2015 (9) TMI 334 - HC - Income Tax

Validity of reopening of assessment - as per revenue treatment of service income for the purpose of calculation of deduction u/s 80 HHC was not discussed at any prior stage, and the assessee had made no clear submission in this regard in earlier proceedings - ITAT held that reopening beyond 4 years from the assessment year was bad in law as the assessee has not failed to disclose truly and fully all material facts necessary for assessment - Held that - Separate schedule had been appended with the profit & loss statement showing the service income separately and it had been duly certified by the Auditor s Certificate in the requisite form. The interest on excise duty and the sales tax has been reduced from the said claim and the deduction had been modified and therefore, all the facts had been disclosed and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The assessee had done his duties and it was for the Assessing Officer to draw the correct inference from the primary facts and not the responsibility of the assessee and there was no default on its part and the appeal filed by the revenue was dismissed. The reason for reopening, thus, being merely a change of opinion on account of the subsequent judgment of in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA would not give the Assessing Officer the jurisdiction to reopen as he would, thus, be reviewing his earlier decision which has been held not to be permissible. Similarly, in the absence of allegations that the assessee failed to disclose fully and truly all material facts, the assumption of jurisdiction was not justified. - Decided in favour of assessee

Issues Involved:
1. Reopening of assessment beyond four years.
2. Applicability of Explanation 1 to Section 147.
3. Ignoring Supreme Court decisions.
4. Duty of the assessee to disclose material facts.
5. Applicability of clause (C)(iii) of Explanation 2 to Section 147.

Issue-wise Detailed Analysis:

1. Reopening of Assessment Beyond Four Years:
The primary issue was whether the Income Tax Appellate Tribunal (ITAT) was correct in holding that reopening of assessment beyond four years was invalid as the assessee had disclosed all material facts necessary for assessment. The court noted that the assessee had filed its return on 31.10.2002, claiming deductions under Section 80HHC. The re-assessment proceedings initiated on 31.3.2009 were beyond the four-year period from the end of the relevant assessment year. The court held that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, thus making the reopening invalid.

2. Applicability of Explanation 1 to Section 147:
The court examined whether Explanation 1 to Section 147 was applicable, which deals with the conditions under which income is deemed to have escaped assessment. The court found that the reassessment was based on a subsequent Supreme Court judgment and not on any new tangible material. Therefore, the reopening was merely a change of opinion, which is not permissible under Section 147.

3. Ignoring Supreme Court Decisions:
The revenue argued that ITAT ignored several Supreme Court decisions, including Calcutta Discount Co. Ltd. v. ITO and CIT v. Chidambran Chettiar, which emphasized the duty of the assessee to disclose all material facts. The court found that these cases were not applicable as the assessee had indeed disclosed all relevant facts in the original assessment.

4. Duty of the Assessee to Disclose Material Facts:
The court reiterated that the assessee had disclosed all material facts necessary for assessment. The reassessment was based on a different interpretation of the same facts, which does not constitute a failure to disclose. The court emphasized that it is the duty of the Assessing Officer to draw the correct inferences from the disclosed facts.

5. Applicability of Clause (C)(iii) of Explanation 2 to Section 147:
The court examined whether clause (C)(iii) of Explanation 2 to Section 147, which deals with excessive relief granted under the Act, was applicable. The court held that since the reassessment was based on a change of opinion and not on any new material facts, this clause was not applicable.

Conclusion:
The court concluded that the reassessment proceedings initiated beyond the four-year period were invalid as there was no failure on the part of the assessee to disclose all material facts. The reopening was based on a change of opinion, which is not permissible under Section 147. Consequently, all questions of law were answered against the revenue, and the appeals were dismissed.

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