2012 (7) TMI 593 - HC - Income Tax

Reopen the assessment of the petitioner - beyond a period of four years - undisclosed the payment for scientific research made for the research done at the premises of the Mother Dairy New Delhi & the payments made to Delhi University and Nagpur University for which the claim u/s 35(1)9(ii)claimed - Held that - Claim of deduction was at large before the AO as he applied his mind and called upon the petitioner to supply necessary details to substantiate such claims. If thereafter no disallowances were made it cannot be stated that the petitioner failed to disclose all material facts - as along with the return and during the course of assessment proceedings the assessee had made necessary disclosures to substantiate such claims. However having dropped the inquiry at that stage and indirectly having accepted the claims in facts of the case it was thereafter not open to issue a notice for reopening of the entire assessment beyond a period of four years from the end of the relevant assessment year. With respect to payments made to Delhi University and Nagpur University they were duly approved under notification issued under Income Tax Act of 1922 held to be valid for the purpose of successor Act also. Merely because such notifications were not produced on record during the original assessment can hardly be a ground for reopening the assessment beyond a period of four years - decided in favour of assessee.

Summary

Issues Involved:

1. Validity of reopening the assessment beyond four years.
2. Failure to disclose material facts.
3. Deduction claims under sections 35(1)(i), (ii), and (iv) of the Income Tax Act.
4. Payments made to universities and their approval status.

Detailed Analysis:

1. Validity of Reopening the Assessment Beyond Four Years:

The petitioner challenged the notice dated 30.3.2009 for reopening the assessment for the assessment year 2002-03. The assessment was initially completed under section 143(3) of the Income Tax Act, 1961, on 17.3.2005. The reopening notice was issued more than four years after the end of the relevant assessment year. The court emphasized that for reopening an assessment beyond four years, it must be shown that the income escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment.

2. Failure to Disclose Material Facts:

The Assessing Officer (AO) believed that the income chargeable to tax had escaped assessment due to the assessee's failure to disclose material facts. The AO cited two reasons:
- Payments for scientific research conducted at Mother Dairy, New Delhi, were claimed under sections 35(1)(i) and 35(1)(iv) without supporting evidence.
- Payments made to Delhi University and Nagpur University lacked proof of approval under Rule 5C and 5E as required under section 35(1)(ii).

The petitioner contended that all material facts were disclosed during the original assessment, including details of research and development expenditure and payments to universities.

3. Deduction Claims under Sections 35(1)(i), (ii), and (iv):

The petitioner claimed deductions for research and development expenses under sections 35(1)(i), (ii), and (iv). During the original assessment, the AO raised queries regarding laboratory and research expenses, and the petitioner provided the necessary documents. The AO did not make any disallowances for these claims in the final assessment order. The court noted that the AO had the opportunity to scrutinize these claims during the original assessment and chose not to disallow them, indicating that the claims were accepted.

4. Payments Made to Universities and Their Approval Status:

The petitioner claimed deductions for payments made to Delhi University and Nagpur University under section 35(1)(ii). The petitioner argued that these universities were approved under the Income Tax Act of 1922, and such approval was valid under the Income Tax Act, 1961, by virtue of section 297(2)(k). The court found that the universities were duly approved, and the AO could have asked for such notifications during the original assessment if there were any doubts.

Conclusion:

The court concluded that the petitioner had disclosed all material facts necessary for the assessment during the original proceedings. The AO had examined the claims and made no disallowances. Reopening the assessment beyond four years on the same grounds was not justified. The notice dated 30.3.2009 was quashed, and the rule was made absolute with no order as to costs.