2016 (5) TMI 920 - AT - Income Tax

Reopening of assessment - Deduction under section 80IB disallowed for non-submission of audit report in form No.10CCB - Held that - Where the assessee had fully and truly disclosed all the material facts vis- -vis computation of income in its hands, the reassessment proceedings, if any, could be initiated against the assessee within four years from the end of relevant year and where the reassessment proceedings are initiated beyond the period of four years, the same is to be held to be invalid. The records of proceedings in the present case reflect that return of income was filed on 31.10.2003 along with which a note was appended vis- vis its claim of deduction under section 80IB of the Act. The Assessing Officer during the course of original assessment proceedings failed to allow any opportunity to the assessee to furnish the audit report. However, after passing of assessment order under section 143(3) of the Act, dated 30.03.2006, the assessee moved rectification application under section 154 of the Act along with copy of accountant s report in form No.10CCB in respect of its claim of deduction under section 80IB of the Act. The Assessing Officer accepted the contention of assessee and observed that it was a mistake apparent from the record and passed rectification order under section 154 of the Act, dated 28.02.2007 granting deduction under section 80IB of the Act. These proceedings reflect that a mistake which had crept in the order of assessment was acknowledged by the Assessing Officer while passing rectification order. Accordingly, we hold the reassessment proceedings to be invalid both on account of being beyond four years and also on account of change of opinion. Since after adjustment of brought forward losses, the income in the hands of assessee is reduced to Nil, and where the assessee would not be entitled to the benefit of deduction under section 80IB of the Act in the absence of any profits, there is no merit in reassessment proceedings initiated against the assessee. Accordingly, we cancel the same holding the relevant proceedings to be invalid and beyond limitation period prescribed in the Act.- Decided in favour of assessee

Summary

Issues Involved:
1. Jurisdictional issue of invoking jurisdiction under section 147/148 of the Income-tax Act, 1961.
2. Withdrawal of deduction claimed under section 80IB of the Income-tax Act, 1961.

Detailed Analysis:

1. Jurisdictional Issue of Invoking Jurisdiction under Section 147/148 of the Income-tax Act, 1961:

The assessee contested the validity of the notice issued under section 148 read with section 147, arguing that it was issued beyond the permissible period of four years from the end of the relevant assessment year, and thus invalid. The assessee had fully disclosed all material facts in the original return, including a note that no deduction under section 80IB was claimed due to brought forward losses, and indicated that if positive income was determined, the claim for deduction would be submitted. The original assessment under section 143(3) determined a positive income, but the deduction was disallowed due to the absence of the audit report in form No.10CCB. Subsequently, the assessee filed a rectification application under section 154 along with the audit report, and the deduction was granted. The reassessment notice issued on 31.03.2009 was beyond the four-year limit, making it invalid as there was no failure on the part of the assessee to disclose material facts.

2. Withdrawal of Deduction Claimed under Section 80IB of the Income-tax Act, 1961:

The CIT(A) upheld the Assessing Officer's action of initiating reassessment proceedings and withdrawing the deduction under section 80IB on the grounds that the audit report in form No.10CCB was not filed with the original return. The CIT(A) concluded that the reassessment was not a change of opinion but based on incorrect facts due to the failure to submit the mandatory audit report. However, the Tribunal found that the reassessment proceedings were invalid as they were initiated beyond the four-year period and constituted a change of opinion. Additionally, after adjustment of brought forward losses, the income in the hands of the assessee was nil, negating the basis for reassessment.

Conclusion:

The Tribunal held that the reassessment proceedings initiated under section 147/148 were invalid both on account of being beyond the four-year limitation period and constituting a change of opinion. Consequently, the grounds of appeal related to the jurisdictional issue were allowed, and the issue of withdrawal of deduction under section 80IB became academic as the income assessed was nil after adjustment of brought forward losses. The appeal of the assessee was partly allowed.