INCOME TAX ACT, 1961

Section 147, Poviso

Reassessment - Beyond four years - No failure on part of assessee to disclose fully and truly all material facts -

AO issued notice under section 148 after expiry of four years from the end of relevant assessment year on the ground that during the assessment proceedings for assessment year 2010-11, when assessee was called upon to submit details of rural branches and advances in justification of its claim for deduction under section 36(1)(viia), assessee had withdrawn/given up the claim of deduction under section 36(1)(viia) and assessee revised its return for assessment year 2011-12 also giving up its claim for deduction under section 36(1)(viia). Nonetheless, during assessment proceedings for the assessment year 2011-12, it was found that many branches projected as rural by the assessee were not, in fact, rural branches, within the meaning of section 36(1)(viia). AO, thus, concluded that since the assessee had claimed incorrect deduction under section 36(1)(viia), the assessee was likely to have claimed incorrect deduction under the said section for concerned assessment year 2006-07, as well by mis-classifying the 'non-rural' branches as 'rural' branches and, therefore, he had reason to believe that deduction under section 36(1)(viia) had been incorrectly allowed for assessment year 2006-07 and, resultantly, there was escapement of income within the meaning of section 147. Assessee challenged the notice by way of writ petition pleading no failure to disclose fully and truly all material facts. AO alleged that assessee had not assailed reopening of assessment for the assessment years 2007-08, 2008-09 and 2009-10 on the same ground and, eventually, orders by the ITAT in the context of the final assessment orders post reopening of the assessment in respect of those assessment years. Held: The fact that assessee had suggested a particular inference, which upon reconsideration, does not find favour with AO subsequently, may not furnish a justifiable ground to hold that there was non-disclosure of primary facts. In the instant case, assessee could not be said to have made a selective disclosure. Since the list of rural branches, as claimed by assessee, along with supporting documents was placed before AO, it was the duty of AO to examine whether the places where the branches were opened by assessee, had population below the threshold prescribed under clause (ia) of Explanation to clause (viia) of section 36(1). The assessee was not expected to place even census data and collate the information. It was for AO to examine the matter, collate the information and thereafter draw necessary inference. Secondly, AO had the opportunity to examine the issue as to whether the branches projected as 'rural' satisfied the description prescribed under clause (ia) of the Explanation, not once but twice. What accentuates the situation is the fact that specific queries were raised, information solicited and, thereafter, deduction, as claimed, was allowed, not once but twice. Action to reopen the assessment was driven by the stand of the assessee to withdraw claim for deduction under section 36(1)(viia) for assessment year 2010-11, and submission of revised return for the assessment year 2011-12, giving up the claim for such deduction. In the reasons, recorded two factors were conspicuous by their absence. First, there was no assertion that income escaped assessment on account of the failure to disclose truly and fully all material facts relevant for the assessment for assessment year 2006-07. Second, mis-classification of branches was not premised on the population of place, where those branches were operating, having exceeded the threshold prescribed in Explanation (ia) to clause (viia), as per census 2001. Assessee had placed all the relevant facts before AO. Specific queries were raised as regards the allowability of deduction under section 36(1) (viia). Upon consideration of explanation furnished by the assessee, claim for deduction was allowed. Even relevant material in the nature of Census 2001 data was available at the time of original assessment and subsequent assessment under section 143(3) read with section 147. In the face of these hard facts, reopening on the premise that it was 'likely' that assessee might have claimed incorrect deduction in the past assessment years was in the nature of a 'guess' hazarded by the AO without any tangible material. The expression 'reason to believe' is not equivalent to a 'hunch' or 'guess'. Nor does it imply a purely subjective satisfaction. Once AO on consideration of material on record and the explanation offered, arrived at a final conclusion that assessee was entitled to the deduction as claimed then, on the basis of the very same material, the AO could not form a prima facie opinion that the deduction was not allowable and accordingly reopen the assessment on the ground that income chargeable to tax had escaped assessment. Once, it is held that jurisdictional condition for invoking the power under section 147 is not satisfied for a particular assessment year, the notice for reopening cannot be sustained. Then, it does not matter that the assessee did not assail the notice for reopening in respect of preceding or succeeding years. Therefore, impugned notice of reopening was set aside.

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