Reassessment beyond four years and treatment of job work receipts under section 80HHC turned on disclosure of facts and operating income classification.

Reassessment initiated after four years under section 147 was held invalid where the assessee had disclosed all primary facts in the original assessment; a mere incorrect inference by the Assessing Officer did not amount to failure to disclose fully and truly all material facts, so reopening lacked jurisdiction. For section 80HHC, job work and processing charges integrally linked to manufacturing were treated as operating income, not receipts of the kind covered by clause (baa) of the Explanation, and were therefore not subject to the 90% exclusion in computing turnover.

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Issues: (i) Whether reassessment under section 148 was valid when the notice was issued after four years from the end of the relevant assessment year despite the assessee having disclosed all material facts in the original assessment; (ii) Whether job work / processing charges were liable to be reduced by 90% under clause (baa) of the Explanation to section 80HHC and how such receipts were to be treated in the turnover computation.

Issue (i): Whether reassessment under section 148 was valid when the notice was issued after four years from the end of the relevant assessment year despite the assessee having disclosed all material facts in the original assessment.

Analysis: The reassessment power after expiry of four years is confined by the proviso to section 147. Where the assessee has placed all primary facts before the Assessing Officer in the original proceedings, a mere erroneous inference from those facts does not amount to failure to disclose fully and truly all material facts. The record showed that the nature of share capital issue expenses and the relevant particulars had been disclosed in the original assessment.

Conclusion: The reassessment was invalid and the reopening was held to be without jurisdiction, in favour of the assessee.

Issue (ii): Whether job work / processing charges were liable to be reduced by 90% under clause (baa) of the Explanation to section 80HHC and how such receipts were to be treated in the turnover computation.

Analysis: Clause (baa) applies to receipts in the nature of brokerage, commission, rent, interest or similar non-operating receipts. Receipts from job work that are integrally connected with the manufacturing activity and form part of the business operations constitute operating income. Once such receipts are treated as operating income, they cannot be subjected to the 90% exclusion contemplated by clause (baa), and they are to be considered in the turnover computation as well.

Conclusion: The job work / processing charges were held to be operating income and were not liable to 90% reduction under clause (baa), in favour of the assessee.

Final Conclusion: The reassessment for the first year was annulled for want of jurisdiction, and the section 80HHC computation for the later years was decided by treating job work receipts as operating income not subject to the impugned 90% exclusion.

Ratio Decidendi: Reassessment beyond four years cannot be sustained absent failure by the assessee to disclose fully and truly all material facts, and business receipts integrally connected with manufacturing activity are operating income outside the 90% exclusion in clause (baa) of the Explanation to section 80HHC.

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