2021 (12) TMI 532 - AT - Income Tax

Validity of reopening of assessment u/s 147 - reopening beyond period of four years - A.O. in the instant case completed the assessment under section 143(3) determining the total income of assessee more than returned income - HELD THAT - We find the assessment in the instant case was completed under section 143(3) on 15.12.2009 and the assessment year involved is A.Y. 2007-2008. We find the assessee had given sufficient information of all the primary facts regarding the amount of ₹ 1.07 crores subsidised by Sharecap Exchange, Chicago, USA towards Risk Management, Strengthening Middle Management and Business Process Reengineering of the company operations which have already been reproduced in the preceding paragraph. Further a perusal of the reasons recorded shows that there is no allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. In the instant case the primary facts were already disclosed in the Notes to Accounts filed along with the balance-sheet which is the subject matter of reopening of the assessment and since the original assessment was completed under section 143(3) and since there is no allegation by the A.O. of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment and since there is no tangible material for belief that income chargeable to tax has escaped assessment, therefore,we hold that the reassessment proceedings initiated by the A.O. in the instant case after a period of four years from the relevant assessment year are not in accordance with Law. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the I.T. Act, 1961.
2. Taxability of the subsidy amount received by the assessee.
3. Allowance of expenditure incurred by the assessee company.
4. Exclusion of excess provision for doubtful debts from total income.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 of the I.T. Act, 1961:
The primary issue was whether the reopening of the assessment for A.Y. 2007-2008 was valid. The original assessment was completed under Section 143(3) on 15.12.2009. The A.O. reopened the assessment on the grounds that an amount of ?1,07,00,000/- had escaped assessment and alleged that the assessee had not disclosed fully and truly all material facts. The assessee contended that all necessary disclosures were made in the Notes to Accounts, and there was no failure on its part to disclose material facts. The Tribunal found merit in the assessee's argument, noting that the reasons recorded by the A.O. did not allege any failure by the assessee to disclose fully and truly all material facts. Citing various judicial precedents, including the Hon’ble Delhi High Court's decision in Haryana Acrylic Manufacturing Co. vs. CIT, the Tribunal held that the reassessment proceedings initiated after four years were invalid in the absence of any failure on the part of the assessee to disclose material facts. Consequently, the reassessment proceedings were quashed as null and void.

2. Taxability of the Subsidy Amount Received by the Assessee:
The A.O. had added ?1,07,00,000/- to the income of the assessee, treating it as a taxable revenue receipt. The assessee argued that this amount was subsidized by Shorecap Exchange, Chicago, USA, for specific purposes like Risk Management and Business Process Reengineering, and should not be treated as income. However, since the reassessment proceedings themselves were held to be invalid, the Tribunal did not adjudicate this issue on merits, rendering it academic in nature.

3. Allowance of Expenditure Incurred by the Assessee Company:
The assessee contended that the expenditure incurred should be allowed if the grant provided is treated as income. This issue was also rendered academic due to the quashing of the reassessment proceedings, and thus, it was not adjudicated by the Tribunal.

4. Exclusion of Excess Provision for Doubtful Debts from Total Income:
The assessee sought the exclusion of ?49,82,092/- from its total income, arguing that it was an excess provision for doubtful debts not allowed in earlier years and not taxable. Similar to the other issues on merits, this issue was not adjudicated by the Tribunal due to the invalidation of the reassessment proceedings.

Conclusion:
The Tribunal concluded that the reassessment proceedings initiated by the A.O. were invalid due to the absence of any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Consequently, the reassessment proceedings were quashed as null and void, and the appeal of the assessee was allowed. The issues on merits were not adjudicated as they became academic in nature due to the invalidation of the reassessment proceedings.

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