2017 (9) TMI 174 - HC - Income Tax

Reopening of assessment - reason to believe - sum received by the assessee company by way of remuneration as a partner of one Zydus Healthcare, Sikkim - assessee claimed that the said income was exempt in terms of section 28(v) - nature of income - Held that - Two things immediately become clear. First is that, there was no failure on the part of the assessee to disclose the relevant facts truly and fully. The claim was made in the return with full disclosures in the statement of income and the accounts maintained by the assessee. The fact that the claim was supported by an addendum in the partnership deed was pointedly brought to the notice of the Assessing Officer in reply to the queries raised by him. There was thus, true and full disclosure of all material facts. The second thing is that this very issue with all its elements had come up for consideration before the Assessing Officer during the original assessment for this very assessment year and we also believe the assessee s contention for the earlier assessment years also. The notice for reopening therefore must fail both on the ground of no failure on the part of the assessee to disclose truly and fully all material facts and also on the ground of attempt on part of the Assessing Officer to reexamine the claim which was originally scrutinized and therefore on the principle of change of opinion. - Decided in favour of assessee.

Summary

Issues:
Challenging notice to reopen assessment for AY 2010-11 based on undisclosed income exemption claim of ?130 crores received as remuneration from a partnership firm disallowed under section 40(b) in the firm's income.

Detailed Analysis:
1. Background and Assessment: The petitioner, a pharmaceutical company, filed a return for AY 2010-11 declaring 'Nil' income, which was scrutinized by the Assessing Officer resulting in adjustments and disallowances, with taxable income computed at ?106.04 crores under section 115JB of the Income Tax Act, 1961.

2. Reasons for Reopening: The Assessing Officer sought to reopen the assessment due to the petitioner claiming ?130 crores as exempt income under section 28(v) from remuneration received from a partnership firm, disallowed under section 40(b) in the firm's income. The Assessing Officer argued that the petitioner, being a company, could not claim working partner status, as per section 40(b) explanation 4, which defines a working partner as an individual actively engaged in the firm's affairs.

3. Objections and Rejection: The petitioner objected to the reopening, citing that the issue was previously examined during the original assessment, and there was no failure to disclose material facts. The objections were rejected by the Assessing Officer, leading to the petition challenging the notice.

4. Court's Analysis: The Court noted that the issue of the petitioner's claim for exemption of ?130 crores had arisen during the original scrutiny assessment, with full disclosures made in the return and accounts. The Assessing Officer had considered this claim previously, and the petitioner's contentions for earlier assessment years were also believed. The Court concluded that there was no failure to disclose material facts and rejected the notice for reopening based on the principle of change of opinion.

5. Conclusion: The Court set aside the impugned notice dated 11.03.2017, allowing the petition and disposing of the matter in favor of the petitioner, emphasizing the importance of full disclosure and the principle against reexamining claims already scrutinized.

This detailed analysis provides a comprehensive understanding of the judgment, focusing on the issues involved, the arguments presented, and the Court's reasoning leading to the final decision to set aside the notice to reopen the assessment for AY 2010-11.