Issue

TCL Private Limited had filed its return of income for the assessment year 2006-07 and the assessment was completed under section 143(3) in March 2008. The assessee had claimed deduction under section 80-IA which was also accepted in the assessment. The Assessing Officer issued a notice under section 148 dated 31st March, 2011, which was served on the assessee on 7th April 2011. The assessee sought the reason prompting reopening of assessment made by the Assessing Officer. The Assessing Officer informed the assessee that wrong claim of deduction under section 80-IA was the reason for reopening the assessment.

The assessee claims that (a) the notice issued was barred by limitation and (b) there was no sufficient cause for reopening the case. Decide.

Opinion

Proviso to section 147 says that where an assessment has been made under section 143(3), no action for reopening the case shall be taken after the expiry of 4 years from the end of the relevant assessment year unless the income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, for that assessment year. In Kanubhai M.Patel (HUF) v. Hiren Bhatt Or His Successors to Office and Others (2011) 334 ITR 25 (Guj) it was held that the expression ‘issue’ in the context of issuance of notices, writs and process would mean, to send out; to place in the hands of proper office for service. The court accordingly held that the expression ‘shall be issued’ used in section 149 must be read in that manner.

For the assessment year 2006-07 the time period of 4 years expired on 31.03.2011. The service of notice on 07.04.2011 is thus is barred by limitation.

Assuming the case is contested on the sufficiency of cause prompting the reassessment, provisions of section 147 have to be applied. In Titanor Components Limited v. CIT (Writ No.71 of 2005 decided on 09.06.2011) the assessment was completed for the assessment year 1997-98 under section 143(3), the Assessing Officer reopened the assessment for the reason that the assessee had wrongly claimed deduction under section 80-IA of the Act which was also allowed by him.

On writ, the court held that the Assessing Officer for invoking reassessment provisions must show that there was failure on the part of the assessee to disclose fully and truly material facts necessary for assessment. It held that section 147 does not provide a fresh opportunity to the Assessing Officer to correct an incorrect assessment unless the mistake in the assessment is due to the failure of the assessee to fully and truly disclose all material facts necessary for assessment. The Assessing Officer had not recorded any such failure and merely had claimed that the assessee had claimed certain deductions which he was not entitled to. The court held that there is a difference between a wrong claim made by the assessee after disclosing all the true and material facts and a wrong claim made by the assessee by withholding the material facts fully and truly.

It may be recalled that in Hindustan Lever Ltd v. R.B.Wadkar, Asstt.CIT (2004) 268 ITR 332 (Bom) it was held where the reasons of the Assessing Officer for reopening the assessment do not show any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, he cannot invoke jurisdiction for reassessment. In a case of the same assessee (i.e.) Hindustan Lever Ltd v. R.B.Wadkar, Asstt.CIT (2004) 268 ITR 334 (Bom) the assessee had claimed expenditure towards stamp duty which was allowed in original assessment. Reassessment after four years for disallowing the same was held as invalid for the reason that there was no failure on the part of the assessee to disclose material facts at the time of original assessment.

In view of the above, though the Assessing Officer may invoke reassessment provisions upto 6 years from the end of the relevant assessment year, since there was no failure on the part of the assessee in disclosing fully and truly all material facts the time limit got curtailed to 4 years. As the disclosure of the assessee was full and true, no reassessment could be made for disallowing a wrong claim allowed earlier.

Position under DTC: Section 159 deals with reopening of assessment and the proviso to section 147 of the present dispensation giving some relief to the taxpayers now is not incorporated into the DTC. Therefore, the Assessing Officer in DTC regime need not have to prove that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for initiating a reassessment proceeding. Thus the proposal in DTC is in favour of the Revenue.


Source : The Tax Referencer Vol 120 Dt.18.07.2011