2022 (9) TMI 765 - AT - Income Tax

Validity of re-opening of assessment u/s 147 - reopening beyond period of four years - absence of failure on the part of the assessee to disclose all material facts necessary for completion of the assessment - HELD THAT - We hold that the reopening of assessment beyond a period of four years from the end of the relevant assessment year is not in accordance with law. Mere mentioning of the words failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment by the AO, in our opinion is not sufficient in absence of showing which part of the material was not disclosed by the assessee. This view of ours finds support from the decision in the case of Hindustan Lever Ltd. vs R.B.Wadker 2004 (2) TMI 41 - BOMBAY HIGH COURT held that the AO must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year to establish the vital link between the reasons and evidence. We, therefore, hold that the initiation of reassessment proceedings by the AO in the instant case is not in accordance with law and therefore, the same has to be quashed. Accordingly, we quash the reassessment proceedings and the grounds raised by the assessee on this issue are allowed.

Summary

Issues Involved:
1. Validity of reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Not giving directions to the Assessing Officer to allow claim of depreciation for all subsequent assessment years.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147 of the Act:
The primary issue was whether the reopening of the assessment under section 147 was valid. The assessee argued that the reopening was invalid as there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The original assessment was completed under section 143(3), and the assessee had disclosed all relevant details, including project expenses written off amounting to Rs. 84,97,952/-.

The Assessing Officer (AO) issued a notice under section 148, stating that the project expenses written off were capital in nature and should be disallowed under section 37, leading to an alleged escape of income. The AO contended that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

The Tribunal found that the assessee had indeed disclosed all material facts necessary for the assessment in their audited accounts and tax audit report. The Tribunal held that the mere mention of failure to disclose by the AO was insufficient without specifying which part of the material was not disclosed. The Tribunal relied on various judicial precedents, including the Supreme Court's decision in ACIT vs. ICICI Securities Primary Dealership Ltd. and the Bombay High Court's decision in Hindustan Lever Ltd. vs. R.B. Wadker, to conclude that the reopening of the assessment beyond four years from the end of the relevant assessment year was not valid in the absence of any tangible material to show failure on the part of the assessee.

2. Not Giving Directions to Assessing Officer to Allow Claim of Depreciation for All Subsequent Assessment Years:
The second issue was whether the CIT(A) erred in not directing the AO to allow the claim of depreciation for all subsequent assessment years starting from AY 2008-09 onwards. The CIT(A) had partly allowed the assessee's claim by treating the project expenses written off as capital expenditure and directing the AO to capitalize the same to the project cost and allow depreciation thereon.

Since the Tribunal quashed the reassessment proceedings on the legal ground of invalid reopening, the issue of allowing depreciation on the amount of project expenses for subsequent years became academic in nature and was not adjudicated.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the reassessment proceedings initiated by the AO as invalid. The Tribunal held that the reopening of the assessment beyond four years from the end of the relevant assessment year was not in accordance with law due to the absence of any failure on the part of the assessee to disclose all material facts necessary for the assessment. Consequently, the grounds challenging the disallowance of the project expenses written off on merit were not adjudicated.