2022 (1) TMI 536 - AT - Income Tax

Reopening of assessment u/s 147 - necessary conditions for initiating and completion - Denial of exemption respect of SEZ Unit at Pithampura /disallowance of deduction u/s 10 (10 AA) - HELD THAT - Non-disclosure of material facts fully and truly is a serious allegation made by the learned assessing officer for reopening of the assessment however for the purpose of reopening of the assessment he is referring the same material which is been disclosed by the assessee during the course of assessment proceedings before him - reasons given by the learned assessing officer for reopening is merely an arithmetical calculation made by him with respect to the turnover of SEZ unit with respect to the purchase of SEZ unit. He did not look into what kind of manufacturing process that SEZ unit undertakes. We failed to understand that when the assessing officer is clearly saying and using the material, which has been submitted before him during the course of assessment proceedings, then how it can be said that the assessee has failed to disclose truly and fully material facts. There is no reference of any tangible material available with AO for reopening of the assessment which is also mandatory requirement for reopening of the assessment thus the reasons itself says that there is no failure on the part of the assessee to disclose fully and truly all metal facts necessary for its assessment and the allegation of nondisclosure is merely a ritual. In fact when the assessment is reopened beyond the period of four years when originally assessed u/s 143 (3) it is the duty of the assessing officer to show in the reasons recorded for reopening of the assessment that how the information originally submitted by the assessee has resulted into escapement of income by not disclosing certain things/information. Further if such things/information would have been disclosed the assessee would not have been allowed the claim of deduction is claimed by him in the original return of income - we find that the reopening of the assessment made by the learned assessing officer is not on account of the failure on part of the assessee to disclose fully and truly material facts for assessment of income as well as there is no tangible material available with the assessing officer to reopen the assessment. All the catena of judicial precedents cited before us also laid down the same principles - we hold that jurisdiction assumed by the learned assessing officer for invoking the provisions of Section 147 is not valid. Accordingly, ground number 1 of the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Reassessment validity under Section 147 read with Section 148 of the Income Tax Act, 1961.
2. Denial of exemption/deduction under Section 10AA of the Income Tax Act, 1961 for the SEZ Unit.

Issue-wise Detailed Analysis:

1. Reassessment Validity under Section 147 read with Section 148:
The appellant challenged the reassessment order framed by the AO, arguing that it was "bad, illegal and void" because the case did not fall within the parameters laid down by Sections 147 and 148 of the Act. The reassessment was initiated beyond four years from the end of the assessment year, requiring a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The appellant contended that there was no such failure, as complete disclosures were made during the original assessment proceedings under Section 143(3).

The Tribunal carefully examined the reasons recorded for reopening the assessment, which were based on the same material available during the original assessment proceedings. The Tribunal found no tangible new material or failure on the part of the assessee to disclose fully and truly all necessary facts. The reasons cited by the AO were merely arithmetical calculations based on already submitted information, without any new or undisclosed facts. Consequently, the Tribunal held that the jurisdiction assumed by the AO for invoking Section 147 was not valid, and thus, the reassessment proceedings were invalid.

2. Denial of Exemption/Deduction under Section 10AA:
The appellant also contested the denial of exemption under Section 10AA for the SEZ unit. The AO had disallowed the claim on the grounds that only a small proportion of the exported goods, on which the deduction was claimed, were manufactured in the SEZ unit. The AO had limited the deduction to 14.92% of what was claimed by the assessee, resulting in an excess deduction disallowance.

The appellant argued that the SEZ unit carried out significant value addition and manufacturing activities, justifying the claimed deduction. The Tribunal noted that the appellant had provided substantial evidence, including a certificate from a chartered accountant and detailed explanations of the manufacturing processes and value additions performed in the SEZ unit.

However, since the Tribunal had already decided in favor of the appellant on the first issue, holding the reassessment invalid, it found no necessity to adjudicate the merits of the second issue regarding the deduction under Section 10AA. The Tribunal left this issue open.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, primarily on the grounds that the reassessment proceedings were invalid due to the absence of any tangible new material and failure on the part of the assessee to disclose necessary facts. Consequently, the reassessment order was set aside, and the appeal was allowed without adjudicating the merits of the disallowance under Section 10AA.