2014 (4) TMI 423 - AT - Income Tax

Validity of reopening of assessment u/s 148 of the Act assessment year 2002-03 and 2003-04 - Duty to make full disclosure - The decision in Bhor Industries Ltd. vs. ACIT 2003 (2) TMI 8 - BOMBAY High Court and Cadila Healthcare Ltd. vs. DCIT 2010 (5) TMI 570 - Gujarat High Court followed - The duty of the assessee is only to make full and true disclosure of all material facts necessary for the assessment - the act does not required that the assessee should inform the AO as to what legal inference should be drawn from the facts disclosed by him - The assessee cannot gave advise to the AO on question of law the AO has completely failed to ascribe any failure on the part of the assessee to disclose fully and truly material facts - such reason recorded do not clothe him to acquire jurisdiction u/s 147 thus, the order passed u/s 148 is set aside Decided in favour of Assessee. Validity of reopening of assessment u/s 148 of the Act - assessment year 2004-05 - Held that - The assessee company has been allowed deduction u/s10A in respect of three units of IT Division by the AO Section 10A of the Income Tax Act, 1961 provides deduction of such profits & gains as are derived from the eligible activities performed by an undertaking - the deduction allowed u/s 10A, does not form part of the total income, the loss in respect of Section 10A undertaking should also be ignored while computing total income section 10A income is exempt from tax, the loss should also have been ignored, which has not been done - this has resulted in underassessment of income thus, there is reason to believe that income to the extent of Rs,5,62,75,564/- has escaped assessment and it is a fit case for reopening u/s 147 of the Act the materials, prima-facie, are sufficient to acquire jurisdiction u/s 147, because they give rise to reason to believe that the prima-facie assessee s claim for exemption has not been examined properly in the course of the assessment proceedings Decided against Assessee. Disallowance of claim of deduction u/s 10A of the Act Registration not taken for new industrial undertaking Held that - Both the parties had admitted that the matter has to be remitted back to the AO for fresh adjudication decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of re-opening the assessment under section 148.
2. Disallowance of the claim for deduction under section 10A.

Detailed Analysis:

Issue 1: Validity of Re-opening the Assessment under Section 148

Assessment Year 2002-03 and 2003-04:
- The assessee filed returns for the years 2002-03 and 2003-04, claiming deductions under section 10A for Units II and III. The initial assessments were completed under section 143(3), allowing these deductions.
- The assessments were re-opened under section 148 after more than four years from the end of the relevant assessment years, based on the findings from the assessment year 2005-06, where it was discovered that the new units were expansions of an old unit registered in 1992 and not new undertakings.
- The assessee argued that all necessary details were disclosed initially, and no failure to disclose material facts was pointed out by the Assessing Officer in the "reasons recorded" for re-opening.
- The Tribunal held that the re-opening was invalid as the Assessing Officer did not specify any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal cited several case laws supporting the requirement for explicit failure to be mentioned in the "reasons recorded."
- Consequently, the re-opened assessments for 2002-03 and 2003-04 were quashed as void ab initio.

Assessment Year 2004-05:
- The re-opening for the year 2004-05 was done within four years from the end of the relevant assessment year, thus the proviso to section 147 did not apply.
- The Tribunal found that the Assessing Officer had new material facts from the assessment year 2005-06, which provided a valid "reason to believe" that the initial claim under section 10A was not properly examined.
- The Tribunal dismissed the assessee's argument of "change of opinion" and upheld the re-opening of the assessment.

Issue 2: Disallowance of the Claim for Deduction under Section 10A

Assessment Year 2002-03 and 2003-04:
- As the re-opened assessments were quashed, the issue of disallowance of the claim for deduction under section 10A became academic and was not addressed further.

Assessment Year 2004-05:
- The Tribunal noted that the issue of the claim for deduction under section 10A for Units II and III had been remanded to the Assessing Officer for re-examination in the assessment year 2005-06.
- The Tribunal directed the Assessing Officer to re-examine whether Units II and III were independent undertakings or expansions of the existing unit, following the principles laid down in the case of Patni Computers Ltd. and considering the CBDT Circular no.1 of 2013 and Instruction no.3 of 2014.
- The matter was restored to the Assessing Officer for fresh adjudication, and the appeal for the assessment year 2004-05 was partly allowed for statistical purposes.

Conclusion:
The Tribunal quashed the re-opened assessments for the years 2002-03 and 2003-04 due to the failure of the Assessing Officer to specify the assessee's failure to disclose material facts. For the year 2004-05, the re-opening was upheld, and the issue of the claim for deduction under section 10A was remanded to the Assessing Officer for fresh examination.