2012 (10) TMI 403 - HC - Income Tax

Reopening of assessment u/s 147 - Held that - In the reasons recorded of reopening the assessment AO raised two contentions firstly he contended that certain figures do not match with the Tax Audit Report and secondly that with respect to certain expenditure of R and D double benefits were claimed in the form of depreciation as well as deduction under section 35AB but when the assessee objected to such grounds and pointed out in detail that the claims were valid and that there was no double claims made the AO in the order rejecting the objections went on yet different aspect altogether. We are not commenting on the validity of this new angle sought to be brought in by the Assessing officer. Suffice it to note that the notice for reopening must fail or succeed on the basis of the reasons recorded. If a new ground occurs to the Assessing Officer after he recorded the reasons for reopening of assessment and issued notice for such purpose surely this cannot be a ground to support the notice thus no valid basis for reopening the assessment - in favour of assessee. Non-remission of export sale proceeds - Held that - The assessee had made full disclosure about the claim under section 80HHC including the the sum of Rs.3, 03, 970/- towards the export sale proceeds for which the assessee had also also sought extension. When such material was placed before the AO at the time of original assessment he could have disallowed the same. However by no stretch of imagination it can be said that the assessee failed to fully and truly disclose all material facts. In fact in the original assessment AO scrutinized the claim of the assessee under section 80HHC. Even in the order disposing of the objections the Assessing Officer has nowhere stated that the assessee failed to disclose full facts with respect to such claim - in favour of assessee. Assessee had debited lease equalization amount in the profit loss and account - Held that - Neither in the reasons recorded nor even in the order disposing of the objections of the petitioner the Assessing Officer has been able to demonstrate that the assessee had failed to disclose truly and fully all material facts. On this ground reopening of assessment would not be permissible - in favour of assessee Interest on delayed payment - rate much higher than the prevailing market rate - Excess claim of deduction under section 80IA - Held that - The only disclosure was that the assessee had earned interest income of Rs.3, 03, 48, 973/-. There was no further information available on record that such interest included overdue payment charges at the rate of 24% received from the sister concern viz. Aditya Medisales. Even without the aid of explanation (1) to proviso to section 147 therefore it was perhaps open for the Assessing Officer to contend that there was no true and full disclosure on the part of the assessee in this respect. At any rate by applying such explanation it can be easily gathered that the assessee failed to disclose fully and truly all material facts. Counsel for the petitioner however vehemently contended that these were not primary facts. Only primary fact was that the assessee had earned interest income. We are however of the opinion that in the context of the close connection between the petitioner and Aditya Medisales the fact that the assessee was eligible for deduction under section 80IA the interest income received from the sister concern had relevance to the provisions of section 80IA(10) primary facts were not on record - against assessee.

Issues Involved:
1. Jurisdiction of notice under Section 148 of the Income Tax Act, 1961.
2. Failure to disclose material facts fully and truly.
3. Double deduction claims.
4. Excess claim of deduction under Section 80IA.
5. Non-remission of export sale proceeds.
6. Excess deduction under Section 80HHC.
7. Lease equalization charge.
8. Higher interest rate from sister concern and Section 80IA(10).

Detailed Analysis:

1. Jurisdiction of Notice under Section 148:
The petitioner challenged the notice dated 25.2.2004 issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the year 1997-98. The petitioner argued that the notice was without jurisdiction as there was no failure to disclose all material facts fully and truly.

2. Failure to Disclose Material Facts Fully and Truly:
The petitioner contended that all necessary disclosures were made in the return of income filed. The court examined whether there was any failure on the part of the petitioner to disclose material facts fully and truly, which is a prerequisite for reopening an assessment beyond four years.

3. Double Deduction Claims:
The Assessing Officer (AO) alleged that the petitioner claimed double deductions for R&D expenses. However, the petitioner provided detailed reconciliations showing no double deductions. The court found the reconciliation satisfactory and noted that the AO did not dispute these figures in his order disposing of the objections.

4. Excess Claim of Deduction under Section 80IA:
The AO believed that the petitioner inflated profits by charging a higher interest rate (24%) from a sister concern, Aditya Medisales Ltd., which was more than the market rate (15-18%). This allegedly increased the profits of the Silvasa unit eligible for deduction under Section 80IA. The court found the AO's belief reasonable, noting that the sufficiency of reasons for forming such a belief is not for the court to judge.

5. Non-Remission of Export Sale Proceeds:
The AO contended that Rs.3,03,970/- was not remitted in foreign exchange within the statutory time limit, affecting the deduction under Section 80HHC. The petitioner argued that full disclosure was made, and an extension for remission was sought. The court found that the petitioner had made full disclosure, and the AO did not assert any failure to disclose material facts.

6. Excess Deduction under Section 80HHC:
The AO noted that the petitioner claimed deductions under both Sections 80HHC and 80IA for the same export turnover, which is not permissible. The court found that full facts were presented before the AO, and there was no failure to disclose material facts. Hence, reopening on this ground was not valid.

7. Lease Equalization Charge:
The petitioner explained the lease equalization charge in the profit and loss account, supported by a decision of the Madras High Court. The AO contended that the issue was not examined during the original assessment. The court held that reopening on this ground was not permissible as there was no failure to disclose material facts.

8. Higher Interest Rate from Sister Concern and Section 80IA(10):
The AO alleged that the petitioner charged a higher interest rate (24%) from Aditya Medisales, inflating the profits eligible for deduction under Section 80IA. The court found that the petitioner did not disclose the interest rate or the relationship with Aditya Medisales in the return, which are material facts. Thus, the reopening on this ground was valid.

Conclusion:
The court dismissed the petition, finding that the reopening of assessment on the ground of higher interest rate charged from a sister concern was valid. The other grounds for reopening were found invalid due to full disclosure of material facts by the petitioner. The rule was discharged with no order as to costs, and interim relief was vacated.

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