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2017 (7) TMI 967 - HC - Income Tax


Issues Involved:
1. Validity of notice under Section 147/148 of the Income Tax Act for re-opening the assessment.
2. Failure to add back capital expenditure on software acquisition.
3. Incorrect claim of finance lease rentals.
4. Deduction under Section 80-IB of the Income Tax Act.
5. Failure to deduct and deposit withholding taxes.

Detailed Analysis:

1. Validity of Notice under Section 147/148:
The Assessee challenged the notice dated 31st March 2010, issued by the Deputy Commissioner of Income Tax, for re-opening the assessment for AY 2003-04. The Court noted that the re-opening was after four years from the end of the relevant AY, thus attracting the first proviso to Section 147 of the Act. The Revenue must show that income escaped assessment due to the Assessee's failure to fully and truly disclose all material facts necessary for the assessment. The Court emphasized that the reasons for re-opening must clearly indicate the failure of the Assessee to disclose material facts and should not be based on a mere change of opinion.

2. Failure to Add Back Capital Expenditure on Software Acquisition:
The Assessee argued that the amounts for capital expenditure on software acquisition and fixed assets written off had been added back in the revised return. The Revenue admitted this fact but sought to verify it. The Court held that re-opening for verification purposes was not justified, as the audited accounts were already available with the AO during the original assessment.

3. Incorrect Claim of Finance Lease Rentals:
The Assessee explained the accounting treatment of finance lease rentals under AS-19, distinguishing between accounting and tax treatment. The Court found that the Assessee had fully disclosed the treatment in the original assessment proceedings. The AO's reason for re-opening on this ground did not meet the jurisdictional requirement of the first proviso to Section 147.

4. Deduction under Section 80-IB:
The AO questioned the Assessee's claim under Section 80-IB, suggesting that the Assessee's activity did not amount to manufacturing and raised issues about the location and registration of the industrial undertaking. The Court noted that these issues were already discussed in the original assessment and subsequent appellate proceedings. The Court found no fresh tangible material to justify the re-opening of the assessment on this ground.

5. Failure to Deduct and Deposit Withholding Taxes:
The AO claimed that the Assessee failed to deduct TDS on the cost of the master copy, treating it as royalty. The Court observed that this issue was examined in the original assessment, where the expenditure was disallowed as capital expenditure. The Court found no failure on the Assessee's part to disclose material facts.

Conclusion:
The Court quashed the notice dated 31st March 2010 issued under Section 147/148 for re-opening the assessment for AY 2003-04. The reasons provided by the AO did not satisfy the legal requirements for re-opening the assessment, as there was no failure by the Assessee to fully and truly disclose all material facts necessary for the assessment.

 

 

 

 

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