2025 (3) TMI 1286 - HC - Income Tax

Reopening of assessment u/s 147 - notice issued beyond period of four years - reasons to believe - Claim of deductions u/s 10AA - HELD THAT - In this case complete disclosures were made and it is only upon consideration of complete disclosures that the original assessment order dated 20 December 2017 was made. The legal position also favoured the assessee s case. The decisions of the ITAT in the case of the petitioner for the assessment year 2011-12 and the decision of Yokogawa India Limited. 2016 (12) TMI 881 - SUPREME COURT were very much available on the date of issue of the impugned reopening notice. In its reply the revenue admitted that reassessment proceedings were initiated due to audit objection. Significantly no such reason was given to the petitioner along with the impugned notice seeking to reopen the assessment. There was no question of seeking to reopen the assessment on the grounds or the reasons furnished to the petitioner. Thus Jurisdictional parameters for reopening the assessment beyond 4 years cannot be said to have been satisfied in this case. This was nothing but the case of mere change of opinion. It is well settled that proceedings to reopen an assessment are not akin to review proceedings. This is also not a case where there was any failure on the petitioner s part to disclose fully and truly all material facts necessary for the assessment. Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The primary issue considered was whether the reopening of the assessment for the year 2015-16 under Section 148 of the Income-tax Act was justified. This involved examining if there was a failure by the petitioner to disclose fully and truly all material facts necessary for the assessment and whether the jurisdictional parameters for reopening the assessment beyond four years were satisfied. Additionally, the court considered whether the reassessment proceedings were merely a change of opinion rather than based on new information.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The legal framework involved Sections 147 and 148 of the Income-tax Act, which govern the conditions and procedures for reopening assessments. The court also referenced precedents such as the Supreme Court decision in Commissioner of Income-tax & Ors. Vs. Yokogawa India Limited, which clarified the stage of deduction under Section 10A, and the ITAT's decision for the petitioner's assessment year 2011-12, which had held that losses in one unit need not be set off against profits in another for the purpose of deductions under Section 10AA.

Court's interpretation and reasoning:

The court interpreted that the reasons provided for reopening the assessment were based on a change of opinion rather than new information. The court emphasized that the original assessment had already considered the petitioner's disclosures and responses regarding deductions under Section 10AA. The court found that the legal position, as established by the Supreme Court and ITAT, supported the petitioner's method of computing deductions, negating the grounds for reopening.

Key evidence and findings:

The court noted that during the original assessment, the petitioner had made complete disclosures, and the assessment order was passed after considering these. The reasons for reopening, as communicated to the petitioner, were inconsistent and primarily based on an audit objection, which was not initially disclosed to the petitioner. The court found that the petitioner had not failed in disclosing material facts necessary for the assessment.

Application of law to facts:

The court applied the legal principles from the Yokogawa India Limited case, which clarified that deductions under Section 10A/10AA should be computed before setting off losses of other units. The court concluded that the petitioner's computation method was consistent with this interpretation, and therefore, the reopening of the assessment was unjustified.

Treatment of competing arguments:

The revenue argued that the reassessment was necessary due to under-assessment caused by improper deductions. However, the court found that the legal precedents and complete disclosures by the petitioner during the original assessment did not support this argument. The court dismissed the revenue's justification for reopening based on the audit objection, as it did not constitute a valid reason under the established legal framework.

Conclusions:

The court concluded that the reopening of the assessment was not warranted as it was based on a mere change of opinion and not on any new or undisclosed information. The court held that the jurisdictional parameters for reopening beyond four years were not met, and there was no failure on the petitioner's part to disclose material facts.

SIGNIFICANT HOLDINGS

The court held that the reopening of the assessment was invalid and quashed the notice under Section 148 dated 30 March 2021, the order disposing of objections dated 8 February 2022, and the draft assessment order dated 14 March 2022. The court reaffirmed the principle that reopening an assessment cannot be based on a mere change of opinion.

Core principles established:

The court reiterated that for reopening an assessment beyond four years, there must be a failure to disclose material facts by the assessee, which was not the case here. The court also reinforced the interpretation of deductions under Section 10A/10AA as established in the Yokogawa India Limited case.

Final determinations on each issue:

The court determined that the reopening of the assessment was not justified and allowed the petition, making the rule absolute in terms of the petitioner's prayer to quash the impugned notice and orders.

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