2012 (4) TMI 378 - HC - Income Tax

Tribunal held that the re-assessment was bad in law and beyond the time for the assessment years 1988-89 to 1990-91 - Held that - the returns filed for the assessment years were in accordance with the provisions of the Act and the technical knowhow fees were also clearly disclosed while arriving at the net profits under the Companies Act as well as in its computation of income filed along with the returns of income-in the absence of any material to revise the assessment by taking recourse to Section 147, the reopening of the assessment was bad in law no ground warranting reopening and there are no materials placed before this Court to disturb the findings of the Tribunal - against revenue Relief under Section 35AB Held that - Definition of paid as appearing under Section 43(2) as referring to amount actually paid or payable according to the method of accounting upon the basis on which the profits and gains are computed under the head of profits and gains in business or profession, the assessee having the account on mercantile basis and hence, allowed the claim on merits - the assessee admittedly maintaining its account on mercantile basis the contention of the assessee on the applicability of the definition of paid , as appearing in Section 43(2) is accepted against revenue.

Summary

Issues:
1. Reopening of assessment and limitation under Section 35AB
2. Relief under Section 35AB and Sections 80HH and 80I
3. Definition of "paid" under Section 43(2) and jurisdiction of reopening

Analysis:

Issue 1: Reopening of assessment and limitation under Section 35AB
The Tax Case Appeals (TCs) before the Madras High Court involved the Revenue appealing regarding assessment years 1988-89, 1989-90, 1990-91, and 1993-94. The primary legal questions revolved around the validity of reassessment and the limitation for reopening the assessment. The Tribunal considered the grounds for reopening the assessment for the years 1988-89 and 1989-90, noting that the same issues had been considered in previous assessment years and found in favor of the assessee. The Tribunal held that the reopening of the assessment was unjustified as the returns were filed in accordance with the law, and the technical knowhow fees were disclosed. The Court upheld the Tribunal's decision, dismissing the Revenue's plea on the jurisdiction of reopening and confirming the deduction under Section 35AB.

Issue 2: Relief under Section 35AB and Sections 80HH and 80I
In the case concerning the assessment year 1990-91, the Commissioner of Income Tax (Appeals) allowed the claim under Section 35AB based on the definition of "paid" under Section 43(2). The Commissioner found that the assessee maintained accounts on a mercantile basis and granted the relief under Section 35AB. Both the Revenue and the assessee appealed to the Tribunal, which upheld the assessee's claim. The High Court affirmed the Tribunal's decision, dismissing the Revenue's appeals on the jurisdiction and applicability of Section 43(2) regarding the relief under Section 35AB.

Issue 3: Definition of "paid" under Section 43(2) and jurisdiction of reopening
Regarding the assessment year 2003-04, the Court referred to a previous decision in favor of the assessee based on the Apex Court's ruling. The Court rejected the Revenue's appeals on the issues of Section 35AB, Sections 80HH, and 80I. The Court applied the precedent and dismissed the Revenue's appeals in this regard. The Court concluded by dismissing the appeals and closing the connected matters.

In conclusion, the High Court of Madras ruled on various issues related to the reopening of assessments, the relief under Section 35AB, and the definitions of "paid" under Section 43(2) in different assessment years. The judgments were based on legal interpretations and precedents, ultimately upholding the decisions made by the Tribunal in favor of the assessee in most instances.