2022 (2) TMI 771 - AT - Income Tax

Invalid reassessment quashed for Revenue appeal; ITAT emphasizes limits on reopening assessments

The ACIT, Corporate Circle – 1 (2), Chennai – 34. Versus M/s. CDM Smith Global Services P Ltd., (M/s. Camp Dresser & Mekee India Pvt. Ltd. & CDM India Corporate Services P. Ltd.)

The ITAT Chennai upheld the CIT(A)'s decision to quash the reassessment proceedings in a case involving the Revenue's appeal. The reassessment was deemed ... Validity of reassessment proceeding u/s 147 - due to audit objection i.e., RAP objection, the assessment was reopened by issuing notice u/s.148 - assessee has claimed 10A deduction for a unit which is not located in a Export Processing Zone, free Trade Zone or Special Economic Zone, hence, the assessee failed to disclose fully & truly this material fact and wrongfully claimed deduction u/s 10A which is not allowable - HELD THAT:- Original assessment was completed u/s.143(3) of the Act vide order dated 10.01.2013. The relevant assessment year involved is AY 2010-11. The notice u/s.148 of the Act was issued by the AO on 27.02.2017 after recording the reasons. The assessee before AO during the course of original assessment proceedings filed copy of Form No.56F for claim of deduction u/s.10A of the Act, filed copy of approval from STPI, computation sheet for claim of deduction u/s.10A of the Act and copies of Foreign Inward Remittance Certificate (FIRC) for all inward receipt of foreign currency for export of services to the AO AO after going through these documents and scrutinizing the same allowed the claim of deduction u/s.10A. We have gone through the reasons recorded for reopening of assessment and noted that there is no whisper about any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year 2010-11. Admittedly, the assessee’s case falls under the first proviso to section 147 - Once, the reopening of assessment is beyond 4 years and falls under the first proviso to section 147 of the Act, we find no infirmity in the order of CIT(A) quashing the re-assessment. Hence, the appeal of the Revenue is dismissed. Issues:1. Quashing of reassessment proceedings by CIT(A) based on change of opinion and disclosure of material facts.2. Validity of reopening of assessment under section 147 of the Income Tax Act, 1961.3. Eligibility of the assessee to claim deduction u/s.10A of the Act for the assessment year 2010-11.Issue 1: Quashing of Reassessment ProceedingsThe Revenue appealed against the CIT(A)'s decision to quash the reassessment proceedings, arguing that the reassessment was not a change of opinion but based on new material facts. The Revenue contended that the assessee failed to disclose fully and truly the material fact that the unit claiming deduction u/s 10A was not located in a specified zone. The Revenue cited legal precedents to support the validity of reopening the case based on factual information provided by the audit party. However, the CIT(A) held that the original assessment was completed under section 143(3) of the Act, and there was no failure on the part of the assessee to disclose material facts necessary for assessment. The CIT(A) quashed the reassessment proceedings, which the ITAT Chennai upheld, dismissing the Revenue's appeal.Issue 2: Validity of Reopening AssessmentThe AO issued a notice u/s.148 of the Act in 2017 to reopen the assessment for the AY 2010-11, citing reasons related to the eligibility of the assessee to claim deduction u/s 10A. The assessee objected to the reopening beyond 4 years, but the AO proceeded with reassessment, disallowing the deduction claimed. The CIT(A) quashed the reassessment, stating that there was no failure to disclose material facts during the original assessment. The ITAT Chennai concurred, emphasizing that the reassessment fell under the first proviso to section 147 of the Act, and there was no deficiency in the CIT(A)'s decision to quash the reassessment. The Revenue's appeal was dismissed based on these findings.Issue 3: Eligibility for Deduction u/s.10AThe assessee, a unit registered with STPI, Chennai, claimed deduction u/s.10A for the AY 2010-11. The AO reopened the assessment due to concerns about the unit's location not meeting the specified criteria for claiming the deduction. The AO disallowed the deduction in the reassessment, leading to the appeal before the CIT(A). The CIT(A) found that the original assessment considered all relevant details related to the deduction claim, and there was no failure to disclose material facts. The ITAT Chennai upheld the CIT(A)'s decision, emphasizing that the reassessment lacked grounds for reopening beyond the statutory limit and dismissing the Revenue's appeal.In conclusion, the ITAT Chennai dismissed the Revenue's appeal against the CIT(A)'s decision to quash the reassessment proceedings, highlighting the absence of failure to disclose material facts during the original assessment and the validity of the reassessment falling under the first proviso to section 147 of the Income Tax Act, 1961.