2016 (9) TMI 819 - HC - Income Tax

Reopening of assessment - deduction of a loss claimed on account of diminution of value of the derivatives - ascertained liability - Held that - We are far more concerned about the question whether there was full and true disclosure in respect of such a claim. The answer would be available from the reasons recorded by the Assessing Officer itself. These reasons nowhere demonstrate that the assessee had failed to disclose true and full facts. In fact, to the contrary, the reasons would establish that the Assessing Officer was referring to the material already on record to assert that the claim of expenditure of ₹ 1.88 crores was not in tune with the MAT provisions contained under section 115JB of the Act and in particular, explanation 1(c) thereto. Clearly therefore, the Assessing Officer did not have any additional or new material which did not form part of the original assessment proceedings to question the assessee s claim of deduction in this respect. Notice of reopening based on such ground which was issued beyond a period of four years, would therefore not be valid.- Decided in favour of assessee. Claim of deduction under section u/s. 80IA(4)(iv) of the Act in respect to sale of steam to its sister concern - Held that - From the reply of the petitioner, it can be seen that the issue under discussion was precisely whether the petitioner was justified in claiming deduction on sale of steam. In this respect, the petitioner relied on a decision of Delhi bench of the Tribunal and contended that the word power has to be given a meaning which in common parlance means energy and that therefore, steam produced by the petitioner would also be termed as power and therefore, qualify for deduction under section 80IA(4)(iv) of the Act. Undisputedly, the Assessing Officer did not disturb this claim in the final order of assessment. It may be that while doing so, she did not record separate reasons in the order of assessment. This would however be of no consequence as has been held by this Court in case of Gujarat Power Corporation Limited v. Asstt. Commissioner of Income Tax, reported in 2012 (9) TMI 69 - Gujarat High Court . Thus egarding the second ground also, therefore, it can be seen that there was no failure on the part of the petitioner to disclose truly and fully all material facts. In fact, the claim was examined not only in the context of the petitioner s larger deduction under section 80IA(4)(iv) of the Act but, specifically to that portion of the claim which related to the sale of steam. Such ground cannot be reagitated in exercise of power for reassessment, that too beyond the period of four years. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under section 147 of the Income Tax Act, 1961.
2. Treatment of mark to market loss of ?1.88 crores under section 115JB.
3. Eligibility of deduction under section 80IA(4)(iv) for the sale of steam.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment:
The petitioner challenged the notice dated 30.03.2016, issued by the respondent Assessing Officer, for reopening the assessment for the year 2010-11. The reopening was beyond the period of four years from the end of the relevant assessment year. For such reopening to be valid, it must be shown that the income escaped assessment due to the failure of the assessee to disclose fully and truly all material facts. The court emphasized that this requirement is well-settled through various judgments of the Supreme Court and other courts.

2. Treatment of Mark to Market Loss:
The first ground for reopening was the deduction claimed by the petitioner for a mark to market loss of ?1.88 crores. The Assessing Officer contended that this loss was an unascertained liability and should be added back to the income under explanation 1(c) of section 115JB. However, the court noted that the reasons recorded by the Assessing Officer did not demonstrate any failure on the part of the petitioner to disclose true and full facts. The material facts were already on record during the original assessment. Therefore, the notice for reopening on this ground was invalid.

3. Eligibility of Deduction under Section 80IA(4)(iv):
The second ground for reopening was the deduction claimed under section 80IA(4)(iv) for the sale of steam. The Assessing Officer argued that steam is an intermediate product and not eligible for the deduction. The court observed that the petitioner had fully disclosed the facts regarding this claim during the original assessment. The Assessing Officer had raised specific queries about the claim, and the petitioner had provided detailed responses, including references to relevant case law. The court held that there was no failure to disclose material facts, and the claim was examined during the original assessment. Therefore, reopening on this ground was also invalid.

Conclusion:
The court allowed the petition and set aside the impugned notice dated 30.03.2016, stating that the reopening of the assessment was not justified as there was no failure on the part of the petitioner to disclose fully and truly all material facts relevant for the assessment.