2010 (6) TMI 56 - HC - Income Tax

Court rules against reopening assessment beyond four years due to full and true disclosure.

The court ruled in favor of the petitioner, finding that the conditions for reopening the assessment beyond four years were not met as all material facts ... Reassessment – reopening of a completed assessment – income escaping assessment - On 23 March 2009 a notice under Section 148 was issued to the Petitioner proposing to reopen the assessment. Reasons have been disclosed in support of the notice for reopening the assessment on 23 October 2009. - In the notes appended to the computation the Petitioner disclosed that a claim for relief under Section 80IA/IB has been made in respect of the newly established industrial undertakings commissioned from financial year 1992-93 to the financial year 2001-02. During the year 1999-2000 a major expansion took place of the Vizag refinery by which the capacity of the refinery was expanded. The Petitioner claimed that the profits made by the expanded unit were eligible for deduction for seven consecutive years under Section 80IB (a). – Held that: - the reason that the issue was not considered by the Assessing Officer when the order of assessment was passed is not sufficient to reopen the assessment - The assessee clearly disclosed the basis on which it was claiming a deduction under Section 80IB in respect of the VREPII project. The attention of the Assessing Officer was specifically drawn to the basis of the claim. – an assessment can not be reopened on the ground that Assessee did not disclosed the facts – The facts show that there was a due application of mind by the Assessing Officer upon a full and true disclosure being made by the assessee of the relevant facts. – Notice issued u/s 147 set aside. Issues Involved:1. Reopening of assessment under Section 147 of the Income Tax Act, 1961 beyond four years.2. Failure to disclose fully and truly all material facts necessary for assessment.3. Deduction under Section 80IA for Captive Power Plant (CPP).4. Deduction under Section 80IB for Vizag Refinery Expansion Project (VREPII).5. Deduction under Section 80IB(4) for Lube Blending Plant at Silvassa.Detailed Analysis:1. Reopening of Assessment under Section 147 Beyond Four Years:The primary issue is whether the reopening of the assessment for the Assessment Year 2002-03, initiated by a notice on 23 March 2009, is valid under Section 147 of the Income Tax Act, 1961. The reopening is beyond the stipulated period of four years from the end of the relevant assessment year. According to the proviso to Section 147, such reopening is permissible only if there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.2. Failure to Disclose Fully and Truly All Material Facts:The court scrutinized whether the assessee failed to disclose all material facts necessary for the assessment. The petitioner contended that all relevant facts were fully and truly disclosed during the original assessment proceedings. The Revenue argued that the reopening was justified due to the non-consideration of certain issues by the Assessing Officer.3. Deduction under Section 80IA for Captive Power Plant (CPP):The petitioner claimed a deduction under Section 80IA amounting to Rs. 86.37 lacs for the generation of electricity by the CPP. The Assessing Officer noted that the petitioner claimed a saving in Low Sulphur Heavy Stock (LSHS) due to steam generation, quantified at Rs. 29.95 Crores, which contributed to the claimed profit. The court found that the petitioner had fully disclosed the computation of profits, including the basis for valuing electricity and steam generation. The disclosure was deemed complete and true, negating the Revenue's claim of non-disclosure.4. Deduction under Section 80IB for Vizag Refinery Expansion Project (VREPII):The petitioner claimed a deduction under Section 80IB for the VREPII project, asserting it constituted a new undertaking. The Assessing Officer argued it was a reconstruction of an existing business. The court noted that the petitioner had disclosed the basis of the claim, including approvals from the Ministry of Petroleum and Natural Gas and previous assessments allowing similar deductions. The court concluded that there was a full and true disclosure regarding the VREPII project.5. Deduction under Section 80IB(4) for Lube Blending Plant at Silvassa:The petitioner claimed a deduction under Section 80IB(4) for the Lube Blending Plant at Silvassa, asserting it was engaged in manufacturing. The Assessing Officer contended that the plant only processed materials and did not manufacture any article or thing. The court reviewed the petitioner's detailed explanation during the original assessment, which justified the claim based on the transformation of base oils into new products. The court found that the petitioner had fully disclosed the basis for the deduction claim.Conclusion:The court concluded that the conditions for reopening the assessment beyond four years were not met, as the petitioner had fully and truly disclosed all material facts necessary for the assessment. The notice issued on 23 March 2009 under Section 148 was set aside, and the petition was allowed. The rule was made absolute with no order as to costs.