2022 (8) TMI 1094 - HC - Income Tax

Reopening of assessment u/s 147 - Computation of book profit u/s 115JB - loss available was a sum of Rs.50.52 Crores and no book loss or depreciation was available to be deducted under Section 115 JB - HELD THAT - It is a well settled position that in cases of reopening beyond the period of four years from the end of the relevant assessment year, the statutory pre-condition set out in the proviso to Section 147 of the Act must first be complied with prior to invoking the benefit under the Explanations. It is an equally well settled rule of construction that the interpretation of a statutory provision, must be in the sequence in which the sub-sections and clauses are arranged. Thus the construction of Section 147 is relevant and must be appreciated and applied in seriatim. The proviso is placed at the first instance and the Explanations thereafter and this would mean that the statutory condition and burden cast upon the Department by virtue of the first proviso must first be discharged by the officer, before he proceeds to avail benefit of the deeming explanations that follow thereafter. The test would thus be as to whether the disclosure made by the petitioner at the time of original assessment was full and complete. There is no dispute in this regard and all material in regard to the computation of tax under the provisions of MAT were available before the Assessing Authority. The reasons proceed on the basis that the methodology for computation is erroneous which premise, as noticed earlier, does not appear to be correct as the financials disclose the availability of depreciation. In such circumstances, the assumption of jurisdiction under Section 147 is held to be bad in law. Also find force in the submission that there is no allegation in the reason itself to the effect that there has been any incomplete disclosure or false statement made at the time of assessment that would justify the assumption of jurisdiction beyond the period of four years. The petitioner also raises the argument that the impugned proceedings are based on an audit objection though none of the documents on record would evidence this position. However, there is an averment in the affidavit to this effect and the counter filed by the respondent does not specifically deny this. Even on this score and following the settled position that an audit objection does not satisfy the requirement of the Assessing Officer having an independent reason to believe that income has escaped assessment, that too after the elapse of nearly six years from the end of the relevant assessment year, the impugned proceedings are vitiated. - Decided in favour of assessee.

Issues:
1. Assessment of income tax for AY 2012-13 under regular provisions and Minimum Alternate Tax (MAT).
2. Re-assessment proceedings initiated under Section 147 of the Income Tax Act, 1961.
3. Compliance with statutory provisions for re-assessment beyond the four-year period.
4. Jurisdictional validity of re-assessment based on alleged incomplete disclosure.

Analysis:

Issue 1: Assessment of income tax for AY 2012-13 under regular provisions and MAT:
The petitioner, a company assessed to income tax, filed a return for AY 2012-13 disclosing income under regular provisions and MAT. Post-amalgamation, a revised return was filed, adjusting book profit under Section 115JB of the Act. The Assessing Authority passed an order computing income under both provisions, considering adjustments and expenses attributable to exempt income.

Issue 2: Re-assessment proceedings under Section 147:
Re-assessment notice was issued barely 10 days before the expiry of the six-year period, beyond which re-assessment is restricted unless specific conditions are met. The reasons for re-opening the assessment included discrepancies in the computation of book profit under Section 115JB, alleging that no book loss or depreciation was available for deduction.

Issue 3: Compliance with statutory provisions for re-assessment:
The petitioner challenged the re-assessment on the grounds that it was initiated beyond the four-year period without meeting the pre-condition of incomplete disclosure by the assessee at the first instance. The Assessing Officer's jurisdiction to proceed with re-assessment beyond the stipulated time frame was questioned.

Issue 4: Jurisdictional validity of re-assessment based on alleged incomplete disclosure:
The reassessment was found to be based on incorrect assumptions regarding the availability of depreciation and the completeness of the disclosure made during the original assessment. The statutory pre-condition under Section 147, requiring the Officer to establish incomplete disclosure by the assessee, was not met. The re-assessment was deemed invalid due to lack of evidence supporting the alleged incomplete disclosure or false statements.

In conclusion, the High Court allowed the writ petition, quashing the impugned re-assessment proceedings as the jurisdictional validity was not established, and the statutory pre-conditions for re-assessment beyond the four-year period were not met. The court emphasized the importance of full and complete disclosure by the assessee and highlighted the need for the Assessing Officer to discharge the burden of proof before initiating re-assessment proceedings beyond the statutory time frame.

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