assessee had filed return of income. The assessee filed revised return of income declaring Nil income, following which, the AO had issued other statutory notices, having observed that the transfer of capital assets to the partners would amount to the transfer of capital assets, which would be attracting capital gain under Section 45(4)
of the Income Tax Act.
Subsequently, the assessee filed reply and after considering the documents filed before the AO, he passed the order.
In the proceedings before the Tribunal, it was submitted by Shri S.V. Ravishankar, the Advocate on behalf of the assessee that the case has been reopened beyond the period of 4 years, due to which, it is necessary on the part of the AO to make allegation upon the assessee for not disclosing fully and truly all material facts.
He added that in the absence of the same, exercising of jurisdiction under Section 147/148 is illegal, and further that once the notice turns illegal, the entire reopening proceedings framed by the AO in pursuant to the requirement of law becomes null and void.
On the other hand, it was submitted by Shri Gudimella VP Pavan Kumar, the JCIT, on behalf of the Revenue that the information given by the Revenue audit does not constitute information and is not relevant to the issue of validity of reopening in view of the changes brought to Section 147 of the Income Tax Act. He added that as per
the provisions, for reopening the assessment the requirement is that the AO should have reasons to believe that income chargeable to tax has escaped assessment, and therefore, that the AO was justified in reopening the case of the assessee under Section 147/148 of the Income Tax Act.
Hearing the opposing contentions of both sides, and thereby perusing the materials available on record, the ITAT observed:
“After hearing the rival contention and perusing the entire material available on record and the orders of the authorities below, we noted that this case is posted before the Tribunal for the third time. The assessee has raised additional grounds cited supra in which ground No. 3 states that in the reasons recorded for issuance of notice under Section 148 of the Income Tax Act, there is no allegation that the assessee had not disclosed fully and truly all material facts necessary for assessment as per the proviso to Section 147 of the Income Tax Act makes the proceedings of issue of notice under Section 148 of the Act is bad in law.”
“We have gone through the copy of reasons recorded, which is placed on page 76 and translated copy on page 77 of the paper book. We do not find anywhere in the copy of reasons recorded that there is any allegation upon the assessee regarding not disclosing fully and truly all material facts for completion of assessment which is necessary in the case of reopening beyond the period of 4 years in the case of assessment completed u/s 143(3) of the Income Tax Act. Since the case relates to AY 1995-96 and the notice has been issued by the AO on 30.07.2001, we observe from the notice that necessary ingredients, which were required to be mentioned for reopening beyond the period of 4 years has not been mentioned”, the ITAT Panel of George George K., the Judicial Member and Laxmi Prasad Sahu, the Accountant Member added.
Thus, the ITAT held:
“Accordingly, we uphold that the reasons recorded by the AO for exercising jurisdiction under Section 147 is not in conformity with the provisions of Section 147 of the Act. Our decision is supported by the judgements relied on by the learned A.R. Accordingly, we uphold that the order passed by the AO is bad in law for want of fulfilling the necessary ingredients for exercising jurisdiction under Sections 147/148 of the Income Tax Act. On this basis we allow ground No. 3 raised by the assessee. Since this is a legal ground and we have decided one legal ground in favour of the assessee, we think there is no need to decide the other issues raised by the assessee
which are left open. In the result, the appeal filed by the assessee is partly allowed in above terms”.
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