2018 (2) TMI 1376 - HC - Income Tax

Assessment reopening beyond 4 years quashed due to full disclosure & no change of opinion

The court quashed the notice to reopen the assessment beyond four years as the assessee had made full and true disclosures, there was no change of opinion ... Reopening of assessment - allowability of interest income u/s 80IA - Held that:- The record would show that the crucial requirement arising out of the proviso to Section 147 is not satisfied. AO has, in fact, in the reasons recorded itself proceeded on the basis of “on verification of record.” Thus, clearly the Assessing Officer proceeded on the basis of disclosures forming part of the original assessment. During the original assessment, AO had called upon the assessee to clarify on the interest income of ₹ 2 Crores which include the assessee's claim of ₹ 57.01 lacs as business income and therefore, eligible for deduction under Section 80IA [4]. There was no failure on the part of the assessee to disclose fully and truly all relevant facts. AO had rejected entire claim of deduction under Section 80IA [4]. He, therefore, had no occasion to thereafter comment on a part of such claim relatable to the assessee's interest income. Had the Assessing Officer accepted in principle the assessee's claim of deduction under Section 80IA [4] and thereafter, after scrutiny not made any disallowance for interest income forming part of such larger claim, the principle of change of opinion would apply. Once the Assessing Officer rejected the claim of deduction under Section 80IA [4] in its entirety, there was thereafter no occasion and any need for him to dissect such claim for rejection on some additional ground. AO thereafter cannot re-visit such a claim and seek to disallow part thereof. This would be contrary to the principle of merger statutorily provided and judicially recognized. Even after the Commissioner [Appeals] allow such a claim and the Revenue was of the opinion that he has not processed it and committed an error, it was always open for the Revenue to carry the matter in appeal. At any rate, reopening of the assessment would simply not be permissible. Reassessment carries an entirely different connotation. Once an assessment is reopened, the same gives wider jurisdiction to the AO to examine the claims which had been formed part of the reasons recorded, but which were not originally concluded. - Decided in favour of assessee. Issues Involved:1. Validity of reopening assessment beyond four years.2. Full and true disclosure of material facts by the assessee.3. Change of opinion by the Assessing Officer.4. Principle of merger concerning the appellate order.Detailed Analysis:1. Validity of Reopening Assessment Beyond Four Years:The petitioner challenged the notice dated 31st March 2017 issued by the respondent-Assessing Officer to reopen the petitioner's assessment for the Assessment Year 2010-2011. The notice was issued beyond the period of four years from the end of the relevant assessment year. The Assessing Officer recorded that the assessee had claimed a deduction under Section 80IA, which included interest income not derived from the infrastructure development activity, thus requiring disallowance. The petitioner argued that there was no failure on their part to disclose all material facts necessary for the assessment, making the notice invalid.2. Full and True Disclosure of Material Facts by the Assessee:During the original scrutiny assessment, the Assessing Officer examined the assessee's claim of deduction under Section 80IA and the treatment of interest income. The petitioner had provided detailed disclosures regarding the interest income, bifurcating it and justifying the claim under Section 80IA. The Assessing Officer's reasons for reopening were based on these records, indicating that the assessee had made full and true disclosures. The court noted that the Assessing Officer proceeded on the basis of disclosures forming part of the original assessment, satisfying the requirement of full and true disclosure.3. Change of Opinion by the Assessing Officer:The petitioner contended that the reopening amounted to a change of opinion since the same issue was considered during the original assessment. The court held that since the Assessing Officer had rejected the entire claim of deduction under Section 80IA initially, there was no occasion for him to comment on the interest income separately. Thus, the principle of change of opinion did not apply as the Assessing Officer had not accepted the claim in principle during the original assessment.4. Principle of Merger Concerning the Appellate Order:The court emphasized the principle of merger, stating that once the Commissioner (Appeals) allowed the assessee's claim of deduction under Section 80IA in its entirety, it was not open for the Assessing Officer to reopen the same claim for partial disallowance. The Commissioner (Appeals) had the authority to examine the entire claim, and any issues with the claim should have been raised during the appellate proceedings. Reopening the assessment after the appellate order would be contrary to the principle of merger and not permissible.Conclusion:The court quashed the impugned notice, allowing the petition. The reopening of the assessment was deemed invalid due to the full and true disclosure by the assessee, the absence of a change of opinion, and the principle of merger following the appellate order. The petition was allowed and disposed of accordingly.