2013 (4) TMI 519 - HC - Income Tax

Reopening of Assessment u/s 147 of the Act - deduction U/S 80IA are not proper - disclosure of information - Held that - 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 Aditya Medisales. Further, there is no indication that from Aditya Medisales, which was a sister concern, the assessee had received interest at the rate of 24% on the outstanding amounts. Counsel for the petitioner, however, submitted that in the tax audit report, the petitioner had disclosed that the petitioner company and Aditya Medisales are closely associated. In our opinion, this 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 Aditya Medisales which was higher than the normal rate of interest. Three essential facts, namely, that the petitioner received interest on overdue payments from Aditya Medisales, that Aditya Medisales was a sister concern of the petitioner Company and that such interest was charged at the rate of 24% per annum, were not discernible from the record at all. - Decided against the assessee.

Issues Involved:
1. Validity of reopening the assessment beyond four years.
2. Alleged discrepancies in R&D expenses.
3. Double deduction claim under sections 80HHC and 80IA.
4. Inflated profit due to higher interest from sister concern.
5. Allocation of R&D expenses to Silvasa Unit.

Detailed Analysis:

1. Validity of Reopening the Assessment Beyond Four Years:
The petitioner challenged the notice dated 25-2-2004 issued by the Deputy Commissioner of Income Tax for reopening the assessment for the assessment year 1998-99. The assessment was initially completed under section 143(3) of the Income Tax Act, 1961 on 26-3-2001. The reopening was sought under section 147 of the Act, beyond the period of four years from the end of the relevant assessment year. The court held that the reopening notice must fail or succeed based on the reasons recorded initially. The reasons provided must be valid and not a result of a mere change of opinion or new grounds occurring post the initial recording.

2. Alleged Discrepancies in R&D Expenses:
The Assessing Officer noted discrepancies between R&D expenses reported in the Tax Audit Report and those mentioned in the Annual Accounts. The petitioner clarified that no double deduction was claimed, and all figures were reconciled. The court found that the relevant entries were properly explained and reconciled satisfactorily. It was emphasized that the Assessing Officer's reasoning in the order disposing of objections differed from the initial reasons recorded, making the reopening notice invalid on this ground.

3. Double Deduction Claim Under Sections 80HHC and 80IA:
The petitioner was accused of claiming more than 100% deduction on the export of Rs. 46.75 lacs from the Silvasa Unit under sections 80HHC and 80IA. The court observed that similar reasons had come up in the petitioner's own case earlier, where it was found that such reasons did not give jurisdiction to the Assessing Officer to reopen the assessment. The court reiterated that there was no failure on the part of the assessee to fully and truly disclose all material facts, and thus, this ground could not form a valid basis for reopening the assessment.

4. Inflated Profit Due to Higher Interest from Sister Concern:
The Assessing Officer noted that the petitioner received interest at 24% from Aditya Medisales Ltd., a sister concern, which was higher than the market rate of 15-18%. This arrangement allegedly inflated the profit of the Silvasa Unit, eligible for deduction under section 80IA, while reducing the taxable profit of Aditya Medisales Ltd. The court found that this ground was valid for reopening the assessment, as it indicated an arrangement that produced more than ordinary profits, justifying the application of section 80IA(10).

5. Allocation of R&D Expenses to Silvasa Unit:
The Assessing Officer observed that the petitioner did not allocate any R&D expenditure to the Silvasa Unit for the year 1998-99, leading to an excess deduction claim under section 80IA. The court noted that all facts and figures were available on record, and the claim was scrutinized and partly disallowed in the original assessment. Since there was no new material and all facts were disclosed, the court held that the assessment could not be reopened beyond the four-year period on this ground.

Conclusion:
The court dismissed the petition, stating that the reopening notice must be based on valid grounds recorded initially. The court found that the grounds related to discrepancies in R&D expenses, double deduction claims, and allocation of R&D expenses were invalid for reopening. However, the ground related to inflated profit due to higher interest from a sister concern was deemed valid. The court left the issue of whether additional material came on record during the assessment proceedings to be judged during the assessment and potential appeals.

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