Monday, January 9, 2012

S. 147: Full & true disclosure of material facts means “specific” disclosure o

The Indian Hume Pipe Co Ltd vs. ACIT (Bombay High Court)
S. 147: "Full & true disclosure of material facts" means "specific" disclosure of "each" fact
The assessee entered into an agreement in July 2001 for sale of development rights for Rs.39 crores. The transfer was in December 2003. The assessee computed LTCG of Rs. 23.19 crores. The assessee invested in eligible bonds between Feb & June 2002 (after the agreement to sell but before the transfer) and claimed exemption u/s 54EC. During the assessment proceedings, the AO asked for a copy of the agreements with the purchaser and other details which the assessee furnished. A copy each of the s. 54EC bonds (which gave the dates of investments) was also furnished. The AO allowed the deduction as claimed. After the expiry of 4 years from the end of the assessment year, the AO issued a notice u/s 148 claiming that as the investments were made prior to the date of transfer (Dec 2003), s. 54EC deduction was not admissible. The assessee filed a Writ Petition to challenge the reopening on the ground that there was no failure on its part to make a full and true disclosure of material facts. HELD dismissing the Petition:

(i) "Full and true disclosure of material facts" means that the disclosure should not be garbled or hidden in the crevices of the documentary material which has been filed by the assessee with the AO. The assessee must act with candor. A full disclosure is a disclosure of all material facts which does not contain any hidden material or suppression of fact. It must be truthful in all respects;

(ii) On facts, though the AO enquired into the matter and the assessee furnished a copy of the s. 54EC bonds (from which the dates of allotment/ investment were evident), there was no (specific) reference by the assessee to the dates on which the amounts were invested in the s. 54EC bonds. Also, it was it was evident that the AO had not applied his mind to the issue of s. 54EC exemption. Accordingly, the AO was justified in reopening the assessment.

Note: The ground that s. 54EC exemption is allowable even to investments made pre-transfer as per Circular No. 359 dated 10.5.1983 and so there can be no "reason to believe" was not argued. Contrast with Kelvinator 256 ITR 1 (Del)(FB) (affirmed in 320 ITR 561 (SC)) where it was held that a s. 143(3) assessment meant that the AO was "deemed to have applied his mind to all aspects" and that a reopening based on "reappraisal of existing material" was not permissible.

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