2019 (3) TMI 589 - HC - Income Tax

Court invalidates assessment notice for LLP due to time limit breach & lack of new material

The High Court set aside the notice of reopening of assessment for Assessment Year 2011-12 issued to a Limited Liability Partnership. The court found that ... Reopening of assessment - notice issued beyond a period of four years from the end of the relevant Assessment Year - claim for allowing the deduction for interests on late deposit of TDS - addition u/s 37 or 40(a)(ii) - HELD THAT:- In the present case, we have recorded that, the assessee had raised the claim and also put-forth the grounds for justifying the same. Thus, there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In the reasons recorded, the Assessing Officer had neither alleged nor such reasons in any other manner demonstrate any such failure on the part of the assessee. Only on this ground, the impugned notice needs to be set aside. Also the impugned notice cannot be sustained. During the scrutiny assessment, this issue had came up for discussion before the Assessing Officer as can be gathered from documents on record. In a communication dated 14th January, 2014, assessee had supplied several details as called for by the Assessing Officer. In said letter, while justifying the claim for allowing the deduction for interests on late deposit of TDS, the assessee had asserted this amount is compensatory in nature and not penal in nature and accordingly is not covered by Explanation to section 37(1). Further, this amount is not in the nature of tax levied on profits of business or profession and so not covered by section 40(a)(ii). This amount cannot be disallowed under section 37(1) or section 40(a)(ii). Clearly, thus this claim of the assessee had came up for examination by the Assessing Officer during original assessment proceedings. Once, this much is established, as per settled law it is simply open for the AO to reopen assessment which would be based on mere change of opinion. Without their being any additional material outside of the assessment records, once a particular issue has been scrutinized during original assessment, reopening of assessment based on such issue, would be wholly impermissible. For such reasons, the impugned notice is set aside. - Decided in favour of assessee. Issues:Challenge to notice of reopening of assessment for Assessment Year 2011-12.Analysis:The petitioner, a Limited Liability Partnership, challenged a notice of reopening of an assessment dated 27th March, 2018, for the Assessment Year 2011-12. The petitioner had filed a return of income on 30th September, 2011, declaring income of Rs. 7.78 Crores and claimed a deduction of Rs. 10,00,948 as interest paid under Section 201(1A) of the Income Tax Act, 1961. The Assessing Officer passed an order of assessment under Section 143(3) on 25th March, 2014, without making any disallowance of the petitioner's claim. The Assessing Officer issued the impugned notice to reopen the assessment, citing reasons related to the interest payment under Section 201(1A). The petitioner raised objections to the notice, which were rejected, leading to the filing of this Petition.Upon hearing the parties, the High Court noted that the impugned notice was issued beyond four years from the end of the relevant Assessment Year. As per the first proviso to Section 147 of the Act, for income to be reassessed, it must have escaped assessment due to the assessee's failure to disclose fully and truly all material facts. In this case, the court found that the petitioner had raised the claim and provided grounds for justification, indicating no failure to disclose necessary facts. The reasons recorded by the Assessing Officer did not demonstrate any such failure, leading to the conclusion that the notice should be set aside on this ground.Furthermore, the court highlighted that the issue of interest payment had been discussed during the scrutiny assessment, with the assessee providing details to justify the deduction. The claim had been examined by the Assessing Officer during the original assessment proceedings, and without any additional material, reopening the assessment based on the same issue would be impermissible. Therefore, the court set aside the impugned notice, emphasizing that reopening an assessment based on a previously scrutinized issue without new material is not allowed.In conclusion, the court allowed the petition and disposed of the matter accordingly, finding in favor of the petitioner due to the lack of failure to disclose material facts and impermissibility of reopening the assessment based on a previously examined issue without new material.