2014 (7) TMI 345 - HC - Income Tax

Invalid Assessment Reopening Notice Under Tax Act: Reasons Unsustainable, Reassessment Quashed

The Court held that the notice for reopening the assessment under section 147 of the Income Tax Act, 1961 was invalid as the reasons recorded were not ... Reopening of notice u/s 147 r.w. section 148 of the Act – additions on some other grounds - Filing of separate reports - Deduction u/s 80IA(iv) of the Act on generation of electricity – Held that:- In Income-tax Officer v. VXL India Ltd. [2008 (8) TMI 273 - GUJARAT HIGH COURT] it has been held that provision of section 80HHC of the IT Act requires that the report of a chartered accountant in the prescribed form should be attached along with the return of income, certifying that the deduction has been correctly claimed in accordance with the provisions of this section, but, that would not mean that such report if is not attached along with the return of income and if is produced before the Assessing Officer during the course of assessment proceedings, the entitlement of the assessee for deduction u/s 80HHC would go away - to obtain the report of the chartered accountant is a condition precedent and it is mandatory in nature. The assessee had submitted a separate report for all the undertakings claiming deduction u/s 80IA, during the course of assessment proceedings - the first ground of reopening, interest from the trade debtors would be qualified for deduction u/s 80IA only on the furnishing of separate reports cannot be upheld - once the notice for reopening is issued and is allowed to be proceeded, the AO can also open other issues, other than those for which the reasons have been recorded and, therefore also, ordinarily in a writ petition, the Court would be slow in interfering with such notices - for assuming jurisdiction u/s 147 of the Act what is essential is a valid reopening of a previously closed assessment and If the very foundation of the reopening is knocked out, any further proceeding in respect to such assessment naturally would not survive. As both the grounds in respect of which the notice has been issued fall and both these reasons recorded in the reopening of the assessment - the AO would not be in a position to make any additions on some other grounds which never formed part of the reasons recorded by him - a valid reopening of previously closed assessment is a must for assuming jurisdiction u/s 147 of the Act - When the very foundation of such reassessment are both the reasons recorded and by virtue of binding decisions, neither of the grounds is sustainable, permitting such notice to be pursued would be an exercise in futility and the Court cannot disregard such vital aspects while addressing the challenge to the notice of reopening – thus, the notice for reopening of assessment is set aside – Decided in favour of Assessee. Issues Involved:1. Validity of the notice for reopening the assessment under section 147 read with section 148 of the Income Tax Act, 1961.2. Requirement of filing separate reports for each undertaking for claiming deduction under section 80IA(iv).3. Eligibility of interest received from trade debtors for deduction under section 80IA.Detailed Analysis:Validity of the Notice for Reopening the Assessment:The petitioner challenged the notice for reopening the assessment issued under section 148 of the Income Tax Act, 1961, on the grounds that the reasons recorded for reopening were not sustainable. The Court noted that the reopening was based on two grounds: the requirement of separate reports for each undertaking and the eligibility of interest received from trade debtors for deduction under section 80IA. The Court held that the Assessing Officer must have a valid reason to believe that income had escaped assessment for reopening to be valid. Since both grounds for reopening were found unsustainable, the notice and subsequent reassessment were quashed.Requirement of Filing Separate Reports for Each Undertaking:The first ground for reopening was the alleged failure to furnish separate reports for each undertaking claiming deduction under section 80IA. The Court referred to the case of Income-tax Officer v. VXL India Ltd., which held that the non-furnishing of the report at the time of filing the return but providing it during assessment proceedings does not disqualify the assessee from claiming the deduction. The Court also noted that the petitioner had indeed submitted separate reports during the assessment proceedings, making this ground for reopening invalid.Eligibility of Interest Received from Trade Debtors for Deduction:The second ground for reopening was the ineligibility of interest received from trade debtors for deduction under section 80IA. The Court referred to the case of Nirma Industries Ltd. v. Deputy Commissioner of Income-tax, which held that interest received from trade debtors for late payment of sales consideration is not derived from the business of the industrial undertaking and thus not eligible for deduction under section 80IA. Since this issue had already been settled by the Apex Court, the Court found this ground for reopening unsustainable.Additional Observations:The Court also addressed the contention that the notice for reopening was issued at the behest of audit objections. It was clarified that the Assessing Officer had formed his own belief independently, and the notice was not solely based on audit party objections.Conclusion:The Court concluded that both grounds for reopening the assessment were unsustainable. It was emphasized that a valid reopening is essential for assuming jurisdiction under section 147 of the Act. With the foundation of reopening knocked out, any further proceedings would not survive. Consequently, the impugned notice for reopening dated 27.3.2009 and the reassessment order dated 30.12.2009 were quashed, and the petition was allowed with no order as to costs.