2017 (7) TMI 1294 - HC - Income Tax

Reopening of assessment - Allowability of deduction under Section 10A on the profits of foreign branches in the case of the three undertakings (Shivalaya unit, Chennai unit and GNR unit) and Allowability of provision for doubtful debts - HELD THAT - Both these issues had been examined by the AO during the original assessment proceedings under Section 143 (3) of the Act. There was neither any failure by the Assessee to disclose the relevant materials nor was there any fresh tangible material to justify the AO's formation of belief that income had escaped assessment. Consequently, the Court is satisfied that the jurisdictional requirement of there having to be a failure by the Assessee to make a full and true disclosure of the material facts relevant for the assessment in terms of the first proviso to Section 147 of the Act is not fulfilled in the present case. Deduction under Section 10A there was a complete disclosure of all the relevant facts for each of the units in respect of which the deduction was claimed. The certificate in Form 56F as prepared by the CA, enclosed the calculations for the deductions claimed. The assessment order also shows that the AO had applied its mind to the issues and after considering the explanation submitted by the Assessee, allowed the deduction. There was no fresh tangible material available with the AO which would justify the formation of the reasons to believe that income had escaped assessment. The mere conclusion that the deduction under Section 10A and 80HHE was wrongly claimed , without anything more, would not satisfy the statutory requirement or be a sufficient justification for reopening the assessment. Alleged failure by the Assessee to add back to its income comprising the provision for doubtful debts, the Court finds that the computation in that regard was furnished by the Assessee as is evident from the documents placed on record in the original assessment proceedings. In the letter addressed by the AO to the Assessee, this aspect was specifically adverted to. The reply by the Assessee also dealt with it. Not possible to accept the Revenue s case that on this aspect there was any failure by the Assessee to make a full and true disclosure of all material facts relevant to the assessment - neither of the reasons on the basis of which the assessment for AY in question was sought to be reopened by the AO are tenable in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Allowability of deduction under Section 10A of the Income Tax Act.
3. Allowability of provision for doubtful debts.
4. Alleged failure by the Assessee to disclose fully and truly all material facts necessary for the assessment.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The Assessee challenged the notice dated 30th March 2010 issued by the AO under Section 148 of the Income Tax Act, proposing to reassess the income for AY 2004-2005 on the grounds that some part of it had escaped assessment. The Court observed that the reopening was based on a mere change of opinion without any fresh tangible material. The Court emphasized that the jurisdictional requirement for reopening an assessment after four years necessitates a failure by the Assessee to make a full and true disclosure of all material facts necessary for the assessment, which was not fulfilled in this case.

2. Allowability of Deduction Under Section 10A of the Income Tax Act:
The AO's reason for reopening the assessment included the alleged wrongful consideration of profits from the Assessee's foreign branches while computing the deduction under Section 10A. The Court noted that there was a complete disclosure of all relevant facts for each unit in respect of which the deduction was claimed, supported by a CA certificate in Form 56F. The AO had examined this issue during the original assessment proceedings, and the matter had also been reviewed by CIT(A) and ITAT. The Court found no fresh tangible material to justify the reopening of the assessment on this aspect.

3. Allowability of Provision for Doubtful Debts:
The AO also questioned the allowability of a provision for doubtful debts amounting to ?29.48 lakhs. The Court highlighted that the Assessee had provided the necessary computation and details during the original assessment proceedings. The AO had specifically addressed this aspect, and the Assessee's reply had dealt with it comprehensively. The Court concluded that there was no failure by the Assessee to make a full and true disclosure of all material facts relevant to the assessment.

4. Alleged Failure by the Assessee to Disclose Fully and Truly All Material Facts Necessary for the Assessment:
The Court observed that the Revenue failed to demonstrate how the Assessee had not disclosed fully and truly all material facts necessary for the assessment. The original assessment was completed under Section 143(3) of the Act after the AO had issued a detailed questionnaire, including queries on the issues now being raised. The Court found that the reopening was based on a mechanical repetition of the statutory language without pointing out any specific failure by the Assessee.

Conclusion:
The Court quashed the impugned notice dated 30th March 2010 and the order dated 19th November 2010 passed by the AO, along with the consequential assessment proceedings. The writ petition was allowed, with no orders as to costs. The Court reiterated that reopening an assessment based on a mere change of opinion without fresh tangible material is impermissible in law.