2021 (12) TMI 57 - HC - Income Tax

Reopening of assessment u/s 147 - Notice after expiry of four years from the end of the relevant Assessment Year - eligibility of reasons to believe - excess deduction allowed to petitioner u/s 33AC - HELD THAT - Reasons disclosed by the Assessing Officer, on the face of it, does not indicate any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. It is settled law that in view of the proviso to Section 147 of the Act no action for re-opening after four years could be taken unless the AO has reason to believe that income has escaped assessment by reason to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Admittedly, the period of four years has expired. Even the reasons do not disclose any finding that petitioner had failed to disclose fully and truly all material facts necessary for assessment. The reasons, in fact shows that the conclusion have been drawn from the case record of assessee itself. The entire reasons proceeds on the basis of perusal of details and on perusal of records . It also says that the assessee has wrongly claimed certain amounts as deducted taxable income which has been accepted by the Assessing Officer. Excess deduction u/s 33AC in respect of the dividend income - Scope of amendment - Deduction under Section 33 AC of the Act as it stood in the relevant year was to be allowed on the basis of total income. The Finance Act, 1995, amended the said provisions with effect from 1st April, 1996 to provide that the deduction is to be allowed at 50% of the profits derived from the business of operation of ships (computed under the head Profits and gains of business or profession before making a deduction under that section). The deduction prior to the amendment was available to the extent of the total income provided the amount was credited to reserve account and was utilised for the purchase of a new ship within the specified period. The circular further goes to state that it was noticed that shipping companies had diversified into other activities and are claiming deduction under Section 33AC of the Act even in respect of their income for the activities other than shipping for which there is no justification. Accordingly, it was decided to amend the provisions with effect from 1st April, 1996 to restrict deduction to 50% of the income derived from the business of operation of ships. Therefore, the fact that petitioner has been allowed a deduction under Section 33AC of the Act in respect of income from dividends, long term capital gains and interest, in our view is no ground for initiating proceedings under Section 148 of the Act. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Justification for reopening the assessment for Assessment Year 1994-95.
3. Compliance with the conditions laid down in Section 147 of the Income Tax Act.
4. The applicability of the amendment to Section 33AC of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 30th November 2000 issued under Section 148 of the Income Tax Act, 1961, arguing that there was no justification for reopening the assessment for the Assessment Year 1994-95. The petitioner contended that no income chargeable to tax had escaped assessment within the meaning of Section 147 of the Act. The court noted that the reasons for reopening, provided in the affidavit in reply, did not indicate any failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. The court emphasized that the power to reopen a completed assessment is an exceptional power and must be strictly complied with, including furnishing the recorded reasons to the assessee when sought for.

2. Justification for reopening the assessment for Assessment Year 1994-95:
The petitioner had filed its return of income for Assessment Year 1994-95, and the assessment was completed on 31st March 1997. The total income was revised to NIL after allowing a deduction under Section 33AC of the Act. The petitioner received a communication on 19th October 2000 from the respondents, questioning the treatment of certain items as income chargeable from other sources. The petitioner explained that the deduction under Section 33AC was correctly claimed based on the law applicable at that time. The court found that the reasons for reopening did not disclose any new material facts that were not already part of the case records, thus invalidating the justification for reopening the assessment.

3. Compliance with the conditions laid down in Section 147 of the Income Tax Act:
The petitioner argued that the conditions for issuing a notice under Section 148, as provided in Section 147, were not met. Specifically, the notice was issued after the expiry of four years from the end of the relevant Assessment Year, and there was no failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. The court agreed with the petitioner, holding that the reasons for reopening did not allege any such failure, and thus the Assessing Officer could not exercise jurisdiction under Section 147 after the four-year period.

4. The applicability of the amendment to Section 33AC of the Income Tax Act:
The petitioner claimed a deduction under Section 33AC for the Assessment Year 1994-95, which was allowed based on the total income. The respondents argued that the deduction should be revised based on the income chargeable under the head "Profits and gains of business or profession." The court noted that Section 33AC, as it stood in 1994-95, allowed a deduction based on total income, and the amendment restricting the deduction to 50% of the profits derived from the business of operation of ships was effective from 1st April 1996. The court concluded that the amendment did not apply to the Assessment Year in question, and the deduction was correctly claimed by the petitioner. The court also referred to Circular No.717 issued by the Central Board of Direct Taxes, which clarified that the deduction prior to the amendment was available to the extent of the total income.

Conclusion:
The court ruled in favor of the petitioner, making the rule absolute in terms of prayer clause (a), which sought to quash and set aside the impugned notice dated 30th November 2000. The petition was disposed of with no order as to costs.

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