2017 (5) TMI 1163 - HC - Income Tax

Reopening of assessment - claim of deduction under Section 80 IC of a sum inclusive of the interest income earned by the Assessee - reasons to believe - Held that - In the present case the reasons for reopening do not enable a reader to ascertain in what manner the Assessee failed, when the original assessment took place, to make a full and true disclosure of material facts relevant to the assessment. On the contrary a reading of the original assessment order dated 31st March, 2011 reveals that this aspect of deduction being claimed under Section 80 IC was examined by the AO and allowed only after verifying the certificate and other documents in support of such claim. The reasons for reopening the assessment do not satisfy the jurisdictional pre-condition mandated by the first proviso to Section 147 of the Act, viz., to indicate clearly the failure on the part of the Assessee to disclose fully and truly all material facts necessary for the purposes of the assessment for AY 2009-10, the reopening cannot be sustained in law. - Decided in favour of assessee.

Summary

Issues:
Challenging reopening of assessment for AY 2009-10 under Sections 147 and 148 of the Income Tax Act, 1961 based on deduction claim under Section 80 IC.

Analysis:
The petitioner challenged the reopening of the assessment for AY 2009-10, invoking Sections 147 and 148 of the Income Tax Act, 1961, and the subsequent order rejecting objections to the reopening. The reasons for reopening focused on the claim of deduction under Section 80 IC of the Act, specifically related to interest income earned by the Assessee. The AO noted that the interest income of eligible units should have been excluded from the deduction allowed under Section 80 IC, resulting in an excessive deduction. The AO was required to establish a failure on the Assessee's part to disclose all material facts for the assessment, as mandated by the first proviso to Section 147 of the Act.

The Court highlighted the mandatory nature of disclosing all material facts for assessment, as established in previous decisions. The reasons for reopening must clearly indicate the failure to disclose fully and truly all material facts by the Assessee. In this case, the reasons provided did not demonstrate such a failure, as the original assessment order showed that the claim under Section 80 IC was examined and allowed after verification of relevant documents. The Court emphasized that subsequent affidavits or arguments cannot replace the reasons provided for reopening.

The Revenue argued that the reopening was based on an audit objection, citing a Supreme Court decision emphasizing the importance of audit objections in such cases. However, the reasons for reopening in this case did not mention any audit objection, rendering the reopening invalid. The Court concluded that without a clear indication of the failure to disclose material facts, the reopening of the assessment could not be sustained in law. Consequently, the Court allowed the writ petition, setting aside the reopening of the assessment and the order dismissing the objections, with no costs awarded.

In summary, the judgment focused on the necessity of clearly establishing a failure to disclose material facts for assessment purposes when invoking Sections 147 and 148 of the Income Tax Act, 1961. The Court emphasized the importance of providing specific and valid reasons for reopening assessments, highlighting that the failure to do so renders the reopening invalid.