THE COMMISSIONER OF INCOME TAX vs. M.G. MOTORS

Whether the Reporters of local papers may be allowed to see the judgment? No

To be referred to the Reporter or not?

Whether the judgment should be reported in the Digest?

In proceedings under Section 148 of the Act, the said expenditure was disallowed. Even the appeal filed by the respondent-assessee before the Commissioner of Income Tax (Appeals) [in short, “CIT(A)”] was dismissed.

However, the Tribunal allowed the appeal of the respondent- assessee after holding that the Assessing Officer (in short, “AO”) had not made out any case in the reasons recorded for issuance of a notice under Section 148 of the Act. According to the Tribunal, there was no failure on the part of the respondent-assessee to disclose all material facts with regard to its claim for “partner training expenses”.

Ms. Rashmi Chopra, learned counsel for the Revenue submitted that the Tribunal had erred in law in quashing the reassessment order under Section 147 of the Act.

Having heard learned counsel for the Revenue and having perused the impugned order, we are in agreement with the view of the Tribunal that the reassessment was barred by limitation as the period of four years had already expired from the end of the relevant Assessment 2010:DHC:4489-DB

In fact, the first proviso to Section 147 which provides extended limitation for reassessment i.e. beyond the period of four years reads as under:- “Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant Assessment Year, no action shall be taken under this section after the expiry of four years from the end of the relevant Assessment Year, unless any income chargeable to tax has escaped assessment for such Assessment Year by reason of failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that Assessment Year.”

From a plain reading of the above proviso, it is apparent that where an assessment under Section 143(3) has been made, as in the present case, no action can be taken under Section 147 of the Act, 1961 after expiry of four years from the end of the relevant Assessment Year unless two conditions are simultaneously fulfilled i.e. firstly, the AO must have reasons to believe the income chargeable to tax has escaped assessment and secondly, the AO must have reasons to believe that such escapement occurred either due to omission or failure on the part of the respondent-assessee to disclose fully and truly all material facts necessary for its assessment [See CIT vs. Rajesh Jhavery Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 at 512; Haryana Acrylic 2010:DHC:4489-DB

In the present case, the Tribunal in its impugned order has concluded as under:- “16. In the light of the position of law as discussed above, we have now to examine the facts of the present case as to whether the condition that there was omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment is satisfied in the present case. On perusal of the reasons record by the A.O. for initiating proceeding u/s. 147 of the Act, we find that the A.O. has initiated re-assessment proceedings for A.Y. 1997-98 and 1998-99, in the light of the order passed by the CIT u/s. 263 on 08.03.2004 for the A.Y. 1999-2000 holding that the expenditure claimed under the heard “partners training expenses” has been wrongly allowed by the A.O., and in the assessment for the A.Y. 2001-02, the expenses claimed by the assessee under the head “partners training expenses” has not been allowed as not having been incurred for the purpose of business. It is thus clear that the A.O. has reopened the assessment for the A.Y. 1997-98 and 1998-99, in the light of the findings or the decisions taken in the A.Y. 1999-2000 and 2001-02, with regard to the allowability of the expenses under the heard “partners training expenses”. The A.O. has nowhere in the reasons recorded a finding that there was a failure on the part of the assessee to disclose fully and truly all material facts relating to the claim of expenses made under the head “partners training expenses”. There is not even a whisper of an allegation in the reasons recorded that the escapement income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. The original assessment was completed u/s 143(3) of the Act in pursuance to the return of income filed originally on 31.10.1997. In the return of income, the assessee furnished copy of audit report obtained u/s.44B along with 2010:DHC:4489-DB

Consequently, as the AO has failed to prove and establish that there was failure on the part of the respondent-assessee to disclose fully and truly all material facts necessary for his assessment, we are of the opinion that the present case is not covered by the proviso to Section 147 of the Act. Accordingly, the present appeal being bereft of merit, is dismissed in limine but without any order as to costs.