Saturday, August 24, 2013

income tax

IT : Where all material facts were disclosed and assessee's claim was accepted after proper examination, irregularities noticed in subsequent assessment year would not be sufficient for re-opening of assessment
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[2013] 34 taxmann.com 199 (Gujarat)
HIGH COURT OF GUJARAT
Jivraj Tea Ltd.
v.
Assistant Commissioner of Income-tax*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NO. 2107 OF 2013
APRIL  8, 2013 
Section 147, read with section 80-IA, of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts [To disallow deduction under section 80-IA] - Assessment year 2006-07 - Whether, where there was no failure on part of assessee to disclose fully and truly all material facts and claim made by assessee in assessment year under consideration was accepted after proper examination, irregularities noticed in claim while framing assessment for subsequent assessment year could not be held as sufficient reason for re-opening of assessment beyond period of four years - Held, yes [Paras 9 & 10] [In favour of assessee]
FACTS
 
 The assessee was allowed deduction under section 80-IA in the relevant assessment year.
 However, the Assessing Officer while framing the assessment for subsequent assessment year, held that the depreciation claimed by the assessee in earlier years was required to be set off against the eligible profit under section 80-IA of the relevant assessment year. Since this was not done, deduction was irregularly allowed in the year under consideration. He accordingly, issued notice under section 147 for reopening of assessment.
 The assessee contended that, the notice for re-opening was issued beyond the period of 4 years from the end of relevant assessment year and there was no failure on its part to disclose truly and fully all material facts necessary for the assessment.
 It further contended that in the scrutiny assessment, the Assessing Officer had examined the claim for deduction under section 80-IA and had raised various queries and only on detailed replies given, the claim was accepted.
HELD
 
 Question that calls for consideration is whether in facts of the case, notice for reopening can be stated to be validly issued. The issue must be decided bearing in mind the fact that such notice had been issued beyond the period of four years from the end of relevant assessment year. Prime consideration, therefore, would be whether, before the Assessing Officer could assume jurisdiction, important requirement of proviso to Section 147 namely the income chargeable to tax had escaped assessment due to the failure of the assessee to disclose truly and fully all material facts necessary for assessment, could be stated to have been satisfied. [Para 7]
 In this context, it is recalled that no such allegations have been made in the reasons recorded by the Assessing Officer. Secondly, the reasons itself record that "on verification of the case records, it is also observed that………" [Para 8]
 Thus, the observations of the Assessing Officer found in the reasons recorded are based on the assessment records of the year under consideration. It is not even the case for the Revenue that full details pertaining to the assessee's claim for deduction under section 80-IA were not furnished. It is not in dispute that the assessee along with the return filed statutory declarations including the audited accounts. The assessment records of the earlier years were very much available to the Assessing Officer. It is not even the case of the Revenue that in such return, necessary details were not supplied. Merely because while framing assessment for the subsequent year the Assessing Officer noticed certain irregularity in the claim by itself would not be sufficient to satisfy the requirements of the proviso to section 147. [Para 9]
 In addition to above conclusions, that there was no failure on the part of the assessee to disclose truly and fully all material facts, it is also found that during the original assessment proceedings, the Assessing Officer had examined the claim in detail. Various queries were raised which were duly answered by the assessee. May be that the specific angle of the depreciation earlier claimed to be set off against the income of the current year of the eligible business may not have been in the mind of the Assessing Officer. Nevertheless, the entire claim of the assessee for deduction under section 80-IA was before the Assessing Officer and such claim was also processed. [Para 10]
 Such being the facts, it is opined that the notice for reopening issued beyond four years cannot be sustained. [Para 11]
CASES REFERRED TO
 
Asstt. CIT v. Goldmine Shares and Finance (P.) Ltd. [2008] 113 ITD 209 (Ahd.) (SB) (para 3) and CIT v. Emerald Jewel Industry (P.) Ltd.[2011] 53 DTR 262 (Mad.) (para 5).
B.S. Soparkar for the Petitioner. Sudhir M. Mehta for the Respondent.
ORDER
 
Akil Kureshi, J. - Heard learned counsel for the parties for final disposal of the petition. Petitioner has challenged a notice dated 15.03.2012 as at Annexure A to the petition under Section 148 of the Income Tax Act, 1961 ('the Act' for short). Under such notice, the Assessing Officer seeks to reopen assessment of the petitioner for the assessment year 2006-07 which was framed after scrutiny. At the request of the petitioner, the Assessing Officer also supplied reasons recorded for issuing such notice. Such reasons read as under:
"In the assessee's case, the wind mill was commissioned in A.Y. 2002-03 and the assessee company started claiming deduction u/s. 80IA from A.Y. 2004-05. As per specific provisions of section 80IA(5), profit from eligible business for the purpose of determination for quantum of deduction u/s. 80IA be computed as if such eligible business was the only source of income of the assessee during the previous year relevant to initial assessment year and to every subsequent assessment year upto and including the assessment year for which the determination is to be made. Thus, before allowing deduction u/s. 80IA, the depreciation claimed on wind mill in A.Y. 2002-03 and 2004-05 of Rs. 4,50,00,000/- was required to be set off against the profit of wind mill only. However, the same was not done during the assessment proceedings. Thus, deduction of Rs. 1,41,93,759/- u/s. 80IA was irregularly allowed to the assessee company.
During the year under consideration, the assessee is engaged in the business of trading of tea. On verification of the case records, it is also observed that the assessee company is also carrying out the business of generation of electricity through windmills and has claimed deduction u/s. 80IA of Rs. 1,41,93,759/-. In the subsequent year i.e. A.Y. 2007-08, this issue was examined and it was found that the assessee is not eligible for deduction u/s. 80IA and accordingly the deduction was withdrawn in view of the decision in case of Goldmine Shares and Finance (P.) Ltd. v. ACIT[2008] 113 ITD (Ahd.) (SB), wherein it was held that profit from eligible business for purpose of determination of quantum of deduction u/s. 80IA has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed to be set off against other income in earlier years. As the assessee is not eligible for deduction u/s. 80IA in the subsequent year the assessee cannot be eligible in the preceding year also. Thus, there is an escapement of income to the extent of deduction claimed u/s. 80IA of Rs. 1,41,93,759/-?"
2. Petitioner thereupon raised objections to the notice for reopening under a communication dated 29.10.2012. Such objections were, however, rejected by an order dated 28.01.2013. The petitioner has, therefore, approached this Court in the present petition.
3. From the reasons recorded by the Assessing Officer for issuing notice for reopening, we gather that his objection was to the effect that the assessee had commissioned a windmill in the year 2002-03 and had started claiming deduction under Section 80IA of the Act w.e.f. assessment year 2004-05. Such deduction was required to be computed as if the eligible business was the only source of income of the assessee during the previous year relevant to the initial and subsequent assessment years. According to the Assessing Officer, therefore, before allowing deduction under Section 80IA of the Act, the depreciation claimed for windmill in the assessment years 2002-03 and 2004-05 of Rs. 4.50 crores was required to be set off against the profit of the windmill only. Since this was not done, according to the Assessing Officer, the assessee received deduction of Rs. 1.41 crore (rounded off) irregularly during the year under consideration.
The reasons further record that during the year under consideration, the assessee was also engaged in the business of trading in tea. It is also further recorded that "on verification of the case records, it is also observed that the assessee-company is also carrying out the business of generation of electricity through windmills and has claimed deduction under Section 80IA of Rs. 1,41,93,759/-". While examining the issue in the subsequent year 2007-08, it was found that the assessee is not eligible for deduction under Section 80IA of the Act and, accordingly, such deduction was withdrawn in view of the decision of the Special Bench of the Tribunal in case of Asstt.CIT v. Goldmine Shares and Finance (P.) Ltd. [2008] 113 ITD 209 (Ahd.) (SB).
4. Learned counsel for the petitioner, taking us through the record, raised following contentions:
1. That there was no failure on part of the assessee to disclose truly and fully all material facts necessary for the assessment. The notice for reopening having been issued beyond the period of 4 years from the end of relevant assessment year, this issue would be crucial.
2. In the scrutiny assessment, the Assessing Officer had examined the claim of the assessee for deduction under Section 80IA of the Act and raised various queries. Detailed replies were given by the petitioner; only thereupon the claim was accepted and in the final order of assessment, no disallowance was made under this head.
5. Counsel also contended that the issue itself has been decided in favour of the assessee by various decisions particularly by that of the Madras High Court in case of CIT v. Emerald Jewel Industry (P.) Ltd. [2011] 53 DTR 262.
6. On the other hand, learned counsel Mr. Sudhir Mehta for the Revenue opposed the petition contending that the assessee had received deduction of Rs. 1.41 crores irregularly during the said assessment year. This was due to the fact that the business of the assessee eligible for deduction under Section 80IA of the Act had to be treated as its only source of income. This was not done in the earlier assessment years 2002-03 and 2004-05. Assessee claimed depreciation on such windmills to the extent of Rs. 4.05 crores. This was required to be set off against the profit of windmill only. He submitted that these facts emerged only during the assessment of the subsequent year 2007-08. Notice for reopening issued is, therefore, valid. Counsel relied on several decisions to contend that on merits, the issue has been decided in favour of the revenue.
7. Having heard learned counsel for the parties, short question that calls for consideration is whether in facts of the case, notice for reopening can be stated to be validly issued. We must decided this issue bearing in mind the fact that such notice has been issued beyond the period of four years from the end of relevant assessment year. Our prime consideration, therefore, would be whether, before the Assessing Officer could assume jurisdiction, important requirement of proviso to Section 147 of the Act namely the income chargeable to tax had escaped assessment due to the failure of the assessee to disclose truly and fully all material facts necessary for assessment, could be stated to have been satisfied.
8. In this context, we may recall that no such allegations have been made in the reasons recorded by the Assessing Officer. Secondly, the reasons itself record that
"on verification of the case records, it is also observed that ...".
9. Thus, the observations of the Assessing Officer found in the reasons recorded are based on the assessment records of the year under consideration. It is not even the case for the Revenue that full details pertaining to the assessee's claim for deduction under Section 80IA were not furnished. It is not in dispute that the petitioner along with the return filed statutory declarations including the audited accounts. The assessment records of the earlier years 2002-03 and 2004-05 were very much available to the Assessing Officer. It is not even the case of the Revenue that in such return, necessary details were not supplied. Merely because while framing assessment for the subsequent year 2007-08 the Assessing Officer noticed certain irregularity in the claim by itself would not be sufficient to satisfy the requirements of the proviso to Section 147 of the Act.
10. In addition to above conclusions, that there was no failure on the part of the assessee to disclose truly and fully all material facts, we also find that during the original assessment proceedings, the Assessing Officer had examined the claim in detail. Various queries were raised which were duly answered by the petitioner- assessee. May be that the specific angle of the depreciation earlier claimed to be set off against the income of the current year of the eligible business may not have been in the mind of the Assessing Officer. Nevertheless, the entire claim of the assessee for deduction under Section 80IA of the Act was before the Assessing Officer and such claim was also processed.
11. Such being the facts, in our opinion, the notice for reopening issued beyond four years cannot be sustained. In that view of the matter, we do not find it necessary to examine the rival contentions with respect to the validity or otherwise of being petitioner's claim for deduction.
12. In the result, petition is allowed. Impugned notice at Annexure A is quashed.
ESHA

*In favour of assessee.

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