INCOME TAX ACT, 1961

Secton 147

Reassessment - Notice beyond four years - Failure to disclose fully and truly all material facts vis-a-vis mere production of evidence before AO -

AO reopened assessment after expiry of four years from the end of relevant assessment year on the reasoning that assessee claimed that it had paid a sum of Rs. 10 crores vide two agreements dated 17-8-2002 signed between assessee and its affiliate companies, namely, Atlas Copco India Limited and Chicago Pneumatic Tool Company (a company organized under the laws of the State of New Jersey, one of the States of United States of America). In the first agreement, assessee paid a sum of Rs. 7.5 crores as non compete fees for a period of two years to the Atlas Copco India Limited and in the second agreement, it paid a sum of Rs. 2.5 crores to the same Company. It was not clear as to why two tripartite agreements were signed with same parties and payments were made only to the same Indian Company, namely, Atlas Copco India Limited. Assessee challenged this on the ground that assessee had filed a detailed note on the non-compete fee and submitted agreement copies of the collaboration, and hence there was no failure to disclose fully and truly all material facts. Assessee filed Writ Petition to quash impugned Order passed by AO rejecting objections of assessee against the reopening of assessment. Held : Mere production of evidence before AO was not enough. There may be omission or failure to make a true and full disclosure. If some material for the assessment lay embedded in the evidence which the assessee could have uncovered but did not, then it is duty of assessee to bring it to the notice of AO. The assessee knows all the material and relevant facts, but AO may not. In respect of failure of disclosure, the omission to disclose may be deliberate or inadvertent. That is immaterial. But, if there is omission to disclose the material facts, then jurisdiction to reopen assessment is attracted'. In the instant case, though assessee had filed a detailed note on the non-compete fee and submitted agreement copies of the collaboration, nowhere in the note did assessee speak of the overriding clause of restrictions in the second agreement. Thus, non-disclosure of material facts fully and truly was the failure of assessee to disclose true intention behind clause 2.4 of the second agreement. This attracted jurisdiction of AO to reopen assessment in terms of proviso to section 147. Therefore, writ petition was dismissed.

Applied:Sri Krishna (P) Ltd. v. ITO (1996) 221 ITR 538 (SC) : 1996 TaxPub(DT) 1220 (SC).