2021 (7) TMI 84 - AT - Income Tax

Reopening of assessment u/s 147 - notice after 4 years from the end of relevant assessment year - excess claim of 10A deduction - assessee credit in the P L account an amount as excess provision of earlier years written back which was not reduced in the computation of income resulting in excess claim of 10A deduction on the enhanced profit - HELD THAT - In the present case, there was regular original assessment that was completed u/s. 143(3) r.w.s. 144C on 24.1.2012. During the course of original assessment proceedings, deduction u/s. 10A was considered by the AO and granted accordingly. In the reasons recorded, there was no allegation by the AO that there was any failure on the part of assessee to disclose truly and correctly all material facts necessary for assessment. Without any such allegation, the AO in the present case recorded the reason for reopening the assessment. Thus, we are of the opinion that assessment was reopened merely on a change of opinion without any fresh material or any allegation by the AO that assessee failed to disclose truly and correctly all material facts for the purpose of assessment. Thus we hold that the reassessment is bad in law and quash the same. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Excess Provision Written Back
2. Deduction Under Section 10A
3. Initiation of Penalty Proceedings Under Section 271(1)(c)
4. Validity of Reassessment Order

Detailed Analysis:

1. Addition of Excess Provision Written Back
The appellant argued that the CIT(A) erred in upholding the action of the AO in adding back excess provision written back amounting to ?16,300,116 while computing the taxable income. The appellant contended that this provision, which was disallowed under section 40(a)(ia) in earlier years, should be reduced from the income in the year of write-back. However, the CIT(A) upheld the AO's decision, leading to the appellant's grievance.

2. Deduction Under Section 10A
The appellant argued that the CIT(A) failed to appreciate that adding back the excess provision would increase business profit and consequently enhance the deduction under section 10A. The CIT(A) alleged that it was not possible to ascertain the allowability of deduction under section 10A based on the records available, despite the AO mentioning that the excess provision written back pertained to business under section 10A in the assessment order.

3. Initiation of Penalty Proceedings Under Section 271(1)(c)
The appellant contested the CIT(A)'s decision to uphold the AO's initiation of penalty proceedings under section 271(1)(c). However, this ground was not pressed before the Tribunal and was dismissed as not pressed.

4. Validity of Reassessment Order
The appellant raised additional grounds challenging the validity of the reassessment order, arguing that:
- The reasons recorded for reopening did not mention any failure on the part of the assessee to disclose material facts.
- The reassessment was essentially a review based on material already on record, constituting a change of opinion.
- The quantum of deduction under section 10A had already been examined in the original assessment order and could not be re-examined.

The Tribunal admitted these additional grounds for adjudication, relying on the decision of National Thermal Power Co. Ltd. v. CIT.

Tribunal's Findings:
- The Tribunal noted that the original assessment for AY 2008-09 was completed on 24.1.2012, and the notice u/s. 148 was issued on 11.2.2014, after four years from the end of the relevant assessment year.
- The Tribunal emphasized that for reopening an assessment after four years, the AO must mention that there was a failure on the part of the assessee to disclose truly and correctly all material facts necessary for assessment.
- The Tribunal found that the AO reopened the assessment based on a mere change of opinion without any fresh material or allegation of failure to disclose material facts by the assessee.
- The Tribunal relied on several judicial pronouncements, including the Supreme Court's decisions in New Delhi Television v. DCIT and L & T Limited, which held that reopening of assessment beyond four years is invalid if the taxpayer disclosed all facts during the original assessment.
- The Tribunal also referred to the Karnataka High Court's decision in CIT v. Karnataka Bank and the Madras High Court's decision in Sri Shakthi Textiles Ltd. v. JCIT, which emphasized the necessity of indicating the assessee's failure to disclose material facts in the reasons recorded for reopening.

Conclusion:
The Tribunal quashed the reassessment order, holding that it was invalid due to the absence of any allegation of failure to disclose material facts by the assessee and the reopening being based on a mere change of opinion. Consequently, the appeal was allowed, and the other grounds of appeal were not addressed as the reassessment itself was quashed.

Pronounced in the open court on this 23rd day of June, 2021.