2012 (1) TMI 97 - HC - Income Tax

Validity of reopening of assessment previously framed after scrutiny beyond 4 years from the end of relevant A.Y. - assessment reopened on ground that income derived from the works contract would not qualify for deduction u/s 80IA - Explanation to Section 80IA added in year 2009 with retrospective effect from 1.4.2000 A.Y. 05-06 Held that - By virtue of such retrospective amendment assessment previously framed after scrutiny could not have been reopened beyond the period of 4 years without any thing on record to suggest that the income chargeable to tax had escaped assessment for the failure on the part of the assessee to fully and truly disclose all material facts. The suggestion that the assessee failed to disclose the nature of works executed and that the same was executed only as works contractor and not as a developer, cannot be accepted for two reasons. Firstly, the reasons recorded do not refer to such a ground. Secondly, when the assessee filed the return of income, the Explanation in question was not in picture. It would not be possible to expect the assessee to comply with the requirements of such Explanation by making disclosures in this regard which Explanation did not form part of the statute book when he filed his return Decided in favor of assessee.

Summary

Issues:
Reopening of assessment beyond the 4-year limit based on retrospective amendment in Section 80IA of the Income Tax Act.

Analysis:
The judgment by the Gujarat High Court, delivered by Mr. Justice Akil Kureshi, and Ms. Justice Sonia Gokani, addressed the issue of reopening an assessment beyond the 4-year limit due to a retrospective amendment in Section 80IA of the Income Tax Act. The petitioner, a company assessed for the year 2005-06, initially claimed deductions under Sections 80IA and 80IB of the Act. Subsequently, the petitioner revised its return, leading to scrutiny by the Assessing Officer who granted the deductions claimed in the revised return. However, the Assessing Officer later proposed to reopen the assessment, citing the retrospective amendment in Section 80IA, which disallowed the deductions related to works contracts. The petitioner objected to the reopening, arguing that the assessment was beyond the 4-year limit and lacked grounds for income escaping assessment due to non-disclosure of material facts.

The court analyzed the reasons for reopening the assessment and found that the sole ground was the retrospective amendment in Section 80IA disallowing deductions for works contracts. The court emphasized that reopening an assessment beyond the 4-year limit without evidence of income escaping assessment due to non-disclosure of material facts was not justified. The court referred to a similar case involving Sadbhav Engineering Ltd. where a comparable view was taken. Despite acknowledging challenges to the statutory provision, the court invalidated the notice for reopening and the subsequent assessment based on it.

Moreover, the court rejected the argument that the petitioner failed to disclose the nature of works executed as a contractor, not a developer, as the reasons recorded did not mention this ground. The court highlighted that the petitioner could not be expected to comply with an Explanation that was not part of the statute when filing the return. The judgment emphasized the importance of timely disposal of objections by Assessing Officers to prevent undue delays in assessments, citing a case precedent involving GKN Driveshafts (India) Ltd. The court concluded by quashing the notice for reopening and invalidating the subsequent assessment, urging the department to address delays in processing objections to ensure efficient tax assessments in the future.