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2014 (11) TMI 103 - AT - Income TaxReopening of assessment u/s 147 Notice issued beyond four years - Held that - The AO has issued the impugned notice u/s 148 of the Act with a view to examine the nature of export incentives shown by the assessee company - the income chargeable to tax had escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that AY in Hindustan Lever Ltd. v. R B Wadkar, Asst. CIT 2004 (2) TMI 41 - BOMBAY High Court - the proviso to section 147 comes to the aid of the appellant and would render the issue of notice u/s 148 after the expiry of 04 years as void and illegal - assessment was reopened after expiry of four years from the end of the relevant assessment year i.e. AY 2001-02 - As per proviso to section 147 of the Act, the assessment can only be reopened after the period of four years from the end of the relevant assessment year, if the AO makes out a case that the income chargeable to tax has escaped assessment for such assessment year by the reason of failure on the part of the assessee either to make a return under section 139 of the Act or in response to notice under sub-section (1) of section 142 of the Act or 148 of the Act or to disclose fully and truly all material facts necessary for its assessment for that AY. The assessment was sought to be reopened on the basis of the amendment brought in section 80HHC of the Act by Taxation Law (Amendment) Act, 2005 whereas the assessment was completed under section 143(3) of the Act on 19.7.2002 on the return filed on 31.10.2001 - at the time of filing the return, assessee cannot anticipate or visualize any future amendment which can be formed to be the basis for reopening assessment on the ground that income has escaped assessment by the reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment - reopening on the basis of the amendment after a period of four years from the end of the AY is not possible the order of the CIT(A) is upheld - Decided against revenue. Reopening of assessment u/s 147 - Assessment was reopened after expiry of four years - Held that - The AO has rejected contentions of the assessee with regard to the validity of the reopening of assessment on the ground that the assessment was reopened after expiry of four years from the end of the assessment year - proviso to section 147 of the Act would not apply, but as decided in Avani Exports vs. CIT 2012 (7) TMI 190 - GUJARAT HIGH COURT - through which retrospective amendment was quashed, the assessment cannot be reopened on the basis of the said retrospective amendment - Since the basis for reopening of the assessment has been quashed, the issue of reopening either before or after four years from the end of the relevant assessment year becomes irrelevant - reopening, on the basis of the retrospective amendment of section 80HHC of the Act by the Taxation Law (Amendment) Act, 2005, is illegal and the assessment framed consequent thereto is also illegal and deserves to be annulled thus, the order of the CIT(A) is upheld Decided against revenue. Allowability of deduction u/s 80HHC Held that - The assessee was asked to produce grant of extension of time, but no evidence has been furnished in this regard by the ld. counsel for the assessee - in the absence of any evidence with regard to the extension of time, the contention of the assessee cannot be accepted that time was extended for realization of the amount - the findings of the CIT(A) is set aside and the order of the AO is restored that the unrealized amount do not qualify for deduction u/s 80HHC of the Act.
Issues Involved:
1. Validity of reopening assessments under section 147/143(3) of the Income Tax Act, 1961. 2. Admissibility of additional grounds during appellate proceedings. 3. Deduction under section 80HHC of the Income Tax Act, 1961. 4. Disallowance of expenses and additions on various accounts. Issue-wise Detailed Analysis: 1. Validity of Reopening Assessments under Section 147/143(3) of the Income Tax Act, 1961: The Revenue challenged the orders of the Commissioner of Income Tax (Appeals) [CIT(A)] annulling the assessments under section 147/143(3) on various grounds. The primary contention was that the CIT(A) erred in law and on facts in annulling the assessments without appreciating the facts and circumstances brought on record by the Assessing Officer (AO). The CIT(A) annulled the assessments on the ground that the reopening was done after four years from the end of the relevant assessment year without any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal upheld the CIT(A)'s decision, emphasizing that the reopening based on retrospective amendments after four years is not permissible unless there is a failure on the part of the assessee to disclose all material facts. The Tribunal referred to various judgments, including the Hon'ble Gujarat High Court's decision in Avani Exports vs. CIT, which quashed the retrospective amendment to section 80HHC. 2. Admissibility of Additional Grounds During Appellate Proceedings: The Revenue argued that the CIT(A) erred in admitting additional grounds during appellate proceedings without giving specific findings on their admissibility. However, this issue became moot as the Tribunal upheld the CIT(A)'s annulment of the assessments based on the primary issue of the invalidity of reopening the assessments. 3. Deduction under Section 80HHC of the Income Tax Act, 1961: The Revenue contended that the CIT(A) erred in allowing deductions under section 80HHC despite the retrospective amendment brought by the Taxation Law (Amendment) Act, 2005. The Tribunal, however, upheld the CIT(A)'s decision, citing the Hon'ble Gujarat High Court's judgment in Avani Exports vs. CIT, which quashed the retrospective amendment. The Tribunal held that the reopening of assessments based on the retrospective amendment is illegal, and the assessments framed consequent thereto deserve to be annulled. 4. Disallowance of Expenses and Additions on Various Accounts: - Unrealized Export Sale Proceeds: The Tribunal set aside the CIT(A)'s findings regarding the extension of time for the realization of export sale proceeds, as no evidence was provided to support the extension. The Tribunal restored the AO's decision that the unrealized amount does not qualify for deduction under section 80HHC. - Ad hoc Disallowances: The Tribunal upheld the CIT(A)'s decision to reduce ad hoc disallowances on account of fall in gross profit, car and telephone expenses, and other miscellaneous expenses. The Tribunal found no infirmity in the CIT(A)'s reduction of these disallowances. - Interest on Unsecured Loans: The Tribunal upheld the CIT(A)'s deletion of the disallowance of interest on unsecured loans, noting that the assessee had sufficient interest-free funds to cover the investment in the purchase of land and construction of the factory building. - Capital Expenditure: The Tribunal upheld the CIT(A)'s decision to treat the expenditure on the purchase of knives and blades as revenue expenditure, as these were consumable items necessary for the assessee's business operations. Conclusion: The Tribunal dismissed the Revenue's appeals and upheld the CIT(A)'s annulment of the assessments based on the invalidity of reopening the assessments under section 147/143(3) of the Income Tax Act, 1961, due to the retrospective amendment to section 80HHC being quashed by the Hon'ble Gujarat High Court. The Tribunal also upheld the CIT(A)'s decisions on various disallowances and deductions, finding no merit in the Revenue's contentions.
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