2016 (1) TMI 786 - HC - Income Tax

Reopening of assessment - additions made during the course of the original assessment by applying arm s length price u/s.92-C would not qualify for deduction under section 10-A - Held that - Nowhere the Assessing Officer had recorded that excess deduction was granted to the petitioner due to failure on the part of the assessee to disclose truly and fully all necessary material facts, a prime requirement under the provisions of section 147 of the Act which enables the Assessing Officer to reopen an assessment previously framed after scrutiny beyond the period of four years of the assessment order. If at all it was an error on the part of the Assessing Officer to grant larger relief than what was justified under the legal provisions. At any rate, this would not be a ground for reopening an assessment beyond four years. There were multiple other remedies available to the revenue to exercise within the time frame provided under the statute, but to reopen an assessment beyond the period of four years of the assessment order was simply not one of them since the requirement of such income chargeable to tax having escaped assessment must be relateable to the failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment.- Decided in favour of assessee. Disallowance of expenditures in the form of telecommunication charges, freight and insurance could not be formed part of export turn over - Held that - In the return filed the assessee had pointed out to the Assessing Officer that for computing export turn over, telecommunication charges for export of computer software were not considered as telecommunication expenses. The same are fixed in nature and not incurred specifically for export of software. However, in case such expenses are reduced for the purpose of computing export turn over, the same are also to be reduced from the computation of total turn over. In other words, according to the assessee, if such charges were to be eliminated from the denominator of the ratio by which profit of business is to be multiplied for computing the exemption under section 10-A of the Act, the same would also be eliminated from the denominator. Whatever be the validity of the petitioner s such contention, surely, the petitioner cannot be stated to have not disclosed truly and fully all material facts. Quite apart from this conclusion, we notice that under communication dated 26.12.2011 to the Assessing Officer, the assessee had given detailed clarification regarding the telecommunication expenses and freight and insurance charges. Thus, not only in the original return filed the assessee had made full disclosures, this issue was examined by the Assessing officer during the original assessment for which the assessee had given written explanation. Any permission now to the Assessing Officer to re-examine the question would be allowing him to change the opinion originally framed. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice seeking to reopen assessment for Assessment Year 2008-09.
2. Whether income chargeable to tax had escaped assessment due to failure to disclose material facts.

Analysis:
1. The petitioner challenged a notice dated 18.11.2014 seeking to reopen the assessment for the Assessment Year 2008-09. The Assessing Officer sought to reopen the assessment based on discrepancies in the original assessment, particularly related to deductions under section 10A of the Income-tax Act, 1961. The petitioner objected to the notice, arguing that it was issued beyond the four-year period from the original assessment order and that there was no failure on their part to disclose all material facts during the original assessment.

2. The Assessing Officer had two main reasons for reopening the assessment. Firstly, an addition was made to the business income of the assessee under arm's length pricing, which, according to the Assessing Officer, did not qualify for deduction under section 10A. Secondly, certain expenditures were included in the export turnover for exemption under section 10A, which the Assessing Officer believed should not have been included, resulting in excess deduction being granted. The petitioner contended that all necessary facts were disclosed during the original assessment, and any errors made were on the part of the Assessing Officer.

3. The court examined the reasons provided by the Assessing Officer and the petitioner's responses. It was noted that the petitioner had disclosed detailed computations and explanations regarding the deductions under section 10A in the return filed and in subsequent communications with the Assessing Officer. The court concluded that there was no failure on the part of the petitioner to disclose all material facts, and the Assessing Officer's attempt to reopen the assessment was deemed invalid. The court quashed the impugned notice, ruling in favor of the petitioner.

In conclusion, the court invalidated the notice seeking to reopen the assessment for the Assessment Year 2008-09, emphasizing that the petitioner had fully disclosed all material facts during the original assessment. The court highlighted that errors made by the Assessing Officer did not constitute a failure on the part of the petitioner, and therefore, the attempt to reopen the assessment was not justified.