In a recent ruling, the Bombay High Court bench, comprising Justice K.R. Shriram and Justice Firdosh Phiroze Poonawalla, held that it is the Income-tax Officer's responsibility to conduct the required inquiries and draw appropriate conclusions regarding whether the amounts invested in purchasing drafts should be considered as part of the assesses total income for the relevant year.
The court further emphasized that the alleged failure to disclose fully and truly all material facts did not result in the income chargeable to tax escaping assessment. The court deemed it a case of oversight on the part of the officer and ruled that the officer cannot utilize Section 147 (a) to rectify the error stemming from their oversight.
Brief Facts:
In this case, the petitioner challenged the legality and validity of a notice issued by the Deputy Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961. The notice was issued concerning the assessment year 2006-2007. The petitioner had filed a return of income declaring a total income of "Nil" and had claimed set off of brought forward unabsorbed depreciation against long-term capital gains and business income.
The assessing officer, in the original assessment proceedings, assessed the petitioner's income at "Nil" after setting off unabsorbed depreciation against business income and income from capital gains. However, the assessing officer later proposed to re-open the assessment, citing a subsequent judicial pronouncement that disallowed the set off of unabsorbed depreciation against capital gains. The assessing officer alleged that the petitioner had failed to disclose fully and truly all material facts necessary for the assessment.
Contentions of the Parties:
The petitioner argued that there was no failure to disclose, as the unabsorbed depreciation had been disclosed in the return of income and note to the computation of income. The petitioner also relied on a decision of the Gujarat High Court in General Motors India Pvt. Ltd. V/s. Deputy Commissioner of Income Tax that allowed the set off of unabsorbed depreciation against other income without any time limit. The petitioner contended that the assessing officer's attempt to re-open the assessment was a clear case of a change of opinion and lacked jurisdiction.
The respondents argued that the issue of unabsorbed depreciation and its adjustment against capital gains or business income was not subject to scrutiny during the original assessment, and therefore, the assessing officer was justified in proposing to re-open the assessment.
Observations by the Court:
The court examined the reasons for re-opening and noted that they were based solely on the subsequent judicial pronouncement. It observed that more than four years had passed since the end of the relevant assessment year, and for the notice to be valid, there must have been a failure to disclose fully and truly all material facts. The court found that there was no such failure in this case.
The court referred to a Supreme Court judgment in Gemini Leather Stores V/s. Income Tax Officer which held that an assessing officer cannot take recourse to re-opening to remedy their oversight or error. It stated that the assesses must fully and truly disclose all primary facts necessary for assessment, and it is for the assessing officer to draw proper inferences from those facts.
In this case, the petitioner had provided all necessary details, and the issue of unabsorbed depreciation had been considered during the original assessment. The court concluded that the petitioner had fully and truly disclosed all material facts. Therefore, the assessing officer lacked jurisdiction to re-open the assessment, the court held.
The decision of the Court:
Based on these findings, the court quashed and set aside the notice issued by the Deputy Commissioner of Income Tax under Section 148 of the Act.
Case Name: Mukund Limited Vs the Union Of India, Through Ministry Of Finance, Dept Of Revenue And Ors
Coram: Hon’ble Mr. Justice K.R. Shriram and Hon’ble Mr. Justice Firdosh Phiroze Pooniwalla
Case No.: Writ Petition No. 10859 of 2012
Advocates of the Petitioners: Mr. Jas Sanghavi, M/s. PDS Legal for Petitioner
Advocates of the Respondent: Mr. Akhileshwar Sharma for Respondents.
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