High Court quashes Revenue's appeal, upholds assessee's position on reopening assessments

The High Court ruled in favor of the assessee, rejecting the Revenue's appeal to uphold the assessing officer's decision to reopen assessments for two years. The court emphasized that disallowances made abruptly in later years, when consistently allowed in previous years, were impermissible. It was noted that the assessing officer had routinely accepted the deduction claim without discussion in earlier assessments. As the reasons for reopening assessments lacked validity and the proposed additions were not previously approved by the court, the impugned notices for reopening assessments were quashed.

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Issues:
Challenging two separate notices for reopening assessments of earlier years.

Analysis:
The petitions were filed by the same assessee challenging two separate notices issued by the assessing officer for reopening assessments of earlier years. The facts being common, the court heard and disposed of both petitions together. The petitioner, a company registered under the Companies Act, had filed its return of income for the assessment year 1995-96, claiming deduction under section 35D of the Income Tax Act, 1961. The assessing officer had initially granted the claim after scrutiny assessment. However, for the assessment year 2003-, the assessing officer re-examined the claim and restricted the deduction amount. The matter went to the Tribunal, which ruled in favor of the assessee, stating that such disallowances could not be made abruptly in a later year when they were consistently allowed in previous years. The issue reached the High Court, which rejected the Revenue's appeal. The assessing officer then issued notices for reopening assessments for the assessment years 2001-02 and 2002-03, raising similar grounds for disallowance.

The assessing officer sought to restrict the deduction claimed by the assessee under section 35D of the Act based on the provisions of section 35D(3), limiting the claim to a certain percentage of the cost of the project. The assessing officer argued that since the claim was not properly disclosed and exceeded the allowable limit, income had escaped assessment. However, the court noted that the assessing officer had not addressed this question in the earlier assessments and had routinely accepted the claim without discussion. The Tribunal had previously ruled that such claims, consistently allowed over several years, could not be abruptly disallowed.

The court emphasized that if the assessing officer's reason to believe lacks validity, the reopening of assessment would not be permissible. The proposed additions by the assessing officer through the reopening process had not been approved by the court previously. Therefore, the court allowed both writ petitions and quashed the impugned notices for reopening assessments.

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