2021 (5) TMI 486 - HC - Income Tax

Reopening of assessment u/s 147 - notice beyond the period of four years as stipulated in Section 147 - excess claim of deduction under Section 10AA - HELD THAT - The provisions of Section 147 prescribe a limitation of four years normally, extended to six years in cases where an order of scrutiny has been passed at the first instance. In addition, the petitioner should have defaulted in filing of the return, or the proceedings for re-assessment should be based on the failure of the petitioner to have made full and true disclosure of income. These conditions are not satisfied in the present case, seeing as the return of the petitioner has, admittedly, been filed within time and the disclosure of the petitioner is also not in question. In fact, the original order passed under Section 143(3) proceeds to examine the claim of exemption under Section 10AA, minutely. No error is pointed out in the returns or annexures filed by the petitioner or any of the details filed at the time of assessment and in such an instance, the proceedings for assessment, initiated beyond a period of four years, is barred by limitation. It appears that the Assessing Officer had lost sight of the issue now raised. Explanation 2(c) to Section 147 will not come to the aide of the relevance as, while the income chargeable has been made subject to excessive relief, the explanation cannot override the statutory prescription of limitation as set out in the proviso to Section 147. The purpose of the Explanation is merely to explain the scope of re-assessment as set out in the statutory provision and not to expand on or tinker with the limitation set out thereunder. - Decided in favour of assessee.

Summary

Issues:
Challenging re-assessment under Section 147 of the Income Tax Act, 1961 for assessment year 2013-14.

Analysis:
The petitioner filed writ petitions challenging the re-assessment proceedings under Section 147 of the Income Tax Act for the assessment year 2013-14. One petition was dismissed as infructuous, while another petition challenged the final order of assessment. The petitioner had initially filed a return of income accompanied by necessary disclosures related to deductions claimed under Section 10AA for its eligible unit engaged in IT-enabled services. The assessment order passed earlier examined the exemption claim in detail, making adjustments to the exemptions claimed.

A notice under Section 148 was issued beyond the prescribed four-year period, prompting the petitioner to seek reasons for the re-assessment proceedings. The reasons provided highlighted an alleged excess claim of deduction under Section 10AA. However, the re-assessment initiated beyond four years needed to adhere to the limitations set out in the proviso to Section 147. These limitations extend to six years in cases where scrutiny has been conducted initially or if there was a failure to disclose income accurately.

In the present case, the conditions for extending the limitation period were not met as the petitioner had filed the return on time and made full disclosure of income. The assessment proceedings initiated beyond four years were deemed barred by limitation as no errors were found in the returns or disclosures made during assessment. The Assessing Officer seemed to have overlooked this issue, leading to the quashing of the impugned order and allowing the petitioner's writ petition.

The court emphasized that Explanation 2(c) to Section 147, relied on by the revenue, could not override the statutory limitation prescribed in the proviso to Section 147. The purpose of the Explanation was merely to clarify the scope of re-assessment without altering the limitation period. Consequently, the impugned order was quashed, and the petitioner's writ petition was allowed. Connected miscellaneous petitions were closed without costs.