2014 (8) TMI 865 - AT - Income Tax

Reopening of assessment u/s 147 Change of opinion - Period of limitation - Realization of export proceeds and of processing charges Computation of deduction u/s 10B Held that - The reasons are totally silent with regard to any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year - From the reasons recorded it is also apparent the assessment is sought to be reopened on the ground that while computing the deduction u/s. 10B, the export proceeds not realized before the specified date were not deducted from the export turnover and processing charges were not included in the total turnover and hence there was reason to believe that income chargeable to tax has escaped assessment for the assessment years under consideration - There is nothing on record of assessment order to indicate that the proceedings u/s.147 were sought to be reopened by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration - All the material facts i.e. unrealized convertible foreign exchange before the specified date, non-inclusion of processing charges in the total turnover were duly disclosed by the assessee in the computation of deduction u/s.10B, Form No.56G filed with the original return of income and from the same material facts, the Assessing Officer in the present order worked out the excess claim u/s.10B - The details of foreign exchange realization and the processing charges were very much available on record at the time of passing the original assessment order and also at the time of passing the reassessment order. When all material facts were furnished by the assessee, even if the assessee erroneously claimed excess deduction u/s.10B, it would not be a case of failure to disclose fully and truly all materials facts unless certain additional information has come to the notice of the AO subsequent to passing of original assessment order - There is nothing on record to suggest that any new material had come on record on the date of recording the reasons, if no new information had been received by the AO - So it could not be inferred that there is failure on the part of the assessee to disclose material facts - the condition precedent for a valid exercise of the power to reopen the assessment, after a lapse of four years from end of the relevant Assessment Year, is mistake in the present case - An exceptional power has been conferred upon the Revenue to reopen an assessment after a lapse of four years. Under the proviso to section 147, where an assessment has been made u/s.143(3), no action shall be taken under that section after expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by the reason of failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year - This is a jurisdictional requirement which must be fulfilled when the assessment has sought to be reopened beyond four years - The existence of jurisdictional condition must be indicated in the reasons which are furnished to the assessee - The fulfillment of the condition is a pre-requisite and if it is absent, an assessment cannot be reopened beyond four years - The AO cannot improve upon the reasons for reopening assessment or bridge the lacunae later - If reasons disclosed do not indicate fulfillment of jurisdictional requirement, the reopening is invalid - the AO was not legally justified to reopen the assessment u/s.147 of Act on the basis of reasons recorded after expiry of four years under the relevant assessment year the notice issued u/s.148 of Act for assessment years was bad in law and rightly quashed by CIT(A) - the assessment order passed on the basis of invalid reopening of assessment stands rightly annulled Decided against Revenue.

Issues Involved:
1. Legality of reopening the assessment under Section 147 of the Income Tax Act.
2. Justification of reopening the assessment after the expiry of four years.
3. Failure of the assessee to disclose fully and truly all material facts necessary for the assessment.
4. Whether the reopening of assessment was based on a change of opinion.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147 of the Income Tax Act:
The revenue filed an appeal challenging the order of CIT(A) which held that the Assessing Officer was not justified in reopening the assessment under Section 147 of the Income Tax Act. The appeals pertained to the same assessee for different assessment years. The assessment proceedings for A.Y. 2002-03 and A.Y. 2003-04 were reopened under Section 147 and concluded with orders passed on 31.12.2007. However, based on objections raised by the Audit party, the proceedings under Section 147 were again initiated, and notice under Section 148 was issued on 26.03.2009. The CIT(A) decided that the reopening was not justified as the Assessing Officer did not have sufficient reason to believe that income chargeable to tax had escaped assessment.

2. Justification of Reopening the Assessment After the Expiry of Four Years:
The revenue contended that the reopening of the assessment after the expiry of four years was justified under Section 149(b) of the Income Tax Act. However, the Tribunal noted that the notice under Section 148 was issued on 26.03.2009, which was beyond the period of four years from the end of the relevant assessment years. According to the first proviso to Section 147, no action can be taken after the expiry of four years unless the income chargeable to tax has escaped assessment due to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal found that there was no failure on the part of the assessee to disclose material facts necessary for the assessment.

3. Failure of the Assessee to Disclose Fully and Truly All Material Facts Necessary for the Assessment:
The Tribunal analyzed the reasons recorded by the Assessing Officer for reopening the assessment and found that the reasons were silent regarding any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal noted that all material facts, such as unrealized convertible foreign exchange and non-inclusion of processing charges in the total turnover, were duly disclosed by the assessee in the computation of deduction under Section 10B and in Form No.56G filed with the original return of income. The details were available on record at the time of passing the original assessment order and the reassessment order.

4. Whether the Reopening of Assessment was Based on a Change of Opinion:
The Tribunal observed that the reasons recorded for reopening the assessment were based on the same material facts that were available during the original assessment. There was no new information or material that came to the notice of the Assessing Officer subsequent to the passing of the original assessment order. The Tribunal concluded that the reopening of the assessment was based on a change of opinion, which is not permissible under the law.

Conclusion:
The Tribunal upheld the order of the CIT(A) quashing the notice issued under Section 148 and the subsequent assessment orders for both assessment years. The Tribunal held that the Assessing Officer was not justified in reopening the assessment under Section 147 after the expiry of four years as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The appeals filed by the revenue were dismissed.

Pronouncement:
The judgment was pronounced in the open Court on 30.04.2014.

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