By TIOL News Service

MUMBAI, NOV 02, 2016: THE ISSUE IS - Whether mere use of phrase 'that income has escaped assessment on account of nondisclosure of information' in the reasons would not satisfy the requirement of AO having reason to believe that income has escaped assessment on account of failure to disclose material facts, and hence such reopening is eligible for want of writ jurisdiction on ground of jurisdictional defect. YES IS THE VERDICT.

Facts of the case:

The assessee had filed its return for the A.Y 1993-94 declaring a loss of Rs.33.07 crores. Consequent to the same, the AO passed an order u/s 143(3) determining the assessee's total income at Rs.71.11 lakhs. Thereafter, the AO noticed that (i) Export credit interest amounting to Rs.1,12,49,121/remained to be taxed; (ii) Unrealised gain from investment of Rs.1,49,89,619/being accrued income but remained to be taxed; and (iii) DRDA subsidy recoverable at Rs.54,11,984/remained to be taxed. Apart from the above, provision for contingency frauds Rs.8,16,43,000/were allowed without obtaining the details relating to loss on account of fraud and legal action taken against the concerned employees. In view of this, the AO was of the view that income had escaped assessment on account of nondisclosure of material fact by the assessee. Resultantly, the AO issued notice u/s 147 for reopening the assessment. Consequent to the above, the assessee amended its petition and inter alia challenged the impugned notice being without jurisdiction, essentially on the ground that all facts necessary for the assessment were disclosed truly and fully during the assessment proceedings. In the meanwhile, this amended challenge was admitted and impugned notice was stayed by this court.

High Court's holding:

1. A writ court has plenary jurisdiction to issue prerogative writs to do justice between parties. The courts, as a matter of a self imposed limitation, do not entertain a writ petition where an alternative remedy is available. However in an appropriate case where the impugned notice is itself without jurisdiction and does not require investigation into facts, a writ would issue. In such a case, the party would not be relegated to taking recourse to the alternative remedy available. In fact, as correctly pointed out by assessee's counsel, this court in Ajanta Pharma Ltd. case had occasion to consider an identical objection on merits in view of the decision of the Apex Court in GKN Driveshafts (India) Ltd. In fact, the court held that a party is not barred from approaching this court under Article 226 of the Constitution of India when the notice issued u/s 148 is ex facie without jurisdiction. Therefore, it needs to be examined that whether the reasons recorded in support of the impugned notice ex facie reveal it to be without jurisdiction.

2. It is an undisputed position that the impugned notice is issued beyond the period of four years from the end of the relevant Assessment Year. The impugned notice seeks to reopen an assessment with regard to which an order u/s 143(3) had been passed. Therefore, the first proviso to Section 147 would apply. The above proviso bars the Revenue from issuing a notice for reopening an assessment where the assessee has truly and fully disclosed all material facts necessary for assessment. The reasons in support must indicate failure on the part of the Assessee to fully and truly disclose all material facts necessary for assessment during the regular assessment proceedings u/s 143(3). A perusal of the reasons indicate that the basis for issuing a notice was not any material outside the record but proceedings available with the AO on the basis of which the assessment u/s 143(3) was completed. No doubt, the reasons recorded in support do use the words 'that income has escaped assessment on account of nonsubmission of any information / nondisclosure of material facts'. However, merely using the above phrase as a 'mantra' would not satisfy the requirement of the AO having reason to believe that income chargeable to tax has escaped assessment on account of the assessee not having fully and truly disclosed all material facts necessary for assessment. This clearly makes the impugned notice without jurisdiction and is, therefore, set aside.

(See 2016-TIOL-2684-HC-MUM-IT)