2019 (12) TMI 698 - HC - Income Tax

Reopening of assessment - claim made u/s 10B - According to the petitioner, date of commencement of manufacture of the product was 01.04.1996 - HELD THAT - It is to be noted at this juncture that though, the relevant provisions u/s 10B (3) prior to amendment made in the year 1999, granted the benefit of deduction for five consecutive assessment years falling within a period of eight years beginning with the Assessment Year relevant to the previous year in which the undertaking begins to manufacture, the AO has granted deduction to the petitioner for continuous nine years till the Assessment Year 2007-08. Therefore, do not think that the Revenue is justified in contending that the petitioner is entitled only for five consecutive assessment years as covered u/s 10B (3), as existed prior to 01.04.1999 and contend that the present claim made by the petitioner is based on any false information. Even otherwise, this Court has to only see that as to whether these two relevant dates referred to at Serial Nos.7 and 8, are factually incorrect, so as to derive a conclusion that the petitioner has not truly and fully disclosed the material facts. As this Court finds that there is no dispute with regard to the date of commencement of manufacture of the product namely 01.04.1996, when the petitioner has chosen to claim direction from the second year onwards, the number of consecutive years for which deduction is claimed referred to at Serial No.8 is certainly the 10th year and therefore, such statement by the petitioner at Serial No.8, cannot be termed as false statement or claim. When such being the position, find that the Assessing Officer is not justified in reopening the assessment in the absence of failure on the part of the assessee to truly and fully disclose the material fact. Reopening is barred by limitation, as the AO has not satisfied that the assessee has failed to disclose the material facts truly and fully. Accordingly, this writ petition is allowed and the impugned order is set aside.

Summary

Issues Involved:
1. Reopening of assessment under Section 148 of the Income Tax Act.
2. Interpretation of Section 10B of the Income Tax Act regarding the eligibility and period for claiming deductions.
3. Alleged failure to disclose true and full material particulars by the petitioner.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148:
The petitioner challenged the reopening of the assessment for the Assessment Year 2007-08, initiated by the respondent through a notice dated 26.03.2013, which was beyond the stipulated period of four years. The petitioner argued that the reopening was unjustified as there was no failure on their part to disclose any details during the original assessment. The court noted that the reopening of the assessment was based on the claim made under Section 10B of the Income Tax Act and whether the petitioner failed to disclose true and full material particulars at the time of filing the original return.

2. Interpretation of Section 10B of the Income Tax Act:
The petitioner, a company engaged in the manufacture and export of computer software, claimed deductions under Section 10B, which provides for a tax holiday benefit. Initially, Section 10B allowed deductions for five consecutive assessment years within a block of eight years. This was amended to ten consecutive assessment years starting from the assessment year relevant to the previous year in which the undertaking began manufacturing. The petitioner claimed the deduction from the Assessment Year 1998-99, interpreting the amendment to allow for ten years of deductions starting from their chosen year within the permissible period. The court noted that the respondent did not dispute the commencement date of manufacture (01.04.1996) but contended that the petitioner wrongly claimed the deduction for the 11th year (Assessment Year 2007-08).

3. Alleged Failure to Disclose True and Full Material Particulars:
The respondent argued that the petitioner did not fully and truly disclose material facts, particularly regarding the eligibility period for claiming deductions under Section 10B. The petitioner countered that all necessary details were provided, and the deduction was claimed based on the law as it stood at the relevant time. The court examined whether the petitioner’s statements about the number of consecutive years for which the deduction was claimed were factually incorrect. It was found that the petitioner’s claim of the 10th year of deduction was consistent with the law and the commencement date of manufacture. The court referenced the case "MBI Kits International Vs. ITO," where it was held that reopening an assessment based on a change of opinion after four years was not permissible.

Conclusion:
The court concluded that the reopening of the assessment was barred by limitation as the Assessing Officer did not demonstrate that the petitioner failed to disclose material facts truly and fully. The petitioner’s interpretation and application of Section 10B were found to be consistent with the law and previously accepted by the Income Tax Department. Consequently, the court allowed the writ petition, setting aside the impugned order, and closed the connected miscellaneous petition.