2010 (6) TMI 66 - HC - Income Tax

Reopening of an assessment u/s 147 Income escapement assessment notice u/s 148 beyond a period of 4 years - failure on the part of the assessee to disclose fully and truly all the material facts The ground which was set out in the notice was that the assessee had in its return of income declared a nil total income after claiming a deduction under Section 80HHC of Rs.3.42 crores. According to the Assessing Officer, the assessee had shown as against the adjusted profit of the business, a loss of Rs.5.29 crores. As the assessee had allegedly incurred a loss on the export business, the Assessing Officer held that it was not entitled to a deduction under Section 80HHC - Held that . There was no failure on the part of the assessee to disclose fully and truly all material facts. The Assessing Officer could not have formed a reason to believe that income has escaped assessment. That apart, there is merit in the contention that in terms of the second proviso to Section 147, the assessment could not have been reopened notice set aside decided in favor of assessee

Summary

Issues:
Challenge to reopening of assessment under Section 147 of the Income Tax Act, 1961 for assessment year 2002-2003 based on failure to disclose material facts necessary for assessment.

Analysis:
1. The petitioner challenged the reopening of assessment for the assessment year 2002-2003 under Section 147 of the Income Tax Act, 1961, beyond the four-year period. The issue revolved around whether there was a failure to disclose all material facts necessary for assessment. The petitioner had initially claimed a nil total income but disclosed a gross total income of Rs. 3.42 crores with a deduction under Section 80HHC. The Assessing Officer alleged a loss on the export business, disallowing the deduction under Section 80HHC. The petitioner contended that it qualified for the deduction as a trader exporter, not a manufacturer exporter.

2. The Assessing Officer's order under Section 143(3) concluded the petitioner was a manufacturer exporter, but the Commissioner (Appeals) determined the petitioner to be a trader exporter after considering a remand report. The Commissioner's order directed the deduction under Section 80HHC as claimed by the assessee. Subsequently, the assessment was sought to be reopened based on the alleged failure to disclose material facts, particularly related to the deduction claimed under Section 80HHC.

3. The petitioner argued that there was a full disclosure of material facts, and the Assessing Officer's acceptance of the petitioner as a trader exporter negated the basis for reopening the assessment. It was contended that the Assessing Officer lacked reason to believe income had escaped assessment, especially since the issue had been addressed and determined in the appellate proceedings. The petitioner relied on the second proviso to Section 147, which prohibits reopening assessments on matters already decided in appeal.

4. The High Court analyzed the facts and found that the petitioner had indeed fully and truly disclosed all material facts necessary for assessment, including details of income, deductions claimed, and profit/loss accounts. The Assessing Officer's initial conclusion as a manufacturer exporter was overturned on appeal, confirming the petitioner's status as a trader exporter eligible for the deduction under Section 80HHC. Therefore, the Court held that the conditions for reopening the assessment beyond four years were not met, as there was no failure to disclose material facts, and the issue had already been addressed in the appellate proceedings.

5. Consequently, the Court allowed the petition, setting aside the notice to reopen the assessment for the assessment year 2002-2003 under Section 148. The judgment emphasized the importance of full disclosure of material facts and the limitations on reopening assessments based on matters already decided in appeal, providing relief to the petitioner in this case.