2017 (2) TMI 337 - HC - Income Tax

Reopening of assessment - assessee debited an amount under the head interest and finance charges on account of loan as in order to expand the business in USA, the company had established a step down subsidiary in USA. Held that - As from the reasons recorded, it appears that according to the Assessing Officer, the expenditure was incurred to establish a subsidiary in USA, and therefore, such expenditure was covered under Section 35D 1 (ii) of the I.T Act, and therefore, only 1/5th of the expenditure ie., ₹ 47,23,722/- was required to be allowed. Instead, the entire amount claimed by the assessee ie., ₹ 2,36,18,612/- is allowed to be debited. Therefore, according to the Assessing Officer, his predecessor has wrongly allowed the entire amount of ₹ 2,36,18,612/- to be debited under the head Interest and Finance charges . In the reasons recorded, it is specifically observed by the Assessing Officer that, ..On observation of the assessment records, meaning thereby, while issuing notice, the subsequent Assessing Officer did consider the material which was already on the record, which was considered by the Assessing Officer, while framing the scrutiny assessment under Section 143 of the Act. As observed hereinabove, even there is no allegation in the reasons recorded that there was any failure on the part of the assessee in not disclosing true and correct facts necessary for the assessment. - Reopening order unsustainable - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening assessment under Section 148 of the Income-tax Act, 1961 for Assessment Year 2009-2010 beyond the four-year period.

Analysis:
The petitioner, an assessee, filed a return of income for A.Y 2009-2010 and claimed interest and finance charges as business expenditure related to establishing a subsidiary in the U.S.A. The Assessing Officer accepted this claim during the original assessment. However, after more than four years, the Assessing Officer issued a notice under Section 148 to reopen the assessment, alleging that income had escaped assessment. The petitioner objected, arguing that there was no failure in disclosing facts, as the claim was duly considered in the original assessment. The Assessing Officer disagreed with the objections, leading to the present writ petition under Article 226 of the Constitution of India.

The petitioner contended that the reopening of assessment beyond four years was unjustified and against the provisions of Section 147 of the Act. The Assessing Officer's decision to reopen the assessment was challenged on the grounds that there was no failure on the part of the assessee in disclosing true facts, and the claim had been appropriately considered during the original assessment. The petitioner relied on a previous court decision to support their argument to quash the reopening of assessment proceedings.

The Revenue argued that since only 1/5th of the claimed expenditure was allowable under Section 35D [1](ii) of the Act, the Assessing Officer was justified in reopening the assessment to address the alleged escapement of income. However, the court noted that the reasons recorded for reopening did not establish any failure on the part of the assessee in disclosing relevant facts. The court emphasized that the conditions precedent for reopening beyond four years, as per the proviso to Section 147, were not met, rendering the reopening of assessment invalid.

The court held that the Assessing Officer erred in assuming jurisdiction to reopen the assessment for A.Y 2009-2010 beyond the four-year period without establishing any failure in disclosing facts. Consequently, the impugned notice and re-assessment proceedings were quashed and set aside. The court ruled in favor of the petitioner, highlighting the lack of justification for reopening the assessment beyond the stipulated period.

In conclusion, the court found the notice dated 31st March 2016, reopening the assessment for A.Y 2009-2010, to be invalid due to the absence of grounds for reopening assessment beyond the four-year limit. The court quashed the notice and ruled in favor of the petitioner, emphasizing the importance of meeting the statutory conditions for reopening assessments under the Income-tax Act, 1961.