2018 (5) TMI 1441 - HC - Income Tax

Reopening of assessment u/s 147 - Original Assessment was made u/s 143(3) after scrutiny - validity of notice beyond the period of 4 -years - disallowance of expenses in relation to the exempt income - Held that - disallowance of expenditure in relation to earning tax exempt income is not valid by AO - reopening of assessment is sought to be made beyond the period of four years - also there being no element of failure of the assessee, disclosing full facts - reopening would not be permissible - Decided in favor of assessee.

Summary

Issues:
Challenging notice to reopen assessment for AY 2010-11 beyond the prescribed time limit, discrepancy in income calculation, validity of reasons recorded by Assessing Officer.

Analysis:

Challenging Notice to Reopen Assessment:
The petitioner challenged a notice issued by the Assistant Commissioner of Income Tax seeking to reopen the assessment for the assessment year 2010-11. The notice was issued beyond the four-year period from the end of the relevant assessment year. The Assessing Officer had recorded reasons for reopening the assessment based on discrepancies in the income declared by the petitioner. The petitioner raised objections to the notice, contending that there was no failure to disclose all material facts. The court examined the validity of the reasons recorded by the Assessing Officer before issuing the notice.

Discrepancy in Income Calculation:
The Assessing Officer had cited three reasons for reopening the assessment. Firstly, regarding the profit from a specific firm, the Assessing Officer calculated an excess income to be added to the petitioner's total income. However, the petitioner provided evidence showing that the income was received from two separate partnership firms, not just one as assumed by the Assessing Officer. Secondly, the Assessing Officer alleged that the petitioner had not declared the full income received from another firm, but the petitioner clarified that the income in question was received in the previous year, not the current year. Lastly, the Assessing Officer sought to disallow certain expenditures related to tax-exempt income, but the court found that the reopening of the assessment beyond the time limit was not permissible in this case.

Validity of Reasons Recorded by Assessing Officer:
The court analyzed each reason recorded by the Assessing Officer and found errors in the assumptions made regarding the petitioner's income. The court concluded that the reasons provided by the Assessing Officer did not justify the reopening of the assessment, especially considering the absence of any failure on the petitioner's part to disclose relevant facts. As a result, the court set aside the impugned notice and disposed of the petition in favor of the petitioner.