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2017 (7) TMI 962 - HC - Income TaxReopening of assessment - Reason to believe - earning exempt income but not disallowing any expense under Section 14A of the Act - Held that - As seen that the AY in question is AY 2003-04. During the AY dividend income was not exempt. As regards the other items of exempt income, the Assessee furnished a detailed computation in which it showed that the interest on tax-free bonds was fully furnished. There were queries raised by the AO in this regard which were answered. These were considered by the AO and thereafter the assessment was framed under Section 143 (3) of the Act. In the circumstances, the blanket statement by the AO that the Petitioner failed to disclose all material facts is not supported by any evidence on record. Deduction under Section 10A - Held that - The AO s reason for re-opening is that along with the certificate in Form 56F, which was the certificate of the CA, the working sheet of deduction was not enclosed. That was not a requirement of law. What Form 56F has to be accompanied with is specified under the Income Tax Rules itself. The mere fact that the working sheet may not have been enclosed does not amount to a failure by the Assessee to make a full and true disclosure of all material facts. Consequently, the Court is satisfied that the second reason for re-opening is also unsustainable in law. Deduction under Section 35D - reason given by the AO is that the Assessee did not make a similar deduction for the earlier two AYs i.e., 2001-02 and 2002-03 - Held that - The mere fact that the Assessee may not have claimed such deduction for two of the five years it was entitled to, cannot deprive it of its legitimate claim for such deduction in the AY in question. In an answer to a query raised by the AO in this behalf, the Assessee has explained how in the revised return it included a claim for the said deduction which was inadvertently left out while filing the original return. This was permissible for the Assessee to do. Consequently, even this reason appears to be untenable in law. Payment made by the Assessee for software licence - Held that - AO formed the opinion contrary to what was formed when the original assessment was framed that the deduction claimed was capital expenditure and not revenue expenditure. This was the very ground on which in Commissioner of Income Tax-II v. Maruti Suzuki India Ltd. (2012 (10) TMI 1145 - DELHI HIGH COURT) a re-opening of the assessment was sought to be made. This Court held that such a reason for re-opening was based on a mere change of opinion since all the necessary relevant facts were fully and truly disclosed when the initial assessment proceedings took place. Even here, there was no basis for the AO to form an opinion that the software license expenses were not revenue expenditure but capital expenditure. The question of there being any failure by the Assessee to make full and true disclosure of all material facts in this regard has not even been mentioned by the AO. Even this reason, therefore, is untenable in law. Claim for depreciation on computer peripherals - Held that - This Court in Commissioner of Income Tax v. BSES Yamuna Power Ltd. (2010 (8) TMI 58 - DELHI HIGH COURT) upheld the claim of 60% depreciation on computer peripherals. In the compilation filed before the AO as well as in the tax audit report, the basis of such claim has been clearly set out by the Assessee. There is no indication by the AO in the reasons for re-opening about the failure, if any, by the Assessee to make a full and true disclosure of any material facts. This reason for re-opening also, therefore, is based not on any tangible material but on a mere change of opinion. Failure by the Assessee to furnish the details of payment exceeding ₹ 1 lakh in the course of the original assessment proceedings - Held that - The Court finds that one of the queries raised by the AO in its communication to the Assessee in the course of the assessment proceedings completed under Section 143(3) of the Act was asking it to furnish details of purchases of more than ₹ 1 lakh accompanied by ledger extracts of such persons. In reply thereto, the Assessee pointed out that this involved voluminous records. The AO appears to have not pursued the matter thereafter. Therefore, there was no failure by the Assessee to make a true and full disclosure. Assessee appeal allowed.
Issues Involved:
1. Legitimacy of re-opening assessment under Section 148 of the Income Tax Act, 1961. 2. Requirement of full and true disclosure of all material facts by the Assessee. 3. Validity of reasons provided by the AO for re-opening the assessment. Issue-wise Detailed Analysis: 1. Legitimacy of Re-opening Assessment: The Assessee challenged the notice dated 30th March, 2010, issued under Section 148 of the Income Tax Act, 1961, to re-open the assessment for AY 2003-04. The Assessee argued that since the re-opening was after four years from the end of the relevant AY and the original assessment was completed under Section 143(3), the Revenue needed to show a failure by the Assessee to make a full and true disclosure of all material facts necessary for the assessment. The court emphasized that for re-opening an assessment after four years, the AO must have tangible material to form a belief that income had escaped assessment, and mere change of opinion is insufficient. 2. Requirement of Full and True Disclosure: The Assessee contended that there was no failure to make a full and true disclosure of all material facts. The AO had initially accepted the deductions claimed under Sections 10A and 80HHE after a detailed inquiry. The court noted that the AO must show how the Assessee failed to make a full and true disclosure. A mere reproduction of statutory language without specific details is inadequate. The court found that the AO did not provide sufficient evidence of the Assessee's failure to disclose material facts fully and truly. 3. Validity of Reasons Provided by the AO: The court examined each reason provided by the AO for re-opening the assessment: - Exempt Income and Section 14A: The AO claimed the Assessee did not disallow expenses related to exempt income. The court found that during AY 2003-04, dividend income was not exempt, and the Assessee had provided detailed computations and responses to the AO's queries. The AO's blanket statement lacked evidence. - Deduction under Section 10A: The AO argued that telecommunication charges were not reduced from the total turnover. The court noted that the Assessee had not billed these charges to customers and had debited them to the P&L Account. The AO's reason was based on the absence of a working sheet in Form 56F, which was not a legal requirement. - Deduction under Section 35D: The AO's reason was that the Assessee did not claim this deduction in previous years. The court found that the Assessee had explained the omission in the original return and included it in the revised return, which was permissible. - Software License Payment: The AO considered this a capital expenditure rather than revenue expenditure. The court held that this was a mere change of opinion, as the AO had previously accepted it as revenue expenditure. - Depreciation on Computer Peripherals: The AO claimed the Assessee wrongly claimed 60% depreciation. The court referred to a precedent upholding such claims and found no failure by the Assessee to disclose material facts. - Details of Payments Exceeding ?1 Lakh: The AO alleged the Assessee did not furnish these details. The court noted that the Assessee had indicated the voluminous nature of records, and the AO did not pursue the matter further. Conclusion: The court concluded that the legal requirements for re-opening the assessment were not met. The reasons provided by the AO were either based on a mere change of opinion or lacked tangible material. Consequently, the writ petition was allowed, and the impugned notice dated 30th March, 2010, and the order dated 19th November, 2010, were quashed.
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