2018 (8) TMI 1780 - HC - Income Tax

Reopening of assessment - notice has been issued beyond a period of four years from the end of relevant assessment year - treatment given by the assessee to subsidy was that such amount was directly credited to Capital Reserve account by the assessee which resulted into non consideration of such amount for computation of assessee s book profit - Assessee had treated the Government grants as promoter s contribution and credited to Capital Reserve account and treated as part of shareholders funds - HELD THAT - The assessee had treated the Government grants as promoter s contribution and credited to Capital Reserve account and treated as part of shareholders funds. Whatever be the correctness of such accounting treatment the assessee had made the full disclosure about the treatment given to such subsidy and the reason therefore. During the course of assessment proceedings also this aspect had further come to the notice of the AO. Thus not only there was sufficient disclosure in the return filed by the assessee with respect to the entry in question this was also noticed by the AO during the scrutiny assessment. If therefore the Assessing Officer had any doubt or dispute about the manner in which the assessee treated such subsidy it was always open for him and in fact required of him to object then. In any case reopening of assessment beyond a period of four years would not be permissible under such circumstances.- Decided in favour of assessee

Summary

Issues:
Challenge to notice for reopening assessment for the assessment year 2012-2013 based on treatment of subsidy amount in the balance sheet.

Analysis:
The petitioner, a company engaged in infrastructure development, challenged a notice issued by the Assessing Officer to reopen its assessment for the year 2012-2013. The notice was based on the treatment of a capital subsidy received by the company, which was directly credited to the Capital Reserve account in the balance sheet. The Assessing Officer contended that this treatment distorted the computation of the company's book profit under section 115JB of the Act. The petitioner had filed its return declaring a loss, which was scrutinized, and the assessment order was passed. Subsequently, the notice was issued as the subsidy amount was not considered for the book profit calculation. The petitioner raised objections, which were rejected, leading to this petition.

During the scrutiny assessment, the issue of the subsidy treatment had been discussed, and the petitioner had made full disclosures. The Assessing Officer's main objection was the direct crediting of the subsidy to the Capital Reserve account, which he believed affected the book profit computation. However, the petitioner had disclosed the treatment of the subsidy in the return and during assessment proceedings. The petitioner had provided details of the subsidy received, including relevant sanction orders. The court noted that there was sufficient disclosure in the return and the Assessing Officer had the opportunity to object during the scrutiny assessment if there were any doubts about the treatment. Reopening the assessment beyond four years was deemed impermissible under the circumstances.

In conclusion, the court allowed the petition, setting aside the impugned notice for reopening the assessment. The court emphasized that the petitioner had made full disclosures regarding the subsidy treatment, which had been noticed during the scrutiny assessment. The Assessing Officer's objections should have been raised earlier, and reopening the assessment after four years was not permissible in this case.