2012 (9) TMI 18 - HC - Income Tax

Reopening of assessment - reopening of assessment previously framed after scrutiny within a period of four years - the assessee have charged 24% interest on the overdue payments from its sister concern - Held that - As the assessee had sold certain goods to its sister concern during the year under consideration who on delayed payments of such goods paid interest at the rate of 24% which was much higher than the prevailing market rate of interest which varies between 15% to 18%. By adopting such modality, the assessee had reduced the taxable profit of sister concern and at the same time increased the profit of Silvasa unit of the assessee company which was eligible for deduction under section 80-IA. These facts were not clear from the working out of deductions under section 80IA along with the return of income It is an admitted position that in the return filed, the assessee did not indicate whether the entire interest or part thereof was received from the sister concern. Further, there is no indication that from the sister concern, the assessee had received interest at the rate of 24% on the outstanding amounts. Disclosure in the tax audit report by the assessee that the assessee is closely associated with M/s.Aditya Medisales Ltd., its sister concern would not be a sufficient disclosure. From the facts on record, it was not possible for the Assessing Officer to ascertain that the petitioner received interest from sister concern which was higher than the normal rate of interest, thus such interest was charged at the rate of 24% per annum, were not discernible from the record at all - notice for reopening was valid - in favour of Revenue.

Issues Involved:
1. Jurisdiction of the Assessing Officer to reopen the assessment.
2. Validity of the reasons recorded for reopening the assessment.
3. Examination of the sole surviving ground for reopening related to charging higher interest rates to a sister concern.
4. Full and true disclosure of material facts by the petitioner.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer to Reopen the Assessment:
The petitioner challenged the notice dated 25.2.2004 issued by the Deputy Commissioner of Income Tax under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 1999-2000. The petitioner contended that the notice for reopening was without jurisdiction, arguing that the reasons recorded by the Assessing Officer did not provide sufficient grounds to reopen the assessment previously framed after scrutiny.

2. Validity of the Reasons Recorded for Reopening the Assessment:
The reasons for reopening the assessment included several grounds, such as discrepancies in R&D expenses, inflated profits of the Industrial Unit of Silvasa due to higher interest rates charged by a sister concern, and improper netting off of interest payments. However, the Assessing Officer, while disposing of the objections, sustained only one reason related to the higher interest rate charged to the sister concern, Aditya Medisales Ltd. The court noted that the validity of the remaining grounds had been previously examined and found invalid in a related case (Special Civil Application No.12468 of 2004).

3. Examination of the Sole Surviving Ground for Reopening Related to Charging Higher Interest Rates to a Sister Concern:
The sole surviving issue was whether reopening was permissible based on the ground that the petitioner charged 24% interest on overdue payments from its sister concern, Aditya Medisales Ltd. The court observed that the Assessing Officer had reason to believe that the petitioner had arranged its business in such a way that the eligible profit for deduction under section 80IA was exaggerated. This belief was based on the fact that the interest rate charged was significantly higher than the prevailing market rate, which varied between 15% to 18%. The court upheld the Assessing Officer's right to reopen the assessment, stating that the sufficiency of the reasons for forming the belief was not for the court to judge at this stage.

4. Full and True Disclosure of Material Facts by the Petitioner:
The court examined whether the petitioner had fully and truly disclosed all material facts necessary for the assessment. It was found that the petitioner had not indicated in the return that the interest received included overdue payment charges at the rate of 24% from Aditya Medisales. The court concluded that the petitioner had failed to disclose these primary facts, which were essential for the Assessing Officer to make adjustments under section 80IA(10). The court referred to various judgments, including those of the Apex Court, to emphasize that the obligation of the assessee is to disclose all material facts fully and truly.

Conclusion:
The court dismissed the petition, ruling that the notice for reopening the assessment was valid and within the jurisdiction of the Assessing Officer. The court found that the petitioner had not fully and truly disclosed all material facts, and the Assessing Officer had sufficient grounds to believe that income chargeable to tax had escaped assessment. The sole surviving ground for reopening related to the higher interest rate charged to the sister concern was upheld, and the petition was dismissed with the rule discharged and interim relief vacated.

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