2012 (8) TMI 787 - HC - Income Tax

Reopening of assessment - non inclusion of loss from trading goods for calculating of deduction u/s 80HHC - Held that - As on the issue of excess deduction allowed under section 80HHC, the assessee has given his consent for making addition - Close perusal of the reasons recorded would immediately establish that, quite apart from no suggestion in the reasons regarding any attribution on the part of the assessee in fully and truly not disclosing material facts, all facts necessary for framing the assessment with respect to the said issue were very much before the AO when he previously took the return of the assessee for scrutiny assessment. - Decided in favor of assessee. Attempt, on the part of the Assessing Officer to rope in question of deemed dividend under section 2(22) needs to be noted only for rejection out of hand as in view of the settled legal position, if the reopening of assessment fails, on account of non-existence of reasons for such reopening, the Revenue cannot either sustain such reopening or bring within the assessment proceedings any other head of escaped income not mentioned in the reasons for reopening - in favour of assessee.

Issues Involved:
1. Legality of the notice for reopening of assessment.
2. Failure to disclose material facts necessary for assessment.
3. Jurisdiction of the Assessing Officer to reopen the assessment beyond four years.
4. Validity of reasons recorded for reopening the assessment.
5. Inclusion of deemed dividend income in the reassessment.

Detailed Analysis:

1. Legality of the Notice for Reopening of Assessment:
The petitioner-assessee challenged the notice dated March 8, 2010, for reopening of assessment for the assessment year 2004-05. The petitioner contended that the notice was issued long after the scrutiny assessment was framed in 2006 and questioned the legality of such communication on various grounds.

2. Failure to Disclose Material Facts Necessary for Assessment:
The petitioner argued that all facts and materials necessary to decide the claim of deduction under section 80HHC of the Income-tax Act, 1961, were part of the original assessment and were discussed at length by the Assessing Officer. The petitioner contended that there was no failure on its part to disclose fully and truly all material facts necessary for assessment.

3. Jurisdiction of the Assessing Officer to Reopen the Assessment Beyond Four Years:
The court examined whether there was any escapement of income from assessment on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. It was noted that an assessment already framed under section 143(3) of the Act is sought to be reopened after four years of the end of the assessment year. The court referred to the judgment in Dishman Pharmaceuticals and Chemicals Ltd. v. Deputy CIT (OSD) (No. 1), which outlined the principles for reopening an assessment beyond four years.

4. Validity of Reasons Recorded for Reopening the Assessment:
The reasons for reopening the assessment stated that on verification of the records, it was seen that the enhanced figure of profits of business of Rs. 3,84,56,031 was not reduced while giving effect to the order of the Commissioner of Income-tax (Appeals), and the loss from trading goods was ignored for the purpose of calculation of deduction under section 80HHC. This resulted in underassessment to the extent of Rs. 10,24,629. The court found that the reasons recorded did not make out any case of escapement of income from assessment on account of the assessee not disclosing fully and truly all material facts necessary for the assessment.

5. Inclusion of Deemed Dividend Income in the Reassessment:
The Assessing Officer, while disposing of the objections raised by the petitioner, mentioned two issues for reassessment: excess deduction allowed under section 80HHC and deemed dividend in the hands of the assessee-company. The court noted that the second issue of deemed dividend was not part of the reasons recorded for reopening the assessment. The court held that if the reopening of assessment fails on account of non-existence of reasons for such reopening, the Revenue cannot bring within the assessment proceedings any other head of escaped income not mentioned in the reasons for reopening.

Conclusion:
The court concluded that the reopening notice was invalid as the reasons recorded did not suggest any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The court quashed the notice dated September 25, 2009, for reopening of assessment and allowed the writ petition.

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