2014 (4) TMI 479 - HC - Income Tax

Validity of Notice for reopening of assessment Held that - It does emerge that the notices were issued within a period of 4 years from the end of relevant assessment years - It is equally true that in the scrutiny assessments the AO had not addressed the question of such deduction under section 35D of the Act - if assessing officer s reason to believe lacks validity the reopening of assessment would not be permissible - the words used are reason to believe and that therefore the same must be based on subjective satisfaction of the assessing officer - if the proposed addition on the basis of which the entire notice of reopening is founded lacks legal validity surely such notice cannot be sustained - additions sought to be made by the assessing officer through this process of reopening of the assessment previously closed after scrutiny has not been approved by the Court thus the reopening of the assessment is set aside Decided in favour of Assessee.

Summary

Issues:
Challenging two separate notices for reopening assessments of earlier years.

Analysis:
The petitions were filed by the same assessee challenging two separate notices issued by the assessing officer for reopening assessments of earlier years. The facts being common, the court heard and disposed of both petitions together. The petitioner, a company registered under the Companies Act, had filed its return of income for the assessment year 1995-96, claiming deduction under section 35D of the Income Tax Act, 1961. The assessing officer had initially granted the claim after scrutiny assessment. However, for the assessment year 2003-, the assessing officer re-examined the claim and restricted the deduction amount. The matter went to the Tribunal, which ruled in favor of the assessee, stating that such disallowances could not be made abruptly in a later year when they were consistently allowed in previous years. The issue reached the High Court, which rejected the Revenue's appeal. The assessing officer then issued notices for reopening assessments for the assessment years 2001-02 and 2002-03, raising similar grounds for disallowance.

The assessing officer sought to restrict the deduction claimed by the assessee under section 35D of the Act based on the provisions of section 35D(3), limiting the claim to a certain percentage of the cost of the project. The assessing officer argued that since the claim was not properly disclosed and exceeded the allowable limit, income had escaped assessment. However, the court noted that the assessing officer had not addressed this question in the earlier assessments and had routinely accepted the claim without discussion. The Tribunal had previously ruled that such claims, consistently allowed over several years, could not be abruptly disallowed.

The court emphasized that if the assessing officer's reason to believe lacks validity, the reopening of assessment would not be permissible. The proposed additions by the assessing officer through the reopening process had not been approved by the court previously. Therefore, the court allowed both writ petitions and quashed the impugned notices for reopening assessments.