2024 (10) TMI 537 - AT - Income Tax

Validity of reassessment proceedings beyond period of four years - undisclosed export incentive and foreign exchange fluctuation - HELD THAT - In the present case the assessment was completed u/s 143(3) accepting the return of income of the assessee. In the return of incomed the assessee has declared export incentive and foreign exchange fluctuation as other income from business in the profit and loss account. Subsequently assessee has again received the notice u/s 154 based on the audit objection that export incentive and foreign exchange requires to be disallowed from the deduction u/s 80IC of the Act was received. After considering the reply no rectification order was passed by the AO u/s 154 of the Act. The assessee has made available all account and record at the time of the original assessment and in the compliance of the notice u/s 154 of the Act then the reopening of assessment after four years is not permissible. There is no new material with the AO after four years that the assessee has escaped assessment. The assessee has disclosed fully or truly all material facts necessary for assessment. The notice issued by the AO is not valid notice. The assessment made by AO is liable to be set aside. We find, from the above discussion, that the AO has wrongly made the assessment u/s 148 of the Act, therefore, addition made by AO and confirmed by the Ld. CIT(A) is here by deleted - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Compliance with statutory conditions and procedures for reassessment.
3. Validity of reassessment proceedings without obtaining valid approval as per Section 151 of the Act.
4. Timeliness of the notice issued for reopening the assessment.
5. Disclosure of material facts necessary for assessment.
6. Deduction claim under Section 80-IC of the Act.
7. Alleged concealment of income and initiation of penalty proceedings.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:

The assessee challenged the reopening of the assessment under Section 147, arguing that it was done without proper jurisdiction and did not meet the requirements of the law. The Tribunal examined whether the conditions for reopening, such as the presence of new tangible material or a failure by the assessee to disclose fully and truly all material facts, were met. It was found that the Assessing Officer (AO) did not have any new material after the original assessment, and the reopening was based on the same facts that were already available. Consequently, the Tribunal held that the reopening was invalid.

2. Compliance with Statutory Conditions and Procedures for Reassessment:

The assessee contended that the reassessment proceedings were conducted without complying with the statutory conditions and procedures prescribed by law. The Tribunal noted that the AO failed to dispose of the objections raised by the assessee against the reopening, which is a mandatory requirement. The Tribunal emphasized that procedural compliance is crucial for the validity of reassessment proceedings, and the failure to adhere to these procedures rendered the reassessment invalid.

3. Validity of Reassessment Proceedings Without Obtaining Valid Approval as per Section 151:

The assessee argued that the reassessment proceedings were initiated without obtaining the necessary approval from the prescribed authority as required under Section 151 of the Act. The Tribunal found merit in this argument, noting that the absence of valid approval undermines the jurisdiction of the AO to reopen the assessment. The Tribunal held that the reassessment proceedings were invalid due to this procedural lapse.

4. Timeliness of the Notice Issued for Reopening the Assessment:

The issue of whether the notice for reopening was issued within the prescribed time limit was also raised. The Tribunal observed that the notice was issued after the expiry of four years from the end of the relevant assessment year. As per the provisions, reassessment cannot be initiated after four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts. The Tribunal concluded that the notice was time-barred and thus invalid.

5. Disclosure of Material Facts Necessary for Assessment:

The assessee maintained that it had fully disclosed all material facts necessary for the assessment during the original proceedings. The Tribunal considered the judgments cited by the assessee, emphasizing that mere production of account books does not amount to full disclosure unless the AO can demonstrate a failure to disclose material facts. The Tribunal found that the assessee had indeed disclosed all necessary facts, and the AO's oversight could not justify reopening the assessment.

6. Deduction Claim under Section 80-IC of the Act:

The AO had disallowed a deduction claimed under Section 80-IC, arguing that the income from export incentives and foreign exchange fluctuation did not qualify for the deduction. The Tribunal examined whether these incomes could be considered as profits derived from the business of the assessee. Citing relevant case law, the Tribunal concluded that such incomes do not qualify for deduction under Section 80-IC, thus upholding the AO's decision on this specific issue.

7. Alleged Concealment of Income and Initiation of Penalty Proceedings:

The AO initiated penalty proceedings under Section 271(1)(c), alleging concealment of income. The Tribunal noted that the basis for penalty was the disallowance of the deduction under Section 80-IC. However, since the reassessment itself was deemed invalid, the penalty proceedings initiated on this basis were also considered unsustainable.

Conclusion:

The Tribunal allowed the appeal of the assessee, setting aside the reassessment order and the additions made therein. The Tribunal emphasized the importance of adhering to statutory requirements and procedures in reassessment proceedings, and the necessity for the AO to have valid grounds and jurisdiction for reopening assessments. The order pronounced in the open court on 09.10.2024, concluded the proceedings in favor of the assessee.