2013 (8) TMI 554 - AT - Income Tax

Proceedings u/s 147 - Assessee claimed deduction u/s 80IB - A.O. disallowed deduction and started proceeding u/s 147 - CIT annulled reassessment - Held that - reopening of assessment has been done in this case on the basis of retrospective amendment to Section 80IB(10) of the Act. In the reasons recorded for re-opening of the assessment, there was no mention that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment at the time of original assessment. There is also no dispute about the fact that re-opening has been done after four years from the end of the relevant assessment year. As per first proviso to section 147 for the purpose of initiating proceedings u/s 147 after the expiry of four years from the end of relevant assessment year, the income chargeable to tax should have escaped assessment by reason of failure on the part of the assessee either (i) to make a return u/s 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or (ii) to disclose fully and truly all material facts necessary for his assessment - Following decision of Sadbhav Engineering Ltd. Versus Deputy Commissioner of Income-tax 2010 (7) TMI 521 - Gujarat High Court and Aayojan Developers Versus Income-tax Officer 2011 (2) TMI 738 - Gujarat High Court - Decided against Revenue.

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
2. Eligibility for deduction under Section 80IB(10) of the Income Tax Act.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act:

The primary issue raised by the revenue was the validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act. The revenue argued that the reassessment was justified based on the grounds that neither the development permission was in favor of the assessee nor was the land owned by the firm, which indicated that the assessee was merely a contractor and not eligible for deduction under Section 80IB(10) due to a retrospective amendment.

The assessee contended that the reopening of the assessment was invalid as it was based on irrelevant grounds. The assessee argued that the land was indeed owned by the firm, and the development permission was obtained in the name of one of the co-owners, which was a common practice due to land revenue regulations. Additionally, the assessee had fully complied with all conditions for claiming the deduction under Section 80IB(10).

The CIT(A) annulled the reassessment order, observing that the reopening was beyond four years and the reasons recorded for reopening were contrary to the facts. The CIT(A) noted that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, as required by the first proviso to Section 147. The CIT(A) relied on the decisions of the Hon'ble Gujarat High Court in the cases of Sadbhav Engineering (333 ITR 483) and Aayojan Developers (335 ITR 234), which held that the initiation of proceedings under Section 147 was vitiated if there was no failure on the part of the assessee to disclose material facts.

The ITAT upheld the order of the CIT(A), stating that the reassessment proceedings were invalid as there was no mention of any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The ITAT emphasized that the reopening was done after four years from the end of the relevant assessment year, and as per the first proviso to Section 147, the income chargeable to tax should have escaped assessment due to the assessee's failure to disclose material facts, which was not the case here.

2. Eligibility for Deduction under Section 80IB(10) of the Income Tax Act:

The second issue was the eligibility of the assessee for deduction under Section 80IB(10). The revenue argued that the assessee was not eligible for the deduction as it was merely a contractor and not a developer, based on a retrospective amendment to Section 80IB(10).

The assessee contended that it was engaged in the construction and development of land and had complied with all conditions for claiming the deduction under Section 80IB(10). The assessee argued that the retrospective amendment did not affect its claim as it had carried out the development and construction work on its own land with complete risk and profit.

The CIT(A) observed that the reasons recorded for reopening were irrelevant and contrary to the facts. The CIT(A) noted that the assessee had submitted all necessary evidence during the original assessment proceedings, and the deduction was granted accordingly. The CIT(A) relied on the decision of the Hon'ble Gujarat High Court in the case of Radhey Developers, which held that the assessee was entitled to the benefit under Section 80IB(10) even if the title of the land had not been passed on to the assessee.

The ITAT upheld the order of the CIT(A), stating that the assessee was eligible for the deduction under Section 80IB(10) as it had complied with all necessary conditions and the reasons recorded for reopening were not tenable in the eye of law.

Conclusion:

The ITAT dismissed the revenue's appeal, upholding the order of the CIT(A) that annulled the reassessment proceedings and confirmed the eligibility of the assessee for deduction under Section 80IB(10) of the Income Tax Act. The reassessment was deemed invalid due to the lack of any failure on the part of the assessee to disclose material facts and the retrospective amendment not affecting the assessee's claim.

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