2024 (3) TMI 823 - AT - Income Tax

Validity of reopening of assessment - doctrine of merger - notice of reopening as issued beyond 4 years - deduction u/s 80IA - HELD THAT - It emerges that in original assessment order AO denied impugned deduction as claimed by the assessee u/s 80IA - CIT(A) partly allowed the claim and the assessee was allowed deduction by AO. It is crystal clear that the order of Ld. CIT(A) was confirmed by Tribunal and revenue s appeal was not admitted by Hon ble High Court. This issue, thus, has attained finality. The first appellate order got merged with the orders of high authorities. By revisiting this issue in reassessment proceeding, in our opinion, would tantamount to disturbing the already concluded issue which could not be permitted. Therefore, the reassessment proceedings could not be upheld for this reason alone. Also perusal of recorded reasons would show that no new tangible material has come into the possession of Ld. AO which would indicated any escapement of income. There is no allegation in the reasons by Ld. AO that the assessee failed to disclose material facts which were necessary for assessment of income. This condition is mandatory condition since the reopening is beyond 4 years. It could also be seen that the reopening is merely at the behest of revenue audit objection. The prime requirement to reopen the case is that Ld. AO has reasons to believe that certain income had escaped assessment. The formation of belief should be based on tangible material. This condition, in the present case, has not been fulfilled. In the case of CIT vs. Shwing Stetter India P. Ltd. 2015 (6) TMI 497 - MADRAS HIGH COURT held that for the purpose of assumption of jurisdiction u/s 147, the AO must have reason based on materials that there has been an income escaping assessment, which warranted assumption of jurisdiction under section 147. In the absence of any such material indicating escapement of income, the proceedings would be invalid. AO did not record any reason that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. When the AO had failed to record anywhere in his satisfaction or belief that the income chargeable to tax had escaped assessment on account of the failure of the assessee to disclose truly and fully all material facts necessary for assessment, the notice issued u/s 147 beyond the period of four years was wholly without jurisdiction and could not be sustained. This case law clearly supports the case of the assessee. Computation u/s 115JB - Mere omission on the part of Ld. AO to consider the same could not trigger reassessment proceedings unless there was any failure on the part of the assessee to make full disclosure thereof. The complete details, in this regard, was made available by the assessee in the computation of income. Therefore, no allegation of disclosure of true facts could be made against the assessee. We would hold that the reassessment proceedings were bad-in-law. The assessment order is accordingly quashed.

Summary

Issues Involved:
1. Validity of Reopening of Assessment
2. Quantum Addition on Merits

Summary:

1. Validity of Reopening of Assessment:

The assessee challenged the reopening of the assessment u/s 147, arguing it was beyond the 4-year limit and lacked tangible new material. The original assessment u/s 143(3) was completed on 26-10-2008, and the reopening notice was issued on 08-03-2013. The assessee contended that all necessary particulars were disclosed during the initial assessment, and the reopening was merely a change of opinion by the Assessing Officer (AO). The CIT(A) upheld the reopening, citing an audit objection as a valid reason for reassessment. However, the ITAT found that no new tangible material was presented to justify the reopening and that it was based solely on an audit objection, which is insufficient for reassessment beyond 4 years. The ITAT also noted that the original appellate order had attained finality and revisiting it would disturb the concluded issue.

2. Quantum Addition on Merits:

The assessee disputed the disallowance of Rs. 3,06,39,429/- u/s 80IA, arguing that items like liquidated damages reversed, provision for warranty reversed, amounts written-back, and sale of scrap are business income eligible for deduction u/s 80IA. The CIT(A) rejected this claim, relying on the decision in Liberty India Ltd vs CIT (317 ITR 218), which held that such income does not qualify for deduction u/s 80IA. The ITAT did not delve into the merits of this issue, as the reassessment proceedings themselves were found invalid.

Conclusion:

The ITAT concluded that the reassessment proceedings were invalid due to the lack of new tangible material and the fact that the reopening was based solely on an audit objection. Consequently, the assessment order was quashed, and the appeal was allowed. The merits of the quantum addition were rendered academic and not addressed.

Order Pronounced:

The appeal was allowed, and the order was pronounced on 13th March, 2024.