In Global Signal Cables (India) (P.) Ltd. Vs. Deputy Commissioner of Income Tax, it was held that after the expiry of 4 years, no reassessment shall be possible if there was no failure on the part of the assessee to disclose material fact during the assessment.

Facts of the case:

The petitioner filed its income tax return for the A.Y 2006-07. The said return was selected for the scrutiny vide issue of notice under Section 143(2).

The petitioner submitted the auditor’s report and audited accounts. In the said auditor’s report, the auditor had mentioned that the petitioner has given interest free loans/advances to group companies totaling to Rs.5,20,57,726 as at the year-end. In the said report, the auditor has also commented that the terms and conditions of the said advances are not prima facie prejudicial to the interest of the petitioner/assessee. Further, it was commented that the disclosure regarding the loans/advances to the group companies was also made by the petitioner/assessee in the audited notes of account. In the schedule of loans and advances forming part of the audited accounts, it is mentioned that out of the loans and advances outstanding at the year-end, substantial amount of advances are brought forward from the preceding year. The said audited accounts also contained the details of interest and financial charges of Rs.81,30,819 debited to the Profit & Loss Account.

Scrutiny assessment order under section 143(3) of the said Act was issued by the respondent (Deputy Commissioner of Income Tax) determining the total income at Rs.1,06,25,560.

Thereafter, the AO issued the impugned notice dated 28.3.13 for re-opening of assessment under section 148. The assessee submitted its response before the Assessing Officer to treat the return as originally filed under section 139 as a return for the purpose of section 148 and asked for the reasons recorded under section 148.

The Assessing Officer forwarded the copy of the recorded reasons for re-opening the assessment. In the recorded reasons the re-opening has been proposed on the ground that since the assessee had granted interest free loan, therefore, proportionate disallowance on account of interest and financial charges out of total interest and financial charges debited in profit and loss account should have been made resulting in under assessment of income.

The appellant objected to the reopening of the assessment. The Assessing Officer rejected the objection of appellant dated 24.01.2014. On this, writ petition was filed.

It was held that:

The High Court highlighted the provision os Section 147(Assessment or Reassessment of Incomes Escaping Assessment) of the Act-

If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section.

Further first proviso to section 147 provides that if the assessment has been completed u/s 143(3) no action can be taken u/s 147 after the expiry of 4 years from the end of relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of the 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.

In the instant case, the High Court admitted that the issuance of notice u/s 148 was beyond the specified period of four years from the end of the relevant assessment year. Consequently, the first proviso of section 147 would be relevant.

The Court noticed that the AO had not indicated as to which material fact had not been fully and truly disclosed by the assessee.

Thus, there exists no ground for reopening of the assessment after the expiry of four years from the relevant assessment year. Therefore, the notice under section 148 was quashed by the Court.

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