Whether initiation of reassessment proceedings cannot be faulted with if there is evidence indicating less than full and true disclosure of facts during normal assessment - YES: HC

THE issue is - Whether initiation of reassessment proceedings cannot be faulted with if there is evidence indicating less than full and true disclosure of facts during normal assessment. And the answer goes against the assessee.

Facts of the case

The assessee company had filed its return declaring total income as Rs.52.96 crores. During assessment, AO determined the assessee's income at Rs.53.12 crores. Later on, a notice u/s 148 was issued to the assessee and the reasons for reopening the assessment beyond the end of

four years from the relevant assessment year furnished to the assessee against which the assessee had filed its objections and in particular submitted that the notice was without jurisdiction as there was no reason to believe that the income chargeable to tax had escaped assessment nor there was any failure to fully and truly disclose the material facts necessary for assessment. In particular, the assessee pointed out that the commission was paid to M/s. Bonas & Company Ltd. which was a non-resident company established outside India and not having PE in India during the AY 2005-2006. Further the brokerage was paid to M/s. Bonas & Company Ltd. for services rendered outside. On the aforesaid ground it was submitted that there was only change in opinion and reopening was not warranted. By an order AO rejected the assessee's objection to the reasons for reopening the assessment furnished to them.

Before the HC, the assessee's counsel contended that the assessment being sought to be reopened was beyond the period of four years from the end of the relevant AY 2005-06. Therefore, it was submitted that conditions precedent to exercise jurisdiction was that there must be reason to believe that income chargeable to tax had escaped the assessment, and such escapement must arise from failure to fully and truly disclose the material facts necessary for assessment. It was his submission that all material facts were disclosed and the reasons recorded erroneously proceeded on the basis that M/s. Bonas & Company Ltd. had a PE in India. It was submitted that M/s. Bonas Marketing India (P) Ltd. had its office at Opera House, Mumbai which was established after the AY 2005-06. It was also submitted that commission paid abroad was not shown separately but had merged as a part of total purchase cost of diamonds. On the other hand, the Revenue's counsel had supported the notice issued u/s 148 and order rejecting the assessee's objection to reopening of the assessment for Assessment Year 2005-06.

Held that,

++ there can be no dispute with the submission that condition precedent for reopening assessment beyond a period of four years from the end of the relevant Assessment year as in this case is that there must be reason to believe that income chargeable to the tax escaped assessment arising out of failure to make a full and true disclosure of all material facts. In this case there would be an issue of investigation into facts viz. whether or not M/s. Bonas Marketing India (P) Ltd. existed during the Assessment Year 2005-06, would have to be gone into. In its objection to the reasons, the assessee has not produced any evidence which it now seeks to produce before us. This is best determined by the authorities under the Act. In any case, the reasons recorded for issuing the impugned notice specifically points out that commission paid to M/s. Bonas & Co.Ltd. (a foreign party) is not shown separately but added to the cost of purchase while commission paid on local purchase has been separately shown in the profit and loss account and not added to costs. Thus, there has been less then full and true disclosure of all material facts during the assessment proceedings for Assessment Year 2005-06. This is for reason that if the commission paid to the foreign party was shown separately as in case of local purchase, the question of tax deduction at source would have become the subject matter of examination by the Assessing Officer while assessing the Assessee's income during regular assessment. Moreover, this particular reason for reopening of the Assessment has not been dealt with by the petitioner in its objection to the reasons for reopening the assessment for Assessment Year 2005-06 furnished to the petitioner. Therefore, at this stage it cannot be concluded that the impugned notice dated 29.3.2012 is without jurisdiction warranting interference of a writ Court;

++ we make it clear that our above view that the impugned notice dated 29.3.2012 is within jurisdiction is a prima facie view. The petitioner may have a complete answer to the reasons set out for reopening the assessment for Assessment Year 2005-06. However, we would exercise our writ jurisdiction to stall and/or quash reassessment proceedings under Section 147 and 148 only when the notices are on the face of it without jurisdiction. In the present facts, prima facie, we are of the view that there was failure on the part of the petitioner to fully disclose all material facts necessary for assessment, and therefore, reopening of the assessment by notice dated 29.3.2012 as well as the order dated 25.10.2012 rejecting the objections need not be interfered with at this point of time. It would be open to the petitioner in the reassessment proceedings to urge all points including the validity of reopening of assessment for Assessment year 2005-06. All contentions left open to be urged before the Assessing Officer in reassessment proceedings. Accordingly, the petition is dismissed with no order as to costs.