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2011 (12) TMI 229 - HC - Income TaxValidity of reopening of assessment previously framed after scrutiny beyond 4 years from the end of relevant A.Y. - assessment reopened on ground of non-deduction of tax at source u/s 195 and consequent dis-allowance u/s 40(a)(i) A.O. at the insistence of the audit party had issued notice for reopening - audit party after bringing the relevant aspects to the notice of the AO held correspondence with the assessee and accepted assessee s explanation of non-requirement of deduction of tax at source Held that - In the present case the Assessing Officer had categorically come to the conclusion that the objection of the audit party is not valid and that the assessee s explanation with respect to nonrequirement of collection of TDS was required to be accepted. In that view of the matter we have no hesitation in striking down the notice for reopening. Consequently the order rejecting the objections of the petitioners must also go. In the result the petition is allowed.
Issues:
Validity of notice seeking to reopen assessment for the assessment year 2004-05 based on failure to deduct TDS and allow excess deduction under section 80HHC. Analysis: The petitioner, a company registered under the Companies Act, challenged the validity of a notice dated 18.3.2011 issued by the Assessing Officer seeking to reopen the assessment for the assessment year 2004-05. The notice was based on the grounds that the book profit under section 115JB of the Income Tax Act was not computed correctly and that excess deduction under section 80HHC was allowed. The petitioner had previously challenged a similar notice dated 28.10.09, which was quashed by the Court. The Assessing Officer issued a fresh notice on 18.3.2011, leading to the petitioner raising objections that were subsequently disposed of by the Assessing Officer on 11.10.11. The petitioner approached the Court challenging the impugned notice for reopening the assessment. The Assessing Officer's reasons for reopening the assessment were based on the failure of the assessee to deduct TDS on certain expenditures, leading to the belief that income to the tune of Rs.51,94,204/- had escaped assessment. The petitioner contended that the assessment was sought to be reopened beyond the prescribed period of four years without sufficient material to suggest that income had escaped assessment due to the failure to disclose all material facts. The petitioner argued that the initial assessment was thorough and full disclosures were made regarding transactions with associated enterprises. The petitioner further argued that the entire issue arose due to the insistence of the Audit Party and that the Assessing Officer did not have an independent reason to believe that income had escaped assessment. The Court examined the original records and found that the Assessing Officer's opinion was influenced by the Audit Party's objection regarding TDS deduction, but ultimately, the Assessing Officer accepted the assessee's explanation and concluded that no income had escaped assessment. Despite this, the Assessing Officer issued the impugned notice, leading the Court to conclude that the notice was invalid and quash it. The Court held that the Assessing Officer had acted at the behest of the Audit Party, which was not a valid basis for reopening the assessment. The petition was allowed, and the impugned notice was quashed, along with the order rejecting the petitioner's objections.
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