The Bombay High Court has quashed a notice issued by the Income Tax department to Tata Sons Ltd to reopen its IT assessment for 2003-04, after holding that “the reasons recorded for the proposed reopening are conspicuously silent” and the department’s assertion that the company suppressed facts "is singularly lacking”.
“It is imperative to note that the reasons recorded for the proposed reopening are conspicuously silent on the aspect that the income escaped assessment on account of failure to make full and true disclosure of all material facts relevant for the assessment, by the assessee. An assertion that the petitioner suppressed facts is singularly lacking,” a HC division bench of Justices KR Shriram and NJ Jamdar said in a recent judgement.
Ending a decade-old case in which Tata Sons had challenged notice dated March 31, 2010 seeking to reopen the assessment for the assessment year 2003-04 and rejecting the objections raised by the firm, the HC bench debunked the IT department’s notice saying that it “erodes the legality of the exercise of power under section 147 of the Act, 1961”.
“What accentuates the situation is the fact that after initial scrutiny assessment under section 143(3) of the Act, 1961, the petitioner preferred an appeal before CIT [A] and thereafter pursuant to the order passed by CIT [A], the assessment was finalised on 26th April 2007. In this context, the assertion of the petitioner that it had furnished an explanation and submitted documents in response to the multiple notices at the stage of initial assessment could not be controverted,” the Judges observed.
“To add to this, in the reasons for the proposed reopening, there is not a whisper about the non-disclosure on the part of the petitioner. Since the assessment order was sought to be reopened beyond four years and post-assessment under section 143(3) of the Act, 1961, failure to demonstrate that there was a failure on the part of the petitioner to make a true and full disclosure of all material facts, erodes the legality of the exercise of power under section 147 of the Act, 1961,” the Judges noted.
The Judges took exception to a remark made by the Assessing Officer made at the beginning of the recording of reasons that ““On perusal of records, it is seen that 10% of the eligible profits under section 10A were not fully taxed and yet, set off of the losses of local units to the extent of Rs.54,27,79,336/- was allowed and this resulted in short levy of tax”.
“Evidently, this assessment of the Assessing Officer betrays intent to question the original assessment on the strength of very same material, by substituting his view for the conclusion recorded by the Assessing Officer at the time of initial assessment,” the Judges noted.
“The alleged escapement of the income articulated under the second head “Correct computation of Business Income” also suffers from the same vice of mere change of opinion. The third head under which the income allegedly escaped assessment, under the caption, ‘Excess DIT Relief’ stands on a much weaker foundation,” the Judges said.
Holding that the notice issued by the IT department “failed” to satisfy the twin tests that it was legally sustainable, the HC bench noted: “Firstly, there is no assertion, much less material to indicate, that the income escaped assessment on account of failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment, and, secondly, the reasons recorded by the Assessing Officer should not fall within the ambit of “mere change of opinion” on the very same material”.