2016 (10) TMI 547 - HC - Income Tax

Validity of eopening of assessment - deduction issue of section 80IB(10) - Held that - with regard to this deduction issue of section 80IB(10) of the Act, on earlier occasion, the Assessing Officer has thoroughly examined the eligibility aspect of the petitioner. The scrutiny assessment has taken place under section 143(3) of the Act and in final order on 17.02.2006 after considering the material on record, the deduction is made available to the petitioner to the extent of ₹ 1,83,17,435/- and therefore, the deduction issue has been at threadbare level examined by the Assessing Officer in scrutiny assessment. It is also emerging from the record that action which is sought to be initiated is beyond the period of four year and looking to the reasons which have been reflected from page 67 of the petition compilation, the only reason for reopening of assessment is an insertion of explanation to section 80IB(10) of the Act with retrospective effect from 01.04.2001 and reasons indicate that there is no element of any nondisclosure on the part of the petitioner. It is also appearing from the record that in response to the query which has been raised by the respondent authority, the petitioner has provided adequate material related to the development work which was undertaken by the petitioner and the petitioner has tried to justify his claim by furnishing necessary documents including the agreement, profit and loss account as well as audit report. The said material has also been examined in detail in past at the time when scrutiny assessment has taken place Reopening is admittedly beyond the period of four years and there is no element of non disclosure material facts on the part of the petitioner, we are of the opinion that the action impugned is not permissible and therefore, in view of above situation, the impugned action is invalid and we hereby quash and set aside the same and accordingly, the impugned notice dated 12.03.2010 as also the order dated 21.12.2010 are quashed and set aside. - Decided in favour of assessee

Issues Involved:
1. Legality and validity of the notice issued under section 148 of the Income Tax Act, 1961.
2. Rejection of the petitioner's objections to the notice.
3. Retrospective application of the explanation to section 80IB(10) of the Income Tax Act.
4. Alleged non-disclosure of material facts by the petitioner.

Detailed Analysis:

1. Legality and Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the issuance of a notice under section 148 of the Income Tax Act, 1961, dated 12.03.2010, which was issued for reopening the assessment for the assessment year 2003-04. The petitioner argued that the original assessment was completed under section 143(3) on 17.02.2006, where the deduction under section 80IB(10) was thoroughly examined and granted. The reopening notice was issued beyond the period of four years from the end of the relevant assessment year, and the petitioner contended that there was no failure on their part to disclose fully and truly all material facts necessary for assessment.

2. Rejection of the Petitioner's Objections to the Notice:
The petitioner's objections to the notice, submitted on 21.12.2010, were rejected by the respondent authority on the same day. The petitioner had provided detailed information about the development work and supplied necessary documents, including the agreement, profit and loss account, and audit report. Despite this, the objections were rejected, prompting the petitioner to invoke jurisdiction under Article 226 of the Constitution.

3. Retrospective Application of the Explanation to Section 80IB(10) of the Income Tax Act:
The core issue was the retrospective application of the explanation to section 80IB(10) of the Act, inserted by the Finance Act, 2009, with effect from 01.04.2001. The explanation clarified that the deduction under section 80IB(10) is not available to an enterprise executing a housing project as a work contractor for another entity. The petitioner argued that the reopening based on this explanation was not permissible beyond four years, especially in the absence of any non-disclosure of material facts.

4. Alleged Non-Disclosure of Material Facts by the Petitioner:
The respondent authority did not allege any non-disclosure of material facts by the petitioner. The petitioner's counsel emphasized that the reopening of the assessment was solely based on the retrospective explanation to section 80IB(10) and not on any failure to disclose material facts. The court examined the material on record and concluded that the petitioner had disclosed all necessary facts during the original assessment.

Judicial Precedents and Court's Conclusion:
The court referred to several judicial precedents, including the cases of Denish Industries Ltd. v. Income-tax Officer, Sadbhav Engineering Ltd. v. Deputy Commissioner of Income-tax, and Classic Network Ltd. v. Deputy Commissioner of Income-tax, which addressed the issue of retrospective statutory amendments and reopening of assessments beyond four years. These decisions established that reopening based on retrospective amendments is not permissible in the absence of non-disclosure of material facts.

Final Judgment:
The court held that the reopening of the assessment was invalid as it was initiated beyond the period of four years without any element of non-disclosure on the part of the petitioner. Consequently, the impugned notice dated 12.03.2010 and the order dated 21.12.2010 were quashed and set aside. The rule was made absolute to this extent.

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