2016 (10) TMI 404 - HC - Income Tax

Court rules against reopening assessment beyond 4 years based on change of opinion. Notice under Section 148 quashed.

The court held that the reopening of the assessment beyond four years based on a change of opinion was impermissible. The notice issued under Section 148 ... Reopening of assessment - claim of deduction under section 80IB(10) - Held that:- The action initiated by the authority is beyond the period of four years from the end of relevant assessment year. It is also emerging from record that there is no allegation of any nature that the petitioner has not truly or fully disclosed all material facts related to deduction section 80IB(10) of the Act and in absence of any such element, we feel it necessary not to allow the respondent authority to reopen the assessment. we notice that this very claim of deduction under section 80IB(10) was at threadbare examined during a scrutiny assessment and a specific claim has been allowed. Even further pursuant to a query which has been raised at the relevant point of time also, a cogent explanation has also been given and from the reasons which have been recorded, there is no element of nondisclosure on the part of the petitioner in any manner, and therefore, considering this overall set of circumstance and keeping in mind the ratio laid down by consistently three different decisions reproduced herein above, it appears that the reopening of assessment is not justified beyond a period of four years from the end of relevant assessment year. Hence, we are of the opinion that action on the part of the respondent authority is impermissible and we accordingly quashed and set aside the impugned notice as well as order dated 16.12.2010 for rejecting the objection. - Decided in favour of assessee. Issues Involved:1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.2. Legality of the order rejecting the petitioner's objections to the reopening of the assessment.3. Application of the explanation to Section 80IB(10) with retrospective effect.4. Allegation of non-disclosure of material facts by the petitioner.Detailed Analysis:1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:The petitioner challenged the notice dated 25.03.2010 issued under Section 148 for the assessment year 2003-04, claiming that the income had escaped assessment within the meaning of Section 147. The petitioner argued that the issue of deduction under Section 80IB(10) had already been scrutinized in the original assessment proceedings concluded on 30.09.2005. The court noted that the reopening was based on the insertion of an explanation to Section 80IB(10) with retrospective effect from 01.04.2001, which was not a valid ground for reopening beyond four years, especially when there was no failure on the part of the petitioner to disclose material facts.2. Legality of the order rejecting the petitioner's objections to the reopening of the assessment:The petitioner had filed detailed objections to the reopening, which were disposed of by the order dated 16.12.2010. The court examined the petitioner's contention that the reopening was based on a change of opinion, which is impermissible. The court found that the original assessment had thoroughly scrutinized the deduction claim under Section 80IB(10), and there was no new material or non-disclosure by the petitioner to justify the reopening.3. Application of the explanation to Section 80IB(10) with retrospective effect:The Revenue argued that the retrospective insertion of the explanation to Section 80IB(10) justified the reopening. However, the court referred to precedents, including Denish Industries Ltd. v. Income-tax officer and Sadbhav Engineering Ltd. v. Deputy Commissioner of Income-tax, which held that retrospective amendments do not justify reopening assessments beyond four years unless there is a failure to disclose material facts. The court concluded that the retrospective explanation could not be used to reopen the assessment in the absence of non-disclosure by the petitioner.4. Allegation of non-disclosure of material facts by the petitioner:The court found no allegation or evidence of non-disclosure of material facts by the petitioner. The original assessment had considered all relevant details, and the reasons for reopening did not indicate any failure on the petitioner's part to disclose fully and truly all material facts. The court emphasized that the reopening was not justified as it was based on a change of opinion and not on any new material or non-disclosure.Conclusion:The court concluded that the reopening of the assessment was impermissible as it was beyond the period of four years and based on a change of opinion. The impugned notice and the order rejecting the petitioner's objections were quashed and set aside. The petition was allowed, and the rule was made absolute.