2015 (12) TMI 1242 - AT - Income Tax

Validity of reopening u/s.148 beyond 4 years - disallowance of royalty payment and recomputation u/s.80HHC - Held that - Reopening is permitted only if the AO has the satisfaction that the income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to make a return u/s.139 or in response to a notice issued under sec.142(1) or sec.148 or to disclose fully and truly all material facts necessary for the purpose of assessment, as held by the Madras High Court in the case of CIT v. Eco Media (P) Ltd. (2012 (6) TMI 385 - MADRAS HIGH COURT ). Further, there was no finding by the AO to record anywhere his satisfaction to believe that income chargeable to tax had escaped assessment on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. Notice u/s.148 of the Act was issued beyond the period of 4 yeqrs from the end of the relevant assessment year is wholly unsustainable as held by the Jurisdictional High Court in the case of CIT v. Schwing Stetter India P. Ltd. (2015 (6) TMI 497 - MADRAS HIGH COURT ). The same view was fortified by the judgment of the Supreme Court in the case of CIT v. Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA ). Being so, when the AO framed the original assessment u/s.143(3) of the Act after considering the materials on record and when there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment in all the issues raised by the AO for the purpose of reopening of assessment, notice u/s.148 of the Act along with consequential proceedings are to be quashed. - Decided in favour of assessee.

Summary

Issues:
Reopening of assessment beyond 4 years | Validity of reopening u/s.148 | Failure to disclose all material facts | Disallowance of royalty payment | Re-working deduction u/s.80HHC | Escapement of income | Underassessment of taxable income | Non-deduction of TDS on royalty payments | Exclusion of non-business income for deduction u/s.80HHC | Change of opinion doctrine

Analysis:

Reopening of Assessment Beyond 4 Years:
The appeal pertains to the assessment year 1997-98 where the assessee contested the reopening of assessment u/s.147 beyond the permissible 4-year limit. The Tribunal noted that the original assessment was completed u/s.143(3) in 2000, and the Assessing Officer considered issues like royalty payment and deduction u/s.80HHC during the initial assessment. The Tribunal held that since there was no failure on the part of the assessee to disclose material facts, the notice u/s.148 issued beyond 4 years was unsustainable. Citing precedents, the Tribunal quashed the reassessment, emphasizing the importance of the assessee's duty to disclose all material facts fully and truly for assessment purposes.

Validity of Reopening u/s.148:
The crux of the dispute revolved around the validity of reopening u/s.148 of the Act. The assessee argued that the reassessment was barred by limitation as the original assessment was completed u/s.143(3) without any failure to disclose material facts. The Tribunal analyzed the provisions of sec.147 regarding escapement of income, emphasizing the importance of assessing income accurately. The Assessing Officer's satisfaction that income had escaped assessment due to the assessee's failure to disclose fully and truly all material facts was crucial for a valid reopening. Lack of such finding led the Tribunal to quash the reassessment, citing relevant case laws to support its decision.

Disallowance of Royalty Payment and Re-working Deduction u/s.80HHC:
The Tribunal delved into the specific issues of disallowance of royalty payment and reworking deduction u/s.80HHC. The Assessing Officer had not disallowed royalty payments or excluded non-business income for deduction u/s.80HHC during the original assessment. The Tribunal noted that these issues were not considered previously and were raised only during the reassessment, justifying the reopening based on underassessment of taxable income. The Tribunal upheld the Assessing Officer's actions in disallowing royalty payments and reworking the deduction u/s.80HHC, emphasizing that these issues were not part of the original assessment.

Change of Opinion Doctrine:
The Tribunal addressed the concept of "change of opinion" in assessing the validity of the reassessment. The ld. DR argued that the issues of non-deduction of TDS on royalty payments and exclusion of non-business income were never considered during the original assessment, thus the reassessment was not a change of opinion but a valid exercise. Citing relevant case laws, the ld. DR emphasized that when an issue was not discussed or considered during the original assessment, there could be no question of change of opinion. The Tribunal concurred with this argument, supporting the reassessment based on new issues not previously addressed.

In conclusion, the Tribunal allowed the appeal filed by the assessee, quashing the reassessment due to the unsustainable nature of the reopening beyond the 4-year limit and the absence of failure to disclose material facts. The detailed analysis of the issues surrounding the validity of reopening, disallowance of royalty payment, reworking deduction u/s.80HHC, and the application of the change of opinion doctrine provided a comprehensive understanding of the Tribunal's decision in this case.