2016 (10) TMI 1285 - HC - Income Tax

Court rules assessment under Section 148 of Income Tax Act invalid due to full disclosure. Notice beyond 4-year limit set aside.

ANUPAM RASAYAN INDIA LTD Versus INCOME TAX OFFICER AND 1

The court held that the reopening of the assessment under Section 148 of the Income Tax Act was not permissible as the petitioner had fully and truly ... Reopening of assessment u/s 147 - disallowance of depreciation - amount of deduction related to the entire previous year at the specified rates however, the assessee company had come into existence only with effect from 30.08.2003 and therefore,proportionately the deduction for the period prior to 30.08.2003 which comes to ₹ 32.39 Lakhs (round off) had to be disallowed - HELD THAT:- AO in the original order of assessment dated 28.12.2007 had after scrutinizing the return allowed depreciation of ₹ 89.92 Lakhs. Thus, this issue was accepted by the Assessing Officer during the original assessment proceedings, may be without specific queries and recording of reasons for accepting the full claim. Nevertheless, in view of the full disclosure by the assessee and the declaration made in the return itself, it cannot be said that the assessee had failed to disclose true and full material facts. Claim towards subscription charges made - period for the expenditure was for 12 months, 11 months out of which pertained to subsequent year. Accordingly such expenditure could not have been claimed during the year under consideration in its entirety. Proportionately, therefore expenditure of ₹ 32,083/= had to be disallowed - HELD THAT:- In this respect, the assessee had in the return itself claimed such sum of ₹ 35,000/= by pointing out that the same was towards subscription charges for the period between 01.03.2004 to 28.02.2005. Here also thus, there was full disclosure on part of the assessee. If the assessing officer was of the opinion that a part of the claim did not fall within the relevant period; during the original assessment, he could have disallowed the same. Not having done so, reopening beyond a period of four years would not be permissible. One – Deviyani Tex Chem had issued a debit note towards interest on late payment by the assessee company - These charges did not pertain to relevant period and therefore could not have been claimed in the present assessment year - HELD THAT:- The assessee had pointed out that alongwith the return of income, the assessee did produce a debit note. It was from this very note that the assessing officer was drawing an inference that the claim of expenditure which did not pertain to the year under consideration was made and there was clearly no failure on part of the assessee to disclose true and full facts. Interest expenses did not fall during the year under consideration and was therefore, not allowable - HELD THAT:- In this case also, the assessee had not only shown full figures in the account, such issue was also examined by the assessing officer during the original assessment. Thus can be seen from the letter dated 05.01.2007 written by the assessing officer to the assessee under which he called for multiple details - not only had the assessee disclosed full facts, the claim was also examined by the assessing officer during the original assessment and he made no disallowances in the order of assessment. The fact that he did not assign any reason for the same would be of no consequence. Legal and license fees charges - It pertains to an amount which the assessee had paid to the Director General of Foreign Trade by way of penalty - HELD THAT:- In response to such a query, the assessee had submitted ledger extract of legal and license fees which contained the details of payment of ₹ 1.10 Lakhs towards penalty for the license. Thus, the claim was processed by the assessing officer during the original assessment. Reopening of the assessment would not be permissible even with the aid of the explanation to Section 147 of the Act. The impugned notice is therefore set aside. The petition is allowed and disposed of. Issues Involved:1. Validity of reopening the assessment under Section 148 of the Income Tax Act, 1961.2. Alleged failure to disclose fully and truly all material facts by the petitioner.3. Excess claim of depreciation.4. Incorrect claim of consultancy charges.5. Incorrect claim of interest expenses.6. Incorrect claim of penalty expenses.Detailed Analysis:1. Validity of Reopening the Assessment:The petitioner challenged the notice dated 28.08.2009 issued under Section 148 for reopening the assessment for the year 2004-2005. The notice was issued beyond the four-year period from the end of the relevant assessment year. The court examined whether the conditions for reopening beyond four years were met, particularly if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.2. Alleged Failure to Disclose Fully and Truly All Material Facts:The petitioner contended that there was no failure to disclose material facts. The court noted that the reasons recorded by the assessing officer were based on materials already on record during the original assessment. Hence, the reopening notice, issued beyond four years, had to be judged on this basis.3. Excess Claim of Depreciation:The assessing officer claimed that the petitioner had claimed Rs. 89.92 Lakhs as depreciation for the entire year, while the company was incorporated only from 30.08.2003. Thus, Rs. 32.39 Lakhs should have been disallowed. The petitioner argued that the full year's depreciation was claimed with an explanation that the partnership firm did not claim depreciation for the corresponding period. The court found that the petitioner had made full disclosure in the return and the assessing officer had allowed the depreciation after scrutiny during the original assessment. Therefore, it could not be said that the petitioner failed to disclose material facts.4. Incorrect Claim of Consultancy Charges:The assessing officer noted that Rs. 35,000 was claimed for subscription charges for 12 months, of which 11 months pertained to the subsequent year. Thus, Rs. 32,083 should have been disallowed. The court found that the petitioner had disclosed this expenditure in the return, and the assessing officer could have disallowed it during the original assessment. Reopening beyond four years was not permissible.5. Incorrect Claim of Interest Expenses:The assessing officer observed that a debit note from Deviyani Tex Chem for interest on late payment did not pertain to the relevant period. The petitioner had disclosed the debit note along with the return, and the assessing officer drew inferences from it. The court concluded there was no failure to disclose material facts.6. Incorrect Claim of Penalty Expenses:The assessing officer claimed that Rs. 1.10 Lakhs paid as a penalty to the Director General of Foreign Trade was not allowable under Section 37(1). The petitioner had disclosed this payment in the return, and the assessing officer had scrutinized it during the original assessment. The court found that the claim was processed during the original assessment, and reopening was not permissible.Conclusion:The court concluded that the reopening of the assessment was not permissible as the petitioner had disclosed all material facts fully and truly, and the assessing officer had scrutinized these claims during the original assessment. The impugned notice was set aside, and the petition was allowed and disposed of.