2017 (5) TMI 685 - HC - Income Tax

Reopening of assessment - addition u/s 14A and 10B - Held that - Deduction claimed by the assessee towards expenses under Section 14A read with Rule 8D was gone into and specifically discussed by the Assessing Officer at the time of framing of the scrutiny assessment. Number of queries came to be raised, and which came to be answered by the assessee. That thereafter, even the Assessing Officer also made a further deduction of ₹ 1 lac. Therefore, the said issue was specifically discussed and gone into by the Assessing Officer at the time of framing the original assessment, which was scrutiny assessment under Section 143 3 of the Act. Under the circumstances, this is a clear case of change of opinion and hence, reopening is bad. It cannot be said that there was any failure on the part of the assessee in disclosing true and correct facts necessary for the assessment. Even with respect to the deduction claimed under Section 10B it is required to be noted that even the said issue was gone in detail by the Assessing Officer. The assessee produced certificate asked by the Assessing Officer and thereafter, the Assessing Officer, after having satisfied with the deduction claimed under Section 10B of the Act, allowed such deduction claimed under Section 10B of the Act. Therefore, there was no failure on the part of the assessee in disclosing true and correct facts. At this stage, it is required to be noted that even in respect of some of the earlier years/previous assessment years, similar deduction under Section 10B of the Act has been allowed in the case of very assessee. At this stage, it is required to be noted that even for A.Y 2008-2009 on the very ground, the assessment was sought to be reopened, which has been set-aside by the Division Bench of this Court Thus there does not appear to be any failure on the part of the assessee in not disclosing true and correct facts. - Decided in favour of assessee.

Issues Involved:
1. Legality of the reopening of the assessment under Section 148 of the Income-tax Act, 1961.
2. Alleged non-disclosure of material facts by the assessee.
3. Validity of disallowance under Section 14A read with Rule 8D of the Income-tax Rules.
4. Eligibility for deduction under Section 10B of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Legality of the Reopening of the Assessment:
The petitioner-assessee challenged the impugned Notice under Section 148 of the Income-tax Act, 1961, seeking to reopen the assessment for the Assessment Year (A.Y) 2010-2011. The court noted that the reopening was initiated beyond the period of four years. According to Section 147 of the Income-tax Act, reopening beyond four years is permissible only if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court held that this condition was not satisfied in the present case, making the reopening legally impermissible.

2. Alleged Non-disclosure of Material Facts by the Assessee:
The Revenue contended that the assessee failed to disclose investment-wise details of dividend income and tax-free interest on bonds, resulting in the escapement of income. However, the court found that the assessee had provided all necessary details during the original assessment proceedings. The Assessing Officer had scrutinized these details, and thus, there was no failure on the part of the assessee to disclose material facts.

3. Validity of Disallowance under Section 14A read with Rule 8D:
The court observed that the issue of disallowance under Section 14A read with Rule 8D was thoroughly examined during the original assessment. Detailed questionnaires were issued, and the assessee provided comprehensive responses. The Assessing Officer made a disallowance of ?1,00,652 under Section 14A read with Rule 8D after considering all relevant details. Therefore, the court concluded that the reopening on this ground was based on a change of opinion, which is not permissible.

4. Eligibility for Deduction under Section 10B:
The Revenue argued that the assessee claimed deduction under Section 10B without fulfilling all eligibility conditions, specifically the requirement of obtaining a certificate from the Board appointed by the Central Government under Section 14 of the Industries Development and Regulation Act, 1951. The court found that the original assessment included a thorough examination of the deduction claimed under Section 10B. The Assessing Officer had verified all necessary documents, including audit reports and Form 56G, and allowed the deduction. The court noted that similar deductions were allowed in previous assessment years without any objections. Hence, the reopening on this ground was also deemed a change of opinion and thus invalid.

Conclusion:
The court concluded that the reopening of the assessment for A.Y 2010-2011 was not justified as it was based on a change of opinion and there was no failure on the part of the assessee to disclose fully and truly all material facts. Consequently, the impugned Notice dated 6th May 2016 issued under Section 148 of the Income-tax Act, 1961, was quashed and set aside, terminating the proceedings for reopening the assessment. The court ruled in favor of the petitioner, with no order as to costs.

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