2013 (4) TMI 605 - AT - Income Tax

Reopening of assessment after duration of 4 years - negligence - as the taxpayer has not furnished the details on expenditure incurred on DEPB licence Disallowance of deduction u/s 80HHC. Held that - The question arises for consideration is whether there was negligence on the part of the taxpayer in furnishing fully and truly all the material facts necessary assessment. No one could anticipate an amendment which would be brought into the statute book after lapse of 5-6 years retrospectively. Therefore, the taxpayer cannot be blamed for not anticipating a law. It is not in dispute that the taxpayer was claiming deduction on DEPB licence. Moreover, the deduction was not denied because the details of cost was not furnished but because the taxpayer has not complied with Proviso to section 80HHC which was brought into the statute book by Taxation Laws (Amendment) Act, 2005. Therefore, it may not be correct to contend that the taxpayer has not disclosed the expenditure on sale of DEPB licence. The disallowance was made only on the basis of Taxation Laws (Amendment) Act, 2005. Therefore, the taxpayer cannot be blamed after expiry of four years from the end of the relevant assessment year. Thus, the reopening is invalid. Rectification made by the A.O. on the basis of the Proviso to section 80HHC which was inserted by Taxation Laws (Amendment) Act, 2005. Held that - The A.O. made an attempt to rectify the original assessment order dated 05-02-2001 on the basis of the retrospective amendment brought in section 80HHC of the Act. On the date of filing of the return, the taxpayer has made the claim on the basis of the law as it stood on the first day of April of the assessment year. Therefore, the amendment made in section 80HHC by Taxation Laws (Amendment) Act, 2005 cannot be a ground to extend the period of limitation for rectifying the original order.

Summary

Issues:
1. Validity of reopening assessment for assessment year 2001-02 after four years from the end of the relevant assessment year.
2. Rectification of deduction u/s 80HHC for assessment year 1998-99 beyond the four-year limitation period.

Issue 1: Validity of reopening assessment for assessment year 2001-02 after four years from the end of the relevant assessment year

The taxpayer's representative argued that the assessment was reopened after the four-year limit from the end of the relevant assessment year, citing negligence on the taxpayer's part for not disclosing all material facts. The representative contended that the assessment was reopened based on a retrospective amendment introduced by the Taxation Laws (Amendment) Act, 2005, which the taxpayer could not have anticipated. The Tribunal agreed, stating that the taxpayer cannot be faulted for not predicting a law that came into effect years later. The Tribunal held that the reopening of the assessment after the four-year limit was impermissible under Proviso to section 147, rendering the subsequent assessment order invalid.

Issue 2: Rectification of deduction u/s 80HHC for assessment year 1998-99 beyond the four-year limitation period

Regarding the rectification of deduction u/s 80HHC for the assessment year 1998-99, the taxpayer's representative argued that the assessing officer had no jurisdiction to rectify the order under section 154 of the Act after the four-year period from the original assessment order. The Departmental Representative (DR) contended that the rectification was within the limitation period, citing previous judgments. The Tribunal analyzed relevant case laws, including Waldies Ltd and Salem Co-operative Spinning Mills Ltd, and concluded that the rectification made by the assessing officer was not valid. The Tribunal emphasized that the rectification was attempted on the basis of a retrospective amendment, which could not extend the limitation period for rectifying the original order. Consequently, the Tribunal set aside the orders of the lower authorities, allowing the taxpayer's appeals.

In conclusion, the Appellate Tribunal ITAT Cochin ruled in favor of the taxpayer on both issues, declaring the reopening of the assessment for the assessment year 2001-02 and the rectification of deduction u/s 80HHC for the assessment year 1998-99 beyond the four-year limitation period as invalid.