2013 (12) TMI 1318 - HC - Income Tax

Validity of reopening of assessment - Held that - The AO has wrongly calculated the deduction u/s 80HHC - He did not examine the issues claimed in regard to various expenses despite the fact that the respondent-assessee had clearly disclosed under the head other income various items of income, which were mentioned in Explanation (baa) - It was a case of remissness on the part of AO or wrong application of law to the primary facts available on record - The assessee had disclosed the material facts and there was no dispute regarding the nature and quantum of other income - When the material facts were available on record, the AO was required to apply the law correctly on the material facts available for assessment - When all materials were disclosed on the basis of which the assessment under Section 143 (3) was completed, and the revised return was treated as non-est, as it was beyond limitation - It could be taken as information only if the AO could form the opinion that the material facts were not placed on record and that the revised return contains those facts which are sufficient to form an opinion that the income had escaped assessment; or that the assessee had understated the income, or claimed excessive loss, deductions, allowance or relief in the return or on any of such grounds under Explanation-2 - Decided against Revenue.

Summary

Issues:
1. Validity of assessment under Section 148
2. Justifiability of re-opening assessment after four years

Analysis:
1. The appeal was filed by the Commissioner of Income Tax against the judgment of the Income Tax Appellate Tribunal regarding the assessment year 1997-98. The respondent-assessee filed a return of income claiming deductions under Sections 80HHC and 80IA of the Income Tax Act. The assessment was initially completed, but a revised return was filed later, leading to a re-assessment notice being issued under Section 148 after four years from the end of the relevant assessment year.

2. The key contention revolved around whether the AO correctly applied the provisions of Section 80HHC and 80IA in the assessment. The AO reduced the deductions claimed by the assessee, but the ITAT found that the AO failed to consider the details of 'other income' disclosed in the schedules annexed to the profit and loss account. The ITAT held that the notice under Section 148 was illegal due to the proviso to Section 147, annulling the assessment made in pursuance of the notice.

3. The appellant argued that the AO had adjusted the deductions under Section 80HHC without considering all relevant aspects, fulfilling the requirements of Explanation-2(c) of Section 147. However, the respondent contended that the schedules forming part of the financial statement provided necessary details, and the AO's failure to consider these details led to an incorrect application of the law.

4. The Tribunal, relying on legal precedents, emphasized the importance of finality in legal proceedings and the need for full and true disclosure of material facts by the assessee. It was held that the AO's failure to correctly apply the law based on the available facts led to the invalidity of the reassessment notice under Section 148 after the lapse of four years from the end of the relevant assessment year.

5. Ultimately, the ITAT's decision to annul the assessment under Section 148 was upheld by the High Court. The Court found that the material facts were on record, and the assessment could not be reopened after the prescribed period. Both questions of law were decided against the revenue and in favor of the assessee, leading to the dismissal of the Income Tax Appeal.