2020 (6) TMI 586 - AT - Income Tax

Reopening of assessment u/s 147 - Validity of reasons to believe - HELD THAT - On perusal of above two statements (one) the reasons supplied it to the assessee and (two) the reasons some before the High Court, it is apparent that both are altogether different. It is not denied that in context and in substance they are same but there should be same ad verbatim. It cannot be the case of the revenue that it gives few extracts of the reasons to the assessee to defend it against the reopening of the assessment and when cornered before the higher authorities, the revenue comes out with the detailed reasons recorded by the assessing officer. In fact in all circumstances the assessing officer is supposed to provide the complete reasons recorded for reopening of the assessment to facilitate the assessee to defend itself against the reopening of the assessment. To keep few arrows in its quiver and only disclosing few arrows out of that is not expected from a revenue officer. It also against the fair play rule of reassessment proceedings. In Haryana Acrylic Manufacturing Co V Commissioner of Income tax 2008 (11) TMI 2 - DELHI HIGH COURT the identical issue arose. Reasons which were supplied to the petitioner were not the actual reasons and the objections which were taken by the petitioner were not to the actual reasons and the speaking order dated March 2, 2005, which was passed was also neither on the basis of the actual reasons nor the objections to the actual reasons. The entire process would be a sham and would amount to making a mockery of the law. Therefore, for this reason also, the notice under section 148 as well as all proceedings subsequent thereto as also the order are liable to be quashed. We are not inclined to uphold the reopening of the assessment and hence they are quashed. The orders of the learned Commissioner of income tax upholding of the reopening of the assessment are reversed. - Decided in favour of assessee.

Issues Involved:
1. Validity of proceedings initiated under section 147 of the Income Tax Act.
2. Allocation of expenses related to agricultural income.
3. Quantum of additions and allocation of expenses.
4. Interest charged under section 234B of the Income Tax Act.

Detailed Analysis:

1. Validity of Proceedings Initiated Under Section 147 of the Income Tax Act:

The assessee contended that the Commissioner of Income Tax (Appeals) erred in upholding the validity of the proceedings initiated under section 147 of the Income Tax Act. The reassessment proceedings were challenged on the grounds that they were initiated without providing complete reasons within a reasonable time, making them invalid and barred by the limitation prescribed in section 149 of the Act. The assessee argued that the reasons provided were different from the actual reasons recorded, which were only made available much later, violating the fundamental procedure of assessment.

The Tribunal found that the reasons supplied to the assessee were different from those presented before the High Court, which is against the fair play rule of reassessment proceedings. Citing the case of Haryana Acrylic Manufacturing Co. vs. CIT, the Tribunal held that the entire process of reassessment was vitiated due to the discrepancy in the reasons provided. Consequently, the reassessment proceedings were quashed as invalid and bad in law.

2. Allocation of Expenses Related to Agricultural Income:

The assessee argued that the allocation of 50% of expenses related to the Research and Development (R&D) activity and the Baghwala office towards agricultural income was devoid of merit. The assessee maintained that the entire expenditure on R&D activities was reimbursed by Wimco Ltd. on a cost-plus basis, and therefore, disallowing 50% of these expenses was unjustified. Additionally, the Baghwala office expenses were related to the entire business and not specifically to the earning of exempt income.

The Tribunal noted that the allocation of expenses should be based on a reasonable percentage of agricultural income to the gross receipts of the appellant. The Tribunal directed the Assessing Officer (AO) to allocate and disallow at most 3.25%, 5.06%, and 6.75% for the respective assessment years of 50% of Baghwala office expenses.

3. Quantum of Additions and Allocation of Expenses:

The assessee challenged the quantum of additions made by reallocating expenses towards agricultural income. The Tribunal observed that the AO followed the order of the CIT(A) for the assessment year 1994-95, which was subsequently set aside by the Tribunal. The Tribunal reiterated that the allocation of expenses should be based on a reasonable percentage and directed the AO to reconsider the allocation accordingly.

4. Interest Charged Under Section 234B of the Income Tax Act:

The assessee contended that the interest charged under section 234B was not validly charged. The Tribunal did not specifically adjudicate this issue as it was already addressed in the first round of appeals, and there was no remand by the High Court on this ground.

Conclusion:

The Tribunal quashed the reassessment proceedings for all three assessment years (1989-90, 1990-91, and 1991-92) as invalid due to the discrepancy in the reasons provided for reopening the assessment. Consequently, the appeals of the assessee were allowed, and all other grounds of appeal were not adjudicated. The order was pronounced in the open court on 22/06/2020.

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