2013 (8) TMI 187 - AT - Income Tax

Re opening of assessment - disallowance of deduction u/s 10B and correctness of the interest charged u/s 234B and 234C - Held that - It is not in dispute that the reassessment proceedings were initiated after expiry of four years from the end of the relevant assessment year and in a case where the original assessment was completed under section 143(3) two conditions have to be satisfied to issue a notice under section 148 of the Act, i.e., (a) failure on the part of the assessee to make a return under section 143 or to a notice issued under sub-section (1) to section 147 or section 148 or disclose fully and truly all material facts necessary for assessment, and (b) income chargeable to tax has escaped assessment. In the instant case computation of total income alongwith annexures as well as the details furnished during the course of regular assessment proceedings clearly indicate that the assessee furnished all the details necessary for the purpose of making an assessment and in the absence of recording a reason that reassessment proceedings were on account of failure on the part of the assessee to furnish true and correct particulars of income, reopening of assessment cannot be said to be valid in law. Under these circumstances we quash the reassessment proceedings. Since the notice issued under section 148 is held to be bad in law, other issues urged by the assessee in its appeal as well as the grounds urged by the Revenue in the cross appeal do not survive for consideration. In favour of assessee.

Issues Involved:
1. Validity of reopening of assessment under section 148 of the Income Tax Act, 1961.
2. Allowability of deduction under section 10B of the Act.
3. Correctness of interest charged under sections 234B and 234C of the Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 148 of the Income Tax Act, 1961:

The primary issue in the appeal filed by the assessee was the validity of the reopening of the assessment under section 148 of the Income Tax Act, 1961. The assessee contended that the reassessment proceedings were invalid as there was no failure on their part to disclose fully and truly all material facts necessary for assessment. The assessee argued that they had furnished complete details regarding the losses incurred from non-STPI Units during the original assessment proceedings, and the Assessing Officer (AO) had made a thorough investigation before completing the regular assessment under section 143(3) of the Act.

The AO issued a notice under section 148 on the ground that income chargeable to tax for A.Y. 2001-02 had escaped assessment. The reasons communicated by the AO indicated that the expenditure claimed by the R&D unit at Mumbai had no connection with the STPI unit at Visakhapatnam and should be capitalized in the absence of commencement of business by the unit. The assessee contended that the reassessment proceedings were initiated based on a mere change of opinion and were therefore invalid in law. They also argued that the reassessment proceedings were initiated beyond four years from the relevant assessment year, and there was no failure on their part to disclose fully and truly all material facts necessary for assessment.

The CIT(A) upheld the validity of the reassessment proceedings, observing that the scope of section 147 had been enlarged w.e.f. 01.04.1989, and the concept of change of opinion became irrelevant. The CIT(A) noted that the assessee had not made a full and true disclosure of all material facts necessary for completion of assessment, particularly regarding the nature of activities and the year of commencement of business of the Mumbai unit.

Upon appeal, the Tribunal quashed the reassessment proceedings, holding that the AO had not specified that the reassessment proceedings were initiated due to the failure of the assessee to furnish fully and truly all material facts necessary for making the assessment. The Tribunal observed that the details furnished during the original assessment proceedings indicated that the assessee had disclosed all necessary information. Therefore, the reassessment proceedings were invalid in law.

2. Allowability of Deduction under Section 10B of the Act:

The assessee raised a ground regarding the allowability of deduction under section 10B of the Act. However, during the hearing, the learned counsel for the assessee submitted that this issue need not be addressed if the first issue regarding the validity of the reassessment proceedings was decided in their favor. Consequently, the Tribunal did not delve into this issue as the reassessment proceedings were quashed.

3. Correctness of Interest Charged under Sections 234B and 234C of the Act:

The assessee also raised a ground concerning the correctness of interest charged under sections 234B and 234C of the Act. However, this ground was stated to be consequential in nature. Since the reassessment proceedings were quashed, the Tribunal did not address this issue separately.

Conclusion:

The Tribunal quashed the reassessment proceedings initiated under section 148 of the Income Tax Act, 1961, holding that the notice issued was invalid in law as it did not specify that the reassessment was due to the failure of the assessee to disclose fully and truly all material facts necessary for assessment. Consequently, the other issues raised by the assessee and the grounds urged by the Revenue in the cross-appeal did not survive for consideration. The appeal filed by the assessee was allowed, and the appeal filed by the Revenue was dismissed.

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