2018 (3) TMI 794 - AT - Income Tax

Reopening of assessment - disallowance of deduction u/s.10A - Non independent application of mind by AO - borrowed knowledge - Held that - From a bare perusal of the reasons recorded , first of all, it is noticed that AO has referred to the records which were already available at the time of original assessment and secondly, he has held that deduction u/s.10A should have been disallowed by the Assessing Officer and such a mistake has resulted into incorrect allowance. After ascribing such a failure in the original assessment order, he mentions that escapement of income has been by the reasons of failure on the part of the assessee to disclose full and true all material facts. Nowhere has he brought out even remotely as to what was the failure on the part of the assessee in making the true and full disclosure. Mere stating these words will not suffice. AO has blindly gone by the objections raised by the Revenue s Audit party without his own independent application of mind or the actual verification of the assessment records. We find that the Assessing Officer in the course of the original assessment proceedings had raised the query on deduction u/s.10A to which assessee had duly responded and explained the entire computation and this goes to show that the assessee has disclosed full and true disclosure of all the material facts relevant for the claim of deduction u/s.10A. If AO on perusal of the entire material fact disclosed and after raising a specific query has accepted the computation of the claim, then there cannot be any failure ascribed to the assessee so as to warrant acquiring of jurisdiction for reopening the assessment beyond the period of four years in terms of proviso to Section 147. Here in the reasons recorded the Assessing Officer has simply tried to use the phraseology appearing in the proviso to Section 147, without even actual examination as to what is the actual failure on the part of the assessee. Thus we hold that there is no failure on the part of the assessee in terms of proviso to Section 147, and therefore, the ld. CIT (A) has rightly held that reopening of assessment u/s.147 in terms of aforesaid reasons recorded is unjustified in law. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening of assessment under Section 147 of the Income Tax Act.
2. Deletion of disallowance of deduction under Section 10A amounting to ?2,09,37,331.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:

The Revenue appealed against the order which quashed the reopening of assessment under Section 147. The original return filed by the assessee was processed and scrutinized, resulting in an assessment order allowing the deduction under Section 10A. Subsequently, the assessee's case was reopened under Section 147 based on the reason that freight and insurance on exports were not deducted from the export turnover, leading to an incorrect allowance of the deduction under Section 10A.

The assessee objected to the reopening, arguing it was barred by limitation and constituted a "change of opinion," which is not permissible. The Assessing Officer (AO) rejected these objections, stating that the reopening was within the six-year time limit and that the assessee failed to disclose fully and truly all material facts necessary for the assessment.

The CIT (A) quashed the reopening, noting:
- The AO did not specify what the failure on the part of the assessee was.
- The reassessment was based on information already available in the return and during the original assessment proceedings.
- The assessee had explained the deduction claimed under Section 10A during the original assessment, and the AO had examined this issue.

The Tribunal upheld the CIT (A)'s decision, emphasizing that the AO did not demonstrate any failure by the assessee to disclose material facts fully and truly. The reopening was based on information already available, and the AO did not independently verify the assessment records. The Tribunal concluded that the reopening was unjustified, as the conditions precedent for reopening under Section 147 were not satisfied.

2. Deletion of Disallowance of Deduction under Section 10A:

On the merits, the CIT (A) held that the certificate issued in Form No. 56F/56G by the Chartered Accountant indicated that the freight and insurance were related to the export of computer software. The AO did not verify the nature of these expenses and incorrectly presumed they related to the export turnover of the undertaking eligible for Section 10A deduction.

The Tribunal agreed with the CIT (A), noting that the assessee had provided full disclosure of the computation of the deduction under Section 10A, including the freight and insurance expenses. The AO had accepted this computation during the original assessment. The Tribunal found no failure on the part of the assessee to disclose material facts and upheld the deletion of the disallowance on merits.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decision to quash the reopening of the assessment under Section 147 and to delete the disallowance of the deduction under Section 10A. The Tribunal emphasized that the AO did not demonstrate any failure by the assessee to disclose material facts fully and truly, and the reopening was based on information already available during the original assessment.

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