2022 (8) TMI 1231 - HC - Income Tax

Reopening of assessment u/s 147 - whether Assessment barred by limitation ? - petitioner had claimed deduction under Section 80 IA of the Act, in respect of the profit and gains from infrastructural development - HELD THAT - A perusal of the reasons as extracted above reveal that the officer intends to revisit the issue of allowability of expenditure, in light of his observations on the VGF grant. Without adverting to the veracity or otherwise of the reasons, it would suffice to look into the bar of limitation set out under the provisions of Section 147 itself. Normally an order of reassessment is to be passed within a period of four (4) years from the end of the relevant assessment year. The assessment year in question is 2012-13 and the period of four (4) years would expire on 31.03.2017. However, in cases where the escapement of income as alleged by the respondent is attributable to an incorrect or incomplete disclosure made by the petitioner, the benefit of another two years is granted to the Department to reassess the income that had escaped assessment in the original instance. The notice under Section 148 of the said Act is dated 29.03.2019 and clearly the respondent has availed benefit of the extended limitation. However, upon a reading of the scrutiny order of assessment as well as the reasons for reassessment, it is of categoric view that there is no escapement that has been occasionedby virtue of an incorrect or incomplete disclosure by the petitioner in this case. The reasons for reopening make no reference to any flaw or failing in the disclosures made by the petitioner originally. Neither do they make reference to any material that has come to the notice of the Department post-completion of the scrutiny assessment. The order of assessment passed initially is detailed in its examination of the VGF grant and the allowability of the expenditure claimed. Admittedly, nothing has come to note after framing of assessment, to indicate an incomplete or untrue disclosure by the petitioner, the bar of limitation would apply on all fours to the present case. Since the burden of establishing the satisfaction of the statutory condition set out in the proviso rests fully upon the Department, and such burden has not been discharged in the present case, the impugned proceedings for reassessment fail. The impugned order is set aside and this writ petition allowed.

Summary

Issues:
Challenge to jurisdiction under Section 147 of the Income Tax Act, 1961 based on limitation.

Analysis:
The petitioner, an assessee, challenged the assumption of jurisdiction by the respondent regarding proceedings under Section 147 of the Income Tax Act, 1961, claiming they were time-barred. The petitioner had claimed deduction under Section 80 IA for infrastructural development, specifically in the development of highways in association with NHAI. The agreement allowed the petitioner to use tolls collected for funding ongoing construction activities, known as Viability Gap Funding (VGF).

The initial assessment order under Section 143 (3) examined the petitioner's expenditure claim, seeking clarification from NHAI and passing a considered assessment order. However, a subsequent rectification order under Section 154 corrected errors related to staff cost and operation expenditure. The officer noted the allowability of expenditure twice, during assessment and rectification proceedings.

The reassessment reasons issued in 2019 questioned the funding agreement, claiming no evidence of fund receipt or creation by the assessee. The officer intended to revisit the expenditure's allowability based on VGF grant observations. However, the Court analyzed the limitation period for reassessment, which normally expires four years from the end of the relevant assessment year, extendable by two years for incomplete disclosure. The notice for reassessment in this case was issued within the extended period.

Upon review, the Court found no escapement due to incomplete disclosure by the petitioner, as the initial assessment thoroughly examined the VGF grant and expenditure claim. Since no new material post-assessment indicated incomplete disclosure, the limitation period applied. The Court cited Section 147 of the Income Tax Act, emphasizing that no action can be taken after four years from the end of the relevant assessment year unless there was a failure to disclose material facts. As the Department failed to establish such failure on the petitioner's part, the reassessment proceedings were deemed invalid, and the writ petition was allowed.