2023 (12) TMI 60 - AT - Income Tax

Validity of reopening of assessment u/s 147 - Reasons to believe - notice beyond period of four years - Exemption u/s 10B to be denied as assessee has not carried out any manufacturing activity - HELD THAT - It is very clear that there is absolutely no whisper about the failure on the part of the assessee to make full and true disclosure of all material facts relevant for the purpose of assessment in the original assessment proceedings before the ld. AO. Admittedly, the notice u/s 148 of the Act was issued to the assessee on 03.03.2015 which is beyond the period of 4 years from the end of the relevant assessment year. Hence, the proviso to section 147 of the Act would come into operation. As per the said proviso, the ld AO is bound to duly mention the failure on the part of the assessee to make full and true disclosure of all material facts relevant for the purpose of assessment. We find that this issue is no longer res integra in view of the decision of Hindustan Lever Ltd Vs. R. B. Wadkar 2004 (2) TMI 41 - BOMBAY HIGH COURT Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He 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, so as to establish vital link between the reasons and evidence. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission. Thus the reopening deserves to be quashed and is hereby quashed. Decided in favour of assessee.

Summary

Issues Involved:
The issues involved in the judgment are the validity of assumption of jurisdiction under section 147 of the Income-tax Act, 1961 and the allowance of exemption under section 10B to the assessee despite the absence of manufacturing activity.

Validity of Assumption of Jurisdiction under Section 147:
The assessee challenged the validity of assumption of jurisdiction under section 147 of the Act by the Assessing Officer (AO). The original return of income was filed by the assessee for the assessment year 2008-09, and the assessment was completed under section 143(3) of the Act. Subsequently, the AO sought to reopen the assessment under section 147 based on discrepancies related to purchases made by the assessee. However, it was observed that the reasons recorded for reopening did not mention any failure on the part of the assessee to disclose all material facts necessary for assessment. The notice under section 148 was issued beyond the prescribed period of 4 years from the end of the relevant assessment year. Citing the decision of the Hon'ble Bombay High Court, it was held that the AO had invalidly assumed jurisdiction under section 147 as the reasons recorded were vague and lacked the necessary link between evidence and conclusion. Consequently, the reopening of the assessment was quashed.

Exemption under Section 10B:
The revenue raised a ground of appeal questioning the allowance of exemption under section 10B to the assessee despite the absence of any manufacturing activity. The company claimed 100% deduction under section 10B as a 100% export-oriented unit engaged in the manufacture of Gas Plant used in the production of gases. However, it was found that certain purchases made by the company did not meet the conditions for claiming the deduction under section 10B. Specifically, purchases made on a 'H' form of Central Sales Tax did not allow for the manufacturing process required for claiming the deduction. This resulted in the incorrect consideration of purchases and an excess exemption granted to the assessee. The Tribunal held that the conditions for claiming the deduction under section 10B were not satisfied due to the nature of the purchases made. As a result, the reassessment was quashed, and the ground raised by the revenue on the merits of the addition was left open.

Conclusion:
In conclusion, the Appellate Tribunal quashed the reassessment conducted by the Assessing Officer under section 147 due to the lack of proper reasons for reopening and the failure to establish a valid link between the evidence and conclusion. Additionally, the Tribunal upheld the decision to disallow the exemption under section 10B to the assessee based on the nature of purchases made that did not align with the conditions for claiming the deduction. The cross objection of the assessee was allowed, and the appeal of the revenue was dismissed.