Facts

The A.O. issued the impugned notice dated 29.03.2019 under section 148 of the Income-tax Act, 1961, seeking to reopen the assessment for A.Y. 2012-13. Thus, the impugned notice was issued after the expiry of 4 years from the end of the relevant A.Y.
Upon receipt of the impugned notice, the Petitioner sought reasons and filed for objections after obtaining the reasons. However, the objections were rejected by A.O.

Aggrieved by such order, the Petitioner filed the writ petition.

The notice under section 148 and reasons recorded were challenged on the ground that they did not disclose the material facts which the Petitioner allegedly failed to disclose for assessment during the relevant year.

Petitioner had disclosed fully and truly all facts necessary for assessment. Such material facts were inter alia disclosed in the audit report, annual accounts and tax audit report that were required to be and were, in fact, filed along with the return of income.

It was contended by the Petitioner that by virtue of 1st proviso to Section 147, in the absence of failure to disclose, the A.O. lacked jurisdiction to re-open the assessment after the expiry of 4 years from the end of the relevant A.Y.

It was contended by the Department that Petitioner failed to disclose that during the A.Y. 2012-13 (relevant assessment year), the Monitoring Committee had auctioned Petitioner’s ore and recovered an amount of Rs.129.716 crores. Even though this amount was accrued to the Petitioner, the same was not brought to tax. So there was failure on the part of the Petitioner to disclose material facts. Hence reopening was not bad in law.

By invoking Explanation (1) to Section 147 of the Act, the Department contended that production of account books or other evidence before A.O. from which material evidence with due diligence could have been discovered by the A.O. will not necessarily amount to true and full disclosure of material facts as per first proviso.

Whereas, the Petitioner submitted that the said amount was disbursed by the Monitoring Committee in A.Y. 2014-15 and it was taxed in the said year. Therefore, it was submitted that since only the issue of the year of taxability/deductibility is involved and the tax rate is same or lower, the Revenue ought not to agitate such matters by reopening the assessment as was held in Cable Corporation of India Ltd. [(2016) 75 taxmann.com 117 (Bom)].

Further, it was contended that in the Audit Report, the auditor had mentioned about the Petitioner’s iron ore being e-auctioned by the Monitoring Committee subject to further orders of the Hon’ble Supreme Court. The Audit Report was furnished during the course of original assessment proceedings.

Observations of HC

From the reasons recorded under section 148(2), it was observed by the HC that A.O. in the said reasons omitted to disclose about what material facts which according to him, the Petitioner failed to disclose for the relevant A.Y.

Such non-disclosure by the A.O. suggests that there was no failure on the Petitioner’s part to fully and truly disclose all material facts necessary for assessment for the relevant A.Y.

Since the Petitioner was not informed about what material facts that the Petitioner allegedly failed to fully and truly disclose during the relevant AY, the Petitioner could not effectively object to the re-opening of assessment. This is a serious infirmity which goes to the root of the jurisdiction to issue the impugned notice seeking to re-open the assessment after four years from the end of the relevant AY.

The Explanation (1) to Section 147 refers to the account books or other evidence. In this case, the audit report, annual accounts and the tax audit report filed by the Petitioner along with returns does not constitute account books or other evidence.
Therefore, in respect of such documents as are statutorily required to be produced along with the returns or as a part of the returns, Explanation (1) to Section 147 would not apply.

There is a notable difference between a wrong claim by an assessee after disclosing the true and material facts and the wrong claim made by the assessee by withholding material facts fully and truly. Only in the latter case the AO would be entitled to re-open the assessment after four years.

Held

The AO, who seeks to re-open the assessment after 4 years from the end of the relevant A.Y., must disclose in the reasons as to which fact or material was not disclosed by the Petitioner fully and truly necessary for the assessment of that A.Y.

Accordingly, the notice under section 148 is liable to be quashed as AO’s reasons recorded and supplied to the Petitioner merely refers to Petitioner’s failure to fully and truly disclose material facts without mentioning what material fact or facts the Petitioner failed to fully and truly disclose.