Case Note & Summary
The writ petition challenged a reassessment notice issued under Section 148 of the Income Tax Act, 1961 for the assessment year 2012-13. The petitioner was a company engaged in mining business, manufacture and sale of iron ore pellets, export of ore, operation of tippers, transhipper and machinery hire, trading in cranes and ship building. The Assessing Officer issued the impugned notice on 29 March 2019, after expiry of four years from the end of the relevant assessment year. The petitioner sought reasons, which were furnished on 23 November 2019. The reasons relied on a verification report from JDIT (I&CI), Bangalore regarding e-auction of iron ore conducted by a monitoring committee appointed by the Supreme Court. The e-auctioned amount for FY 2011-12 was determined as Rs 64,92,00,000. The Assessing Officer stated that the assessee had filed return declaring income of Rs 5.83 crore but had not offered the e-auctioned amount to tax. The assessee replied that the iron ore was e-auctioned on 03.12.2011, but no sale proceeds were received during FY 2011-12; the proceeds were received during FY 2013-14 and accounted in that year. The Assessing Officer rejected this, observing that under the mercantile system, revenue should be recognized in the year of e-auction. However, the reasons recorded did not allege that the assessee had failed to disclose fully and truly all material facts necessary for its assessment for AY 2012-13. The petitioner filed objections on 5 December 2019, which were rejected by order dated 7 December 2019. The main legal issue was whether the reopening after four years was valid absent such allegation. The court held that failure to disclose fully and truly is an essential jurisdictional parameter, and the reasons recorded must articulate it. Relying on Hindustan Lever Ltd v. R.B. Wadkar, the court observed that reasons recorded by the Assessing Officer must be read as they are; no substitution, deletion, addition, or inference based on unrecorded reasons is permissible. The Assessing Officer has to speak through his reasons, which must be clear and unambiguous. Since the reasons did not state any failure to disclose, the court could not sustain the impugned notice. Accordingly, the petition was allowed and the notice dated 29 March 2019 and subsequent proceedings were quashed.
Headnote
A) Income Tax - Reopening of Assessment - Jurisdictional precondition after four years - Income Tax Act, 1961 Sections 148 and 133(6) - The Assessing Officer issued notice under Section 148 beyond four years from end of relevant AY, but reasons recorded did not state that the assessee failed to disclose fully and truly all material facts. The court held that such failure is an essential jurisdictional parameter and reasons cannot be supplemented or inferred. (Paras 3-9) B) Income Tax - Reassessment Reasons - Recording of reasons by Assessing Officer - Income Tax Act, 1961 Section 148 - The court relied on Hindustan Lever Ltd v. R.B. Wadkar to hold that reasons recorded by AO must be clear and unambiguous, and no addition or substitution is permissible. Since reasons did not mention failure to disclose, the notice was unsustainable. (Paras 8-9)
Issue of Consideration
Whether the reopening of assessment for AY 2012-13 by notice dated 29.03.2019 under Section 148 of Income Tax Act, 1961, issued after expiry of four years from the end of the relevant assessment year, was valid in the absence of any allegation in the reasons recorded that the assessee had failed to disclose fully and truly all material facts necessary for its assessment.
Final Decision
Petition allowed; impugned notice dated 29.03.2019 under Section 148 and subsequent proceedings quashed as reasons did not allege failure to disclose material facts.
Law Points
- Reopening assessment after four years requires specific allegation of failure to disclose fully and truly all material facts
- reasons recorded by Assessing Officer cannot be supplemented or substituted
- notice under section 148 invalid if reasons do not disclose jurisdictional precondition
- mercantile system of accounting requires income to be accounted in year of accrual
- e-auctioned iron ore amount determinable in financial year
