2010 (2) TMI 26 - HC - Income Tax

Reassessment Beyond Four Years under Sections 147/148 Invalid; 80IB Deduction Upheld Absent Assessee Non-Disclosure or Escapement

HC quashed the reassessment proceedings initiated beyond four years under Section 147/148, holding that there was no failure by the assessee to fully and ... Reopening of an assessment - beyond a period of four years after the expiry of the relevant assessment year - reason to believe that any income chargeable to tax has escaped assessment - claim of benefit u/s 80IB - set up of an industrial undertaking in an industrially backward area - claim for the first time in respect of the profits derived from the industrial undertaking under Section 80IB of the Act for A.Y. 2001-02 - HELD THAT:- It is an admitted position that the land and building was sold by MSFC in exercise of its statutory powers and the purchaser in turn has leased out the land and building to the assessee. It is not the case of the Revenue in the reasons for reopening the assessment that the plant and machinery installed by the assessee has been previously used. Section 80IB(2)(ii) provides that the industrial undertaking should not be formed by transfer to a new business of plant and machinery or a plant previously used for any other purpose. It is not the case of the Revenue in the reasons for reopening the assessment that the industrial undertaking of the assessee has been formed by transfer of plant and machinery which has been previously used for any other purpose. The assessee has annexed to the petition before the Court a copy of the Deed of Conveyance under which MSFC transferred the right of the defaulter only in respect of the land and building. The plant and machinery was not the subject matter of the sale. The Deed of Conveyance contains a specific recital that the machinery was not being sold. In these circumstances, it is apparent from the record before the Court that there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment so as to justify the invocation of the powers under Section 148 of the Act beyond the expiry of a period of four years from the end of the relevant assessment year. The assessee had admittedly placed on record before the Assessing Officer for A.Y. 2003-2004 the circumstance that the plans have been approved for the building on 12th September 1988. There was no material before the Assessing Officer, that would lead to a formation of belief that the income had escaped assessment. There was hence a total absence of 'tangible material', as explained in the judgment of the Supreme Court in Kelvinator [2010 (1) TMI 11 - SUPREME COURT] to justify the conclusion that income had escaped assessment. Finally, it would be necessary to note, as we have observed earlier, that mere existence of the land and building since 1988 is not a circumstance which would disentitle the assessee to the benefit of a deduction under Section 80IB of the Act, once other requirements of the provisions are fulfilled. Issues: (i) Whether the notices dated 24th March 2009 and 31st March 2009 reopening assessments for A.Y. 2003-2004 and A.Y. 2004-2005 under Section 148 read with Section 147 of the Income-tax Act, 1961 were validly issued; (ii) Whether the information relied upon by the Assessing Officer constituted 'tangible material' or disclosed a failure to make full and true disclosure permitting reassessment beyond four years.Issue (i): Validity of reopening assessments for A.Y. 2003-2004 and A.Y. 2004-2005 under Section 148/147 of the Income-tax Act, 1961.Analysis: The reopening for A.Y. 2003-2004 was beyond four years and required that the income had escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts. The reasons recorded relied upon the existence of a factory plan approved in 1988, but the record shows that the same information (license and Form 10CCB disclosing plan approval) was already on file during earlier scrutiny and before the original allowance of deduction under Section 80IB. The Assessing Officer's recorded basis was factually incorrect in stating that the material was newly available. The Assessing Officer appears to have acted on an audit objection and not on fresh tangible material establishing escapement of income.Conclusion: The reopening notices for A.Y. 2003-2004 are invalid and quashed; they were not supported by the requisite reason to believe based on fresh tangible material nor by failure to disclose fully and truly all material facts.Issue (ii): Sufficiency of material relied upon to reopen assessment within four years for A.Y. 2004-2005.Analysis: Reopening within four years still requires formation of belief that income has escaped assessment based on tangible material and not mere change of opinion or solely on an audit objection. The Assessing Officer had no additional material beyond what was earlier placed on record (including disclosure of plan approval). Mere existence of prior approval of plans or the fact that land/building existed earlier does not, without more, disentitle the assessee to deduction under Section 80IB. The reliance exclusively on an audit objection, without fresh tangible material, does not satisfy the statutory precondition for reopening.Conclusion: The reopening notice for A.Y. 2004-2005 is invalid and quashed; the material before the Assessing Officer did not constitute tangible material or show failure of disclosure necessary to form a belief that income had escaped assessment.Final Conclusion: Both notices reopening the assessments for A.Y. 2003-2004 and A.Y. 2004-2005 were quashed for lack of jurisdictional satisfaction of Section 147/148; the Assessing Officer relied on incorrect or insufficient material and on an audit objection, and therefore reassessment was not justified.Ratio Decidendi: Reopening of assessment under Section 147/148 requires tangible material establishing a reason to believe that income has escaped assessment and cannot be based on mere change of opinion or solely on an audit objection; where the same material was already on record and disclosed to the assessing authority, reassessment is not permissible.