Whether Revenue can resort to reopening of assessment merely on ground that Customs had seized assessee's goods and levied penalty - NO: HC

THE issue before the Bench is - Whether Revenue can resort to reopening of assessment merely on ground that Customs had seized assessee's goods and levied penalty. And the verdict goes against the Revenue.

Facts of the case

The assessee is an individual, who had received a notice u/s 148, issued beyond the period of four years from the end of the relevant AY. Consequently, the first proviso to Section 147 would be applicable. Assessee's counsel had submitted that the re-assessment proceedings were bad in

law inasmuch as the conditions stipulated in the first proviso to Section 147 of the said Act had not been fulfilled. In essence, it was submitted that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. It was also submitted that apart from there being no such failure on the part of the assessee, there was not even any allegation with regard to such failure in the reasons which were supplied to the assessee subsequent to the issuance of the said notice. It was further submitted that the entire controversy revolves around the deduction which had been claimed and allowed to the assessee u/s 10A of the said Act in the original assessment order dated 30.11.2007. In the assessment order, it was specifically stated that the assessee company dealt in software design, development and modification services and had claimed exemption u/s 10A. After making certain disallowances on account of certain other items and examining the return and accompanying documents, AO assessed the profit and gains from business and profession as nil as claimed by the assessee on account of the exemption claimed u/s 10A. The counsel for the assessee also drew our attention to the fact that the computation, accompanying the return, specifically referred to the claim of deduction u/s 10A and also gave the details of such claim. It was also pointed out that the company had, in fact, been wound up on 15.11.2011 by virtue of an order passed by the AP High Court. AO was not convinced with the objections taken by the assessee and passed an order dated 20.12.2012 rejecting the objections. The order, however, did not consider the point raised by the assessee that the reasons themselves did not contain any allegation that there was a failure on the part of the petitioner/assessee to disclose fully and truly all material facts necessary for its assessment. Thereafter, the re-assessment order was passed on 22.03.2013, once again, without referring to the specific point raised by the petitioner.

Held that,

++ the essential ingredient of there being a failure to disclose fully and truly all material facts necessary for assessment is conspicuous by its absence. In fact, there is not even an allegation or a whisper or suggestion with regard to this in the reasons recorded. It is well settled by several decisions starting from Haryana Acrylic Manufacturing Company v. CIT: 2008-TIOL-555-HC-DEL-IT and including Wel Intertrade Private Limited v. ITO 2008-TIOL-488-HC-DEL-IT and CIT v. Suren International Private Limited: (2013) 357 ITR 24 (Delhi) that the reasons must record that there was such a failure on the part of the assessee or, in the least, the reasons must lead to the clear and direct inference that there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. The reasons must indicate which material fact was not fully and truly disclosed. In the last mentioned case, this Court, after referring to the earlier decisions observed that in the reasons as furnished by the Assessing Officer, we find that there is neither any allegation that the assessee had failed to truly disclose any material facts at the time of assessment, nor can we readily infer the same in view of the fact that a detailed enquiry had been conducted by the Assessing Officer with regard to the identity and creditworthiness of the share-applicants and genuineness of the transactions in relation to the share application money received by the assessee. Further the mere statement that the DRI has seized certain goods of the assessee and levied a penalty also cannot be stated to be a reason for reopening of assessment of the assessee as the said statement made is neither followed by the recording of a belief that the income escaped on that count or that the assessee has failed to disclose all relevant material, fully and truly, at the stage of the first assessment. Similarly, in the present case, we find that in the reasons recorded, there is neither any allegation that the assessee had failed to truly and fully disclose material facts at the time of the assessment nor can we readily infer the same. Consequently, one of the essential ingredients for re-opening an assessment beyond the period of four years has not been satisfied in the present case. The re-assessment proceedings are, therefore, bad in law. The impugned notice under Section 148 dated 28.03.2012 as well as all proceedings pursuant thereto, including the re-assessment order dated 22.03.2013, are set aside. The writ petition is allowed as above.