2012 (7) TMI 558 - HC - Income Tax

Challenging notice of reopening u/s 148 beyond a period of four years - according to AO the claim for deduction of license fees paid by the petitioner assessee was required to be dealt with in the manner provided in section 35ABB - Held that - AO has placed no reliance on any new material at his command to form a belief that income chargeable to tax has escaped assessment. Further during the original assessment framed after scrutiny, the claim of deduction for license fees paid by the petitioner came up for consideration - It may be that some of the queries did not directly relate to such claim and the limitation of deduction as provided in Section 35ABB. However, entire issue was at large before the AO - it cannot be stated that there was any failure or omission on part of the petitioner to disclose truly and fully any material facts necessary for assessment. As in addition to lodging the claim for deduction in the original return filed giving full details and particulars and accounting policies followed the petitioner further elaborated its claim for deduction to the query issued by the AO during such correspondence and if the AO was of the opinion that such expenditure had to be spread over as provided in Section 35ABB nothing prevented AO from doing so in the original assessment that he framed. Full facts with respect to such claim were on record before him as it was not for the assessee to lead the Assessing Officer to any particular legal inference - impugned notice is not sustainable - in favour of assessee.

Issues Involved:
1. Validity of reopening the assessment for the assessment year 2003-2004.
2. Compliance with Section 35ABB of the Income Tax Act, 1961.
3. Alleged failure to disclose fully and truly all material facts necessary for assessment.

Detailed Analysis:

1. Validity of Reopening the Assessment:
The petitioner challenged the notice dated 17.3.2009 for reopening the assessment for the year 2003-2004. The petitioner argued that the reopening was beyond the permissible period of four years and lacked jurisdiction as there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The court noted that the Assessing Officer (AO) must hold a belief that income chargeable to tax has escaped assessment and that such escapement was due to the failure of the assessee to disclose material facts. The court found that the AO's reasons for reopening did not indicate any new material or failure on the part of the petitioner to disclose fully and truly all material facts. Thus, the reopening notice was deemed invalid.

2. Compliance with Section 35ABB:
The petitioner provided detailed explanations and computations regarding the deduction claimed under Section 35ABB of the Income Tax Act, 1961, both in their return and through subsequent correspondences with the AO. The AO's reasons for reopening suggested that the license fee should be treated as capital expenditure and amortized over the license period as per Section 35ABB. However, the court found that the AO had already scrutinized and accepted the petitioner's claim during the original assessment without any disallowance. The court emphasized that the AO had the opportunity to apply his mind to the material facts and the petitioner's detailed explanations during the original assessment proceedings.

3. Alleged Failure to Disclose Material Facts:
The court examined whether there was any failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. The court observed that the petitioner had provided comprehensive details and explanations regarding the license fee and its treatment under Section 35ABB during the original assessment. The AO had raised specific queries, and the petitioner had responded with detailed replies and supporting documents. The court concluded that the petitioner had disclosed all primary facts necessary for the assessment, and the AO had the responsibility to draw the correct legal inferences. The court found no evidence of failure or omission by the petitioner to disclose material facts.

Conclusion:
The court quashed the reopening notice dated 17.3.2009, ruling that it was not sustainable as the petitioner had fully complied with the disclosure requirements, and the AO had all the necessary information during the original assessment. The court emphasized that the reopening was based on a mere change of opinion and not on any new material or failure to disclose by the petitioner. The rule was made absolute with no order as to costs.

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