2013 (1) TMI 287 - HC - Income Tax

Court quashes assessment reopening notice under Income Tax Act, finding lack of jurisdiction.

The court ruled in favor of the petitioner, quashing the notice for reopening the assessment under section 147 of the Income Tax Act, 1961. The court ... Reopening assessment under section 147 - Reopening beyond four years - Income escaping assessment due to failure to disclose fully and truly all material facts - Deduction under section 80HHC - Treatment of DEPB as export incentive under clause (iiid) of section 28 - Change of opinion - Mistake by Assessing OfficerReopening assessment under section 147 - Reopening beyond four years - Income escaping assessment due to failure to disclose fully and truly all material facts - Change of opinion - Mistake by Assessing Officer - Validity of the notice dated 24-3-2011 reopening assessment for AY 2004-05 issued beyond four years - HELD THAT: - The assessment originally framed after scrutiny was sought to be reopened beyond the four-year period. For such a reopening the Assessing Officer must form a belief that income chargeable to tax has escaped assessment because the assessee failed to disclose fully and truly all material facts. The reasons recorded by the Assessing Officer do not allege any failure by the assessee to disclose material facts; instead they characterise the position as a mistake on the part of the Assessing Officer and proceed on the basis that the original assessment involved error or required correction of the AO's approach to the allowance under section 80HHC and treatment of export incentives (including DEPB). The reasons further demonstrate that the original assessment had examined the claim at length and made disallowances where considered appropriate. In these circumstances the purported reopening is founded on a mere change of opinion and on an asserted mistake by the AO, neither of which furnishes jurisdiction to reopen beyond four years. The Assessing Officer therefore lacked jurisdiction to issue the impugned notice. [Paras 3, 4]Impugned reopening notice quashed for want of jurisdiction; reopening beyond four years invalid as not founded on failure of the assessee to disclose material facts.Final Conclusion: The notice under section 147 dated 24-3-2011 reopening assessment for AY 2004-05 is quashed; rule made absolute. Issues:Challenging a notice under section 147 of the Income Tax Act, 1961 for reopening the assessment beyond the prescribed period.Detailed Analysis:1. The petition challenges a notice issued under section 147 of the Income Tax Act, 1961, beyond the four-year period for the assessment year 2004-05. The Assessing Officer recorded reasons for reopening, supplied to the petitioner, who raised objections. The objections were rejected, leading to the petition challenging the notice for reopening.2. The reasons recorded by the Assessing Officer for reopening the assessment focused on the deduction claimed under section 80HHC of the Act. The AO reduced various amounts, leading to a mistake in the calculation of eligible profits. The AO contended that the entire sale consideration on the sale of DEPB scrip should be discarded for deduction under section 80HHC, contrary to a Supreme Court decision in favor of the assessee.3. The court found that the reasons recorded did not provide jurisdiction to the Assessing Officer to reopen the assessment. The AO's observation of a mistake committed by them was not a sufficient ground for reopening an assessment beyond four years. The court noted that the AO had thoroughly examined the claim in the original assessment, made necessary disallowances, and there was no evidence of the assessee failing to disclose material facts.4. The court concluded that there was no allegation of the assessee failing to disclose material facts in the reasons recorded, and the case appeared to be a mere change of opinion. As such, the impugned notice was quashed, ruling in favor of the petitioner. The court held that the notice for reopening the assessment was not valid and should be set aside.