2013 (12) TMI 1725 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notice u/s 148 of the Act.
2. Reopening of assessment beyond four years.
3. Full and true disclosure of material facts by the assessee.
4. Computation of "profits of the business" for deduction u/s 80HHC.

Summary:

1. Validity of notice u/s 148 of the Act:
The assessee challenged the validity of the notice issued u/s 148, arguing it was issued after four years from the end of the relevant assessment year, and the original assessment was made u/s 143(3). The assessee contended that the notice's validity depended on the fulfillment of conditions prescribed in the first proviso to section 147, which requires a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

2. Reopening of assessment beyond four years:
The Tribunal noted that the reasons recorded by the Assessing Officer (AO) for reopening the assessment did not contain any averment that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Citing the judgment of the Hon'ble Bombay High Court in Titanor Components Ltd. vs. ACIT, it was held that the absence of such an averment rendered the initiation of proceedings u/s 147 legally infirm.

3. Full and true disclosure of material facts by the assessee:
The Tribunal found that the assessee had made a full and true disclosure of all material facts in relation to the assessment, including the computation of income and the claim for deduction u/s 80HHC. The AO had duly applied his mind to the issue during the original assessment proceedings, as evidenced by the detailed records and the Chartered Accountant's certificate in Form No. 10CCAC.

4. Computation of "profits of the business" for deduction u/s 80HHC:
The issue revolved around the determination of "profits of the business" as defined in Explanation (baa) to section 80HHC. The AO's action of excluding 90% of Rs. 98,43,701/- from the "profits of the business" was contested. The Tribunal concluded that the assessee had disclosed all material facts fully and truly, and the AO had applied his mind during the original assessment. Therefore, even if a wrong claim was allowed, it could not justify reopening u/s 147 as there was no withholding of material facts by the assessee.

Conclusion:
The Tribunal held that the initiation of proceedings u/s 147 was bad in law due to the absence of failure on the part of the assessee to disclose fully and truly all material facts. Consequently, the assessment was annulled, and the appeal of the assessee was allowed.