2017 (9) TMI 1752 - HC - Income Tax

Validity of Reopening of assessment - Revision petition u/s 264 - eligibility to deduction u/s 10B - Held that - The assessee s claim of deduction u/s 10B was examined minutely by the Assessing Officer. The assessee pointed out that it enjoyed certification under STPI. If the AO was of the opinion that such certification was inadequate and did not substitute for the requirement of approval by the Board appointed by the Government of India, under the Industries (Development and Regulation) Act, 1961, it was always open for the Assessing Officer to examine this issue further or to reject the assessee s claim in its entirety. He however, accepted the claim accepting the assessee s certification as sufficient compliance with the statutory requirements. There was no failure on part of the assessee to disclose necessary facts. Both on the ground of the non failure of assessee to disclose necessary facts and on the ground of scrutiny during original assessment proceedings, notice of reopening on this issue was not permissible. The Assessing Officer as well as the Commissioner both failed to appreciate this legal lacuna in the notice of reopening. As department had pointed out that the return of the assessee for the earlier assessment years were accepted under section 143(1) of the Act without scrutiny. We have therefore, not based our conclusion on the third contention of the petitioner s counsel that being a continuous claim, same could not have been disturbed for the later year without withdrawing the benefits of the initial years of assessment. We leave this question open to be examined in appropriate proceedings, if need so arises. - Decided in favour of assessee

Issues Involved:
1. Validity of the reopening of assessment under Section 147 of the Income Tax Act.
2. Eligibility for deduction under Section 10B of the Income Tax Act.

Detailed Analysis:

1. Validity of the Reopening of Assessment:

The petitioner challenged an order dated 9.3.2017 by the Commissioner of Income Tax, Ahmedabad, which rejected the petitioner's revision petition under Section 264 of the Income Tax Act. The petitioner, a partnership firm engaged in the export of Back Office Operations and computer software, had filed a return of income on 30.10.2007, declaring a total income of ?98,360 and claimed a deduction under Section 10B of the Income Tax Act.

During the scrutiny assessment, the Assessing Officer (AO) raised several questions regarding the petitioner's claim of deduction under Section 10B. The petitioner provided necessary documents and clarifications, including certification from the Software Technology Park of India (STPI) and the Development Commissioner. The AO, after scrutiny, passed the assessment order on 16.12.2009, making a limited disallowance of ?2,45,418 due to the delay in foreign exchange remittance.

Subsequently, the AO issued a notice on 18.3.2014 to reopen the assessment, citing that the petitioner did not enjoy approval from the Board appointed by the Central Government under the Industries (Development and Regulation) Act, 1951, thus disqualifying them from the deduction under Section 10B. The petitioner objected to the reopening but participated in the reassessment proceedings, where the AO disallowed the deduction under Section 10B on the same grounds.

The petitioner argued that the reopening notice was issued beyond the four-year period from the end of the relevant assessment year, with no failure on their part to disclose material facts. The AO had no new material to justify reopening the assessment, making it a case of mere change of opinion. The court noted that the original assessment involved a detailed examination of the deduction claim under Section 10B, with the petitioner providing all necessary documents and clarifications. The AO accepted the claim, making only a minor disallowance. Therefore, the reopening of the assessment was not permissible as it was based on a change of opinion, and there was no failure on the petitioner's part to disclose necessary facts.

2. Eligibility for Deduction under Section 10B:

The petitioner claimed a deduction under Section 10B of the Income Tax Act, asserting compliance with all requirements, including certification from STPI and receipt of foreign exchange remittances within the prescribed period. The AO initially accepted this claim, making a minor disallowance for delayed remittance.

However, in the reassessment, the AO disallowed the deduction, stating that the petitioner did not have approval from the Board appointed by the Central Government under the Industries (Development and Regulation) Act, 1951. The petitioner contended that certification from STPI was sufficient, and the AO's acceptance of the claim during the original assessment should not be disturbed.

The court observed that the AO had thoroughly examined the petitioner's claim during the original assessment, including the certification by STPI and other compliance requirements. The AO's acceptance of the claim indicated that the certification was deemed sufficient. The court concluded that the AO could not reopen the assessment based on a change of opinion and that the petitioner had disclosed all necessary facts.

Conclusion:

The court set aside the impugned order dated 9.3.2017 by the Commissioner, confirming the reassessment order dated 25.3.2015. Consequently, the order of reopening the assessment was invalidated. The petition was allowed and disposed of.

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