2006 (6) TMI 202 - AT - Income Tax

Summary

Issues:
1. Validity of notice under section 148 for reassessment.
2. Treatment of share capital issue expenses.
3. Deduction under section 80HHC for processing charges.

Issue 1: Validity of notice under section 148 for reassessment

The original assessment under section 143(3) determined the total income of the assessee. Subsequently, a notice under section 148 was served on the assessee, leading to reassessment proceedings. The assessee contended that the initiation of proceedings under section 148 was improper, as it was issued after four years from the end of the relevant assessment year. The CIT(A) upheld the notice's validity, citing compliance with section 151 and the absence of objections from the assessee. However, the ITAT Pune-A found that the assessment could not be reopened after four years if all material facts were disclosed during the original assessment. Referring to the case of ICICI Bank Ltd., it was established that the reassessment lacked jurisdiction as no failure to disclose material facts was evident. Consequently, the ITAT set aside the CIT(A)'s order.

Issue 2: Treatment of share capital issue expenses

The assessee claimed share capital issue expenses as revenue expenses instead of capital expenses. The Departmental Representative argued that such expenses were capital in nature, citing precedents. However, the ITAT Pune-A analyzed the facts and submissions. Referring to the ICICI Bank Ltd. case, it was concluded that the assessment could not be reopened if all material facts were disclosed during the original assessment, even if the legal inference drawn was erroneous. As the assessee had provided all relevant details during the original assessment, the reassessment was deemed improper. Therefore, the ITAT set aside the CIT(A)'s order on this issue.

Issue 3: Deduction under section 80HHC for processing charges

Regarding the deduction under section 80HHC for processing charges, the AO included such charges in the total turnover, affecting the deduction claimed by the assessee. The CIT(A) upheld this decision, applying clause (baa) of the Explanation under section 80HHC. The ITAT Pune-A reviewed the case and referred to precedents cited by both parties. Analyzing the facts, it was determined that the processing charges were part of the business income and not subject to the reduction specified in clause (baa). Drawing from the Bangalore Clothing case, it was established that such charges constituted operating income and should be included in the total turnover. Therefore, the ITAT allowed the appeal, directing the inclusion of processing charges in the total turnover and affirming the deduction under section 80HHC.

---