Case Note & Summary
The dispute arose from a notice under Section 148 of the Income Tax Act, 1961 seeking to reopen the assessment for Assessment Year 1998-1999, issued on 28 March 2005, beyond the period of four years from the end of that assessment year. The assessee, a manufacturer of non-alcoholic beverage bases, had undergone a demerger of its bottling division effectuated through a scheme of arrangement sanctioned by the Bombay High Court and Delhi High Court in 1999. For AY 1998-99, the assessee filed its original return and two revised returns, culminating in an assessment under section 143(3) computing total income as Nil. That assessment was set aside by the Commissioner under section 263 on 28 March 2003, leading to a fresh assessment on 22 March 2004. Subsequently, the Assessing Officer issued the impugned notice under section 148, and later passed an order under section 143(2) on 10 November 2005 and another order on 28 February 2006. The assessee challenged these actions by writ petition. The core legal issue was whether the reopening was valid in the absence of any finding in the reasons that the assessee had failed to disclose fully and truly all material facts, as required by the proviso to section 147 for reopening after four years. The assessee contended that the reasons were silent on any failure to disclose, rendering the notice without jurisdiction. The revenue argued, relying on Crompton Greaves Ltd. v. Assistant Commissioner of Income Tax, that even if the reasons do not explicitly state failure, it is not fatal if such failure can be culled from the reasons. The Court, after examining the reasons, found not even a whisper of any failure to disclose. It distinguished Crompton Greaves by holding that while explicit words are not mandatory, there must be a cogent and clear indication in the reasons that the assessee failed to disclose. If no case of failure to disclose is made out from the reasons, the assumption of jurisdiction under sections 147 and 148 is ultra vires the first proviso to section 147. The Court quashed the notice dated 28 March 2005 and all consequential orders, holding that the reopening was without jurisdiction.
Headnote
A) Income Tax - Reopening of Assessment - Sections 147, 148, Income Tax Act, 1961 - AY 1998-99 - Notice after four years requires satisfaction of proviso to Section 147 mandating that assessee failed to disclose fully and truly all material facts - Reasons supplied did not whisper any such failure - Held that absence of such allegation renders the notice and assumption of jurisdiction void ab initio (Paras 5,6).
B) Income Tax - Failure to Disclose Material Facts - Proviso to Section 147 - The reasons for reopening must cogently and clearly indicate failure to disclose; mere inference is insufficient - Relied on Crompton Greaves Ltd. v. Assistant Commissioner of Income Tax, (2015) 55 taxmann.com 59 (Bom) and Hindustan Lever Ltd. v. R.B. Wadkar - Held if no case of failure to disclose emerges from reasons, assumption of jurisdiction under Sections 147 and 148 is ultra vires the jurisdictional restraint imposed by the first proviso to Section 147 (Paras 7,8).
Issue of Consideration
Whether the reopening of assessment under Section 148 of the Income Tax Act for Assessment Year 1998-1999 after expiry of four years was valid despite the absence of any allegation in the reasons recorded that the assessee had failed to disclose fully and truly all material facts?
Final Decision
The writ petition was allowed. The notice dated 28 March 2005 under Section 148 and all consequential orders including the order dated 10 November 2005 under Section 143(2) and order dated 28 February 2006 were quashed, holding that the reopening was without jurisdiction as the reasons did not indicate any failure to disclose material facts, contravening the proviso to Section 147.
Law Points
- Reopening assessment after four years requires failure to disclose material facts
- reasons must contain cogent and clear indication of such failure
- assumption of jurisdiction under sections 147 and 148 is ultra vires if no case of failure to disclose is made out
Case Details
2021 LawText (BOM) (11) 25
WRIT PETITION NO.1779 OF 2006
K. R. Shriram, Amit B. Borkar
Mr. Nitesh Joshi, Mr. Arun Siwach, Ms. Prachi Vasudeo, Mr. Suresh Kumar
Coca-Cola India Private Limited
The Deputy Commissioner of Income-Tax, Circle 1 (1), Pune; The Commissioner of Income-Tax-I, Pune; The Union of India
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Challenge to notice under Section 148 seeking to reopen assessment for Assessment Year 1998-1999 and consequential orders passed under Section 143(2) and order dated 28 February 2006
Remedy Sought
Petitioner sought quashing of the notice dated 28 March 2005 and all subsequent proceedings and orders
Filing Reason
The notice issued after four years lacked any allegation that the assessee failed to disclose fully and truly all material facts, thus rendering the reopening without jurisdiction and in violation of the proviso to Section 147
Previous Decisions
Original assessment under Section 143(3) was set aside by the Commissioner under Section 263 on 28 March 2003, directing a fresh assessment; fresh assessment was completed on 22 March 2004
Issues
Whether the reopening of assessment under Section 148 for AY 1998-99 after expiry of four years was valid when the reasons recorded did not allege any failure by the assessee to disclose fully and truly all material facts?
Whether the assumption of jurisdiction under Sections 147 and 148 was ultra vires the first proviso to Section 147 of the Income Tax Act?
Submissions/Arguments
Petitioner contended that the reasons for reopening contained no whisper of any failure to disclose material facts, which is mandatory for reopening beyond four years, making the notice void and without jurisdiction.
Respondent argued relying on Crompton Greaves Ltd. v. Assistant Commissioner of Income Tax that even if the reasons do not explicitly state failure to disclose, it is not fatal if such failure can be culled from the reasons, and here the failure could be inferred.
Ratio Decidendi
For a valid assumption of jurisdiction under Sections 147 and 148 of the Income Tax Act, 1961 to reopen an assessment after the expiry of four years from the end of the relevant assessment year, the reasons recorded must contain a cogent and clear indication that the assessee failed to disclose fully and truly all material facts necessary for the assessment. If no such failure is even hinted at, the reopening is ultra vires the jurisdictional restraint imposed by the first proviso to Section 147.
Judgment Excerpts
there is not even a whisper that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that year.
However, if from the reasons, no case of failure to disclose is made out, then certainly the assumption of jurisdiction under Sections 147 and 148 of the Act would be ultra vires, being in excess of the jurisdictional restraints imposed by the first proviso to Section 147 of the Act.
Procedural History
For AY 1998-99, petitioner filed original return on 30 November 1998 declaring a loss, followed by a first revised return on 31 March 1999 and a second revised return on 31 December 1999 reflecting the demerger of its bottling division. The Assessing Officer issued notices under Sections 143(2) and 142(1) on 10 December 2000 and completed the assessment under Section 143(3) on 30 March 2001, computing total income as Nil after set-off. Petitioner appealed to CIT(A). Meanwhile, the Commissioner of Income Tax initiated proceedings under Section 263 and by order dated 28 March 2003 set aside the assessment, directing a fresh assessment. In compliance, the Assessing Officer passed a fresh assessment order under Section 143(3) read with Section 263 on 22 March 2004. Subsequently, on 28 March 2005, beyond four years from the end of AY 1998-99, the Assessing Officer issued a notice under Section 148 to reopen the assessment. The reasons for reopening were furnished on 27 December 2005. Consequential orders were passed on 10 November 2005 under Section 143(2) and on 28 February 2006. The writ petition challenging these actions was filed in 2006.
Acts & Sections
- Income Tax Act, 1961: Sections 143(2), 143(3), 142(1), 147, 148, 263
- Companies Act, 1956: Sections 391, 392, 393, 394
