REASSESSMENT NOTICE AFTER FOUR YEARS TO REDUCE SPECIAL DEDUCTION IS BARRED BY LIMITATION.

[Mr. M. GOVINDARAJAN]

                        In ‘Haryana Acrylic Manufacturing Co Limited V. Commissioner of Income Tax’ – 2008 -TMI - 31355 – (DELHI HIGH COURT) the Court held that no action can be taken under Section 147 after the expiry of four years from the  end of relevant assessment year, if the following are satisfied:

(a)    An assessment under Sec.143(3) or this section has been made for the relevant assessment year; and

(b)   Unless any income chaergeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee:

(i)                  To make a return under Section 139 or in response to a notice issued under Section 142(1) or Section 148; or

(ii)                To disclose fully and truly all material facts necessary for his assessment for that assessment.

Thus reassessment notice cannot be issued after expiry of four years unless the conditions as above are fulfilled.  This is applicable to cases even to reduce special discount. 

                        In ‘Deputy Commissioner of Income Tax V. Purolator India Limited’ – (2011) 11 ITR (Trib) 434 (Delhi) the assessee filed original return of income on 28.11.2000 declaring total income of Rs.2,37,64,670/-.   The original assessment was completed determining a total amount of Rs.3,00,51,422.   The assessment order was thereafter rectified under Section 154/143(3) revising the total income at Rs.3,06,69,583/- which was subsequently reduced to Rs.2,76,38,987/- on giving appeal effect to the Commissioner of Income Tax (Appeal)’s order.  

                        After that the Assessing Officer noted that on perusal of the return of income and annexure thereto, it was revealed that for the relevant assessment year, the deduction under Section 80 HHC was allowed to the assessee without reducing the amount of deduction claimed and allowed under Section 80IB of the Act.   Therefore the Assessing Officer issued notice under Sec. 148 on 7.3.2006 to the assessee.  The assessee raised objections against reopening of assessment.   The objections raised by the assessee were rejected by the Assessing Officer.  The Assessing Officer completed assessment under Section 147/143(3) on 18.12.2006.  In that order the deduction already allowed under Section 80-IB has been reduced from the business profit for the purpose of computing deduction under Section 80HHC.  The Assessing Officer also considered the disallowance of DEPB receipts for the purpose of computation of deduction under Section 80HHC of the Act and decided the issue against the assessee. 

                        The assessee filed appeal before the Commissioner of Income Tax (Appeals) in which he challenged the validity of initiation of reassessment proceedings under Section 147 of the Act as well as the disallowances made by the Assessing Officer.  The Commissioner (Appeals) decided the issue against the assessee.  It was held that the assessee had failed to disclose fully and truly all material facts relating to the computation of income, and thus, the proviso to Section 147 would not come on the way for the Assessing officer to initiate reassessment proceedings under Section 147 of the Act, inasmuch as, the Assessing Officer had sufficient material available to entertain a reasonable belief that income had escaped assessment in so far as the assessee’s claim of deduction under Section 80 HHC is concerned.

                        The Assessee filed appeal before the Tribunal. The Tribunal observed the following:

• The notice issued under Section 148, dated 7.03.2006 is beyond the period of four years from the end of the relevant assessment year 2000 – 01 in question;
• The proceedings, therefore, initiated under Section 147 of the Act is to be adjudged from the standpoint of proviso to Section 147 of the Act;
• It is nobody’s case that the assessee has failed to make a return under Section 139 of the Act or any other section before issuing notice under Section 148 of the Act;
• In the reasons recorded by the Assessing Officer for issuing notice under Section 148 of the Act, the Assessing Officer has himself stated that on perusal of the return of income and annexure thereto filed by the assessee, it was revealed to him that deduction under Section 80 HHC was allowed to the assessee without reducing the amount of deduction claimed and allowed under Section 80-IB of the Act, and in that view of the matter a notice under Section 148 dt. 07.03.2006 was issued to the assessee;  Thus it is clear that the notice has been issued on the basis of facts available in the return of income and annexure thereto filed by the assessee;
• The Assessing Officer has not pointed out any material or basic fact which came to his notice subsequently after the assessment was made under Section 143(3) of the Act and which were not disclosed by the assessee during the original assessment proceedings;
• The Assessing Officer has further stated in the reasons that deduction under Section 80HHC was allowed to the assessee without reducing the amount of deduction claimed and allowed under Section 80-IB of the Act, which goes to mean that the claim under Section 80 HHC was allowed by the Assessing Officer himself without reducing the amount of deduction claimed and allowed under Section 80-IB of the Act.   The reasons recorded by the Assessing Officer therefore makes it clear without any doubt that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment;
• The fact that the assessee claimed deduction under Section 80HHC as well as  under  Section 80-IB were duly available in the return of income as well as annexure thereto, which were duly considered by the Assessing Officer at the time of making the original assessment order Section 143 (3) of the Act;
• No allegation has been made by the Assessing Officer in the reasons recorded for issuing notice under Section 148 that the assessee had failed to disclose fully and truly all the facts necessary for his assessment;
• Therefore the initiation of reassessment proceedings under Section 147 of the Act and issuance of notice under Section 148 dated 07.03.2006 after the expiry of the four years from the end of the relevant assessment year, is clearly hit by the proviso to Section 147 of the Act, which make the proceedings initiated by the Assessing Officer as without jurisdiction inasmuch as without satisfying the conditions mentioned in the proviso to Section 147 of the Act, the Assessing Officer has no power to take action under Section 147 of the Act, after expiry of four years from the end of the relevant assessment year when there was a regular assessment already made under Section 143(3) of the Act.