2017 (8) TMI 534 - HC - Income Tax

Reopening of assessment - Reasons for the belief that income has escaped assessment - claim of expenditure in course of trading of crude and refined edible oil on settlement basis as allowable business expenditure - AO held this not an allowable business expenditure but was a speculative loss and therefore not allowable under section 73 - Held that - all these observations and formation of belief by the Assessing Officer are based on documents on record produced by the petitioner along with the return of income. In fact, this issue was examined by the Assessing Officer during the original assessment. Reopening notice set aside - Decided in favour of assessee.

Summary

Issues:
Challenging a notice seeking to reopen assessment for the assessment year 2010-11 based on alleged income escapement due to speculative business losses and sales tax exemptions.

Analysis:
1. The petitioner contested a notice dated 02.12.2016 aiming to reopen the assessment for the assessment year 2010-11, challenging the legitimacy of the reasons provided. The Assessing Officer alleged that the petitioner's claim of a loss of ?12.02 crores was speculative and not allowable under section 73 of the Act. However, the court noted that the material forming the basis of this belief was part of the original return and accompanying documents, indicating no failure to disclose material facts by the petitioner. The Assessing Officer's argument regarding speculative transactions and lack of actual delivery was refuted based on the recorded reasons themselves, which mentioned net settlement basis transactions. Thus, the court found no merit in the reopening based on this ground.

2. The second ground for reopening related to sales tax exemptions of ?29.70 crores received by the petitioner, with a reversal of ?13.99 crores credited in earlier years. The Assessing Officer contended that the petitioner should have already claimed deductions for the reversed amount in previous years and should have recognized the entire sum accrued during the relevant period. However, the court highlighted that these issues were thoroughly examined during the original assessment, as evidenced by detailed submissions made by the petitioner to the Assessing Officer. The court emphasized that all observations and beliefs forming the basis of the reopening were derived from the petitioner's submitted documents and were not indicative of any failure to disclose material facts. Therefore, the court found no justification for reopening the assessment based on this ground.

3. Ultimately, the court set aside the impugned notice dated 02.12.2016, concluding that there was no failure on the part of the petitioner to disclose necessary material facts for assessment. The court did not delve into additional challenges raised by the petitioner regarding the involvement of the audit party in issuing the notice and the amalgamation of the petitioner company, as these were not deemed necessary for the decision. The petition was disposed of in favor of the petitioner, quashing the reopening of the assessment for the assessment year 2010-11.