2019 (2) TMI 1330 - HC - Income Tax

Reopening of assessment - firm had claimed excess deduction u/s 10AA - HELD THAT - AO seeks to reopen the assessment on the basis of conjectures and surmises and that on the reasons recorded, the AO could not have formed the belief that income chargeable to tax has escaped assessment. As further pointed out that in this case the impugned notice has been issued on 31st March, 2018 in relation to AY 2011-12 which is clearly beyond a period of four years from the end of the relevant assessment year without there being any failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment, therefore, the assumption of jurisdiction on the part of the AO under section 147 of the Act, is invalid. Having regard to the submission advanced by the learned counsel for the petitioner, Issue Notice returnable on 5th February, 2019.

Summary

Issues:
1. Reopening of assessment by Assessing Officer based on excess deduction claimed under Section 10AA of the Income Tax Act, 1961.
2. Validity of jurisdiction under section 147 of the Act due to notice issued beyond the prescribed period without failure to disclose material facts.

Analysis:
1. The petitioner's advocate highlighted a previous court order related to a partnership firm where the Assessing Officer sought to reopen assessment due to excess deduction claimed under Section 10AA of the Income Tax Act, 1961. The petitioner argued that similar grounds were used to reopen the assessment for the partners, focusing on interest on partners' capital and remuneration paid by the firm. The petitioner contended that the reasons for reopening the assessment were based on conjectures and surmises, as the computation of total income showed nil interest and remuneration, indicating a lack of basis for the Assessing Officer's belief that income had escaped assessment. Moreover, the notice issued beyond the prescribed period without any failure to disclose material facts raised questions about the validity of jurisdiction under section 147 of the Act.

2. Considering the submissions made by the petitioner's counsel, the Court issued a notice returnable on a specified date. As an ad-interim relief, the respondent was allowed to proceed further based on the impugned notice; however, the final order was prohibited without the prior permission of the Court. Direct service of the notice was permitted on the same day, emphasizing the need for proper legal procedures and permissions before finalizing any decisions related to the assessment reopening.