Section 147 IT Act- No Burden On Assessee To Communicate Inference Drawn On Truthful Facts Disclosed By Him: Bombay HC

The Bombay High Court held that the obligation of the assessee is limited to providing complete and truthful disclosure of all primary facts. The Court held that there is no burden on the assessee to draw any inference and communicate it to assessing authority, in case more inferences than one could be drawn.

The Court noted that once all relevant facts are presented, no further disclosure assistance is necessary.

The Court allowed a Petition challenging the notices issued in Section 148 of the Income Tax Act, 1961 (Act), aiming to reassess his income for Assessment Year 2015-16.

“The duty of assessee does not extend beyond the full and truthful disclosure of all primary facts. Once all the primary facts are before him, he requires no further assistance by way of disclosure”, the Bench comprising Justice K. R. Shriram and Justice Kamal Khata observed.

Senior Advocate K. Shivaram appeared for the Petitioner and Advocate Suresh Kumar appeared for the Respondent.

The Petitioner, engaged in shares and stock broking, contested the issuance of a notice dated March 31, 2021, Act, aiming to reassess his income for Assessment Year 2015-16. The Petitioner also challenged an order from February 26, 2022, rejecting their objections to the notice. Despite filing an income return for AY 2015-16 on September 29, 2015, showing nil income, the Petitioner received the contested notice. The Petitioner’s objections were dismissed on March 25, 2022. As the notice was issued more than four years after the relevant assessment year and an assessment under Section 143(3) of the Act had been made, reassessment was restricted unless there was a failure to fully disclose material facts. The petitioner argued there was no such failure, and the wording used in the recorded reasons merely circumvents the limitations imposed by the law.

The Court noted that the reasons provided in the assessment highlight discrepancies in the petitioner's Profit and Loss Account and Income Tax Return (ITR), particularly regarding losses and business income set-offs. Additionally, The Court noted discrepancies in the computation of normal income and Minimum Alternate Tax (MAT), pointing out that certain losses were not appropriately considered for MAT computation. These observations form the basis for the belief that there was income evasion, solely based on the records submitted by the petitioner with their income return.

The Bench noted that an affidavit filed by the Deputy Commissioner of Income Tax affirmed the reasons for reopening, and constituted a clear case of a change of opinion, which does not justify the belief that taxable income has escaped assessment. The Court referred to the Apex Court Judgment in Gemini Leather Stores v ITO [(1975) 100 ITR 1 (SC)] established that assessment cannot be reopened due to the assessee's failure to disclose all material facts if the Income Tax Officer had access to these facts during the original assessment.

“The assessment cannot be reopened by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts as the Income Tax Officer had material facts before him when he made the original assessment. The Court held that the Assessing Officer cannot take recourse to open to remedy the error resulting from his oversight in the assessment proceeding”, the Bench noted.

Additionally, the Court referred to the case of the Calcutta Discount Co. Ltd. v ITO [(1961) 41 ITR 191 (SC)], the duty of the assessee was to disclose all primary relevant facts, and no further duty extends beyond that. Therefore, in this case, there has been no failure to disclose primary facts, leading to the decision to make the rule absolute.

“The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose "inferences" to draw the proper inferences being the duty imposed on the Income-tax Officer. The Court held that the duty of the assessee is to disclose fully and truly all primary relevant facts and it does extend beyond that”, the Bench observed.

Accordingly, the Court allowed the Petition and set aside the impugned notices.

Cause Title: Emkay Global Financial Services Limited v Assistant Commissioner of Income Tax (2024:BHC-OS:2097-DB)

Appearance:

Petitioner: Senior Advocate K. Shivaram, Advocate Rahul Hakani.

Respondents: Advocate Suresh Kumar

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