Reopening Assessment Beyond Four Years Without Failure to Disclose Material Facts Is Impermissible

JUDGMENT

A.S. Supehia, J. – In the present writ petition, the petitioner has prayed for quashing and setting aside notice dated 27.03.2018 issued under Section 148 of the Income Tax Act, 1961 (for short ‘the IT Act’) along with the order dated 15.06.2018. The petitioner filed return of income for Assessment Year (for short ‘A.Y.’) 2011-12 which was subjected to scrutiny assessment under Section 143(3) of the IT Act, and a final assessment order dated 12.03.2014 was passed. Thereafter impugned notice dated 27.03.2018 was served upon the petitioner Company seeking reopening of the assessment for A.Y. 2011-12 for the two reasons; one, that the petitioner did not disclose the correct facts and claimed set off of business loss and unabsorbed depreciation of Rs.32,01,046/- for A.Y. 2011-12 which resulted into escapement of income, and second, the assessee paid Tax Deducted at Source (for short ‘TDS’) on commission amounting to Rs.64,282/- on 31.01.2012 after filing return of income, which resulted into the under assessment of income as the entire amount is to be disallowed under Section 40(a)(ia) of the IT Act. Thus, it is alleged that a total income of Rs.38,43,866/- has escaped assessment.

2. Learned Senior Advocate Mr.R.K. Patel at the outset has submitted that in the scrutiny assessment both the facets were examined by the Assessing Officer after the petitioner had pointed out the relevant documentary evidence and the explanation and the assessment order under Section 143(3) of the IT Act on 12.03.2014 was passed. He has invited attention of this Court to both the issues which are pointed out by the petitioner in his reply which had been examined by the Assessing Officer.

2.1 It is submitted that second aspect of the TDS which is already paid by the petitioner was undertaken in the scrutiny assessment but was thereafter dropped, whereas the non-claiming of the depreciation is concerned, the petitioner in his reply had also pointed out the same and ultimately the Assessing Officer has examined the disallowance of depreciation for A.Y. 2008-09, 2009-10 and 2010-11. While pointing out the assessment order passed under Section 143(3) of the IT Act he has submitted that the Assessing Officer after computation of the income of the petitioner has confined the disallowance of amount of Rs.24,73,826/- and had recomputed the book profit which worked out to be Rs.7,61,312/- under Section 115JB of the IT Act and the income is ultimately assessed at Rs.24,73,826/-. Thus, it is submitted that by the impugned notice issued under Section 148 of the IT Act the Assessing Officer has attempted to review his own decision after again scrutinizing the assessment under Section 143(3) of the IT Act, which lacks proprietary as well as jurisdiction on behalf of the Assessing Officer. Thus, it is submitted that the provision of Section 147 of the IT Act would not get attracted in the present case as there is no suppression by the petitioner in any manner in disclosing the amount as well as the claims in the original scrutiny assessment.

3. Per contra, learned Senior Standing Counsel Mr.Maunil G. Yajnik while placing reliance on the affidavit-in-reply, has submitted that the assessee in the scrutiny assessment has not disclosed the correct facts and claim set off of business loss and an unabsorbed depreciation of Rs.32,01,046/- for A.Y. 2011-12 has resulted into escapement of income. It is submitted that though the assessee was well aware of the income assessed for the previous years 2009-10 and 2010-11 which was assessed as a positive income, after having paid the taxes, did not disclose the correct income of A.Y. 2011-12, and hence on this aspect the reopening of the assessment may not be disturbed. Similarly, it is submitted that the assessee paid the TDS on commission amounting to Rs.64,282/- on 31.01.2012 after filing of the return of income of A.Y. 2011-12 i.e. after the due date of 30.09.2011. Hence, the TDS so deducted was required to be deposited in the government account before due date of filing of the return, which has resulted into under assessment of income and the entire amount is to be disallowed under Section 40(a)(ia) of the IT Act. Thus, it is urged that the reassessment may not be interfered at this stage.

4. Upon close scrutiny of the documents which are produced on record and on analysis of the scrutiny assessment proceedings for A.Y. 2011-12, we find that the impugned notice issued under Section 148 of the IT Act seeking reopening of the assessment for A.Y. 2011-12 in case of the petitioner is required to be quashed. As previously recorded by us the revenue has attempted to reopen the assessment for A.Y. 2011 on two aspects; one, relating to the unabsorbed depreciation, and the second on the deduction of TDS.

5. It is noticed by us that in the scrutiny assessment proceedings when the petitioner was called upon to explain the nature of all the bank accounts which were maintained by the petitioner, details on disallowance under section 14A of the IT Act, the details of dividend received by the petitioner, details of investment made in mutual funds, details of preceding years of assessment under Section 143(3) of the IT Act for years 2008-09, 2009-10 and 2010-11, and the additions made in the disallowance of depreciation, the petitioner explained the same in detail.

6. Thereafter, the assessment order on 12.03.2014 under Section 143(3) of the IT Act was passed by the Assessing Officer, and the income of the assessee was assessed at Rs.24,73,826/-. We find that the Assessing Officer computed the income of the assessee after disallowance under Section 14A of the IT Act read with Rule 8D of the Income Tax Rules, 1962, disallowance of bad debts and disallowance of Annual Maintenance Contract (for short ‘AMC’), and arrived at the total income of Rs.24,73,826/-. Simultaneously, the sum of Rs.5,02,284/- being disallowance under Section 14A of the IT Act is added back to the book profit and the book profit under Section 115JB of the IT Act which was recomputed and revised to Rs.7,61,312/-. Thus, we find that the petitioner had fully disclosed the unabsorbed depreciation of the previous years in the scrutiny proceedings. The petitioner had categorically in its reply had clarified that it had not claimed the depreciation during the year under consideration.

7. So far as the aspect of TDS is concerned, the petitioner had objected the alleged escapement of income on deposit of TDS on commission of Rs.64,202/- after filing the return of income for A.Y. 2011-12 before the Assessing Officer vide its objection dated 15.05.2018, and we find that the respondent Assessing Officer has already dropped the proceedings, and hence, after such dropping of the proceedings, it was not open for the Assessing Officer to again venture on the such issue by issuing the notice under Section 148 of the IT Act. Thus, in fact, by reopening of the assessment and issuance of notice under Section 148 of the IT Act, the Assessing Officer has attempted to review its own decision, and the same is reflected from the impugned notice as it specifically mentions that on the scrutiny of the assessment proceedings the aforesaid lacuna has been noticed which led to the belief of the Assessing Officer to reopen the assessment.

8. The Hon’ble Supreme Court in case of Parshuram Pottery Works Company Limited v. ITO [1977] 106 ITR 1 (SC), has held that the provisions of Section 147 of the IT Act can only be attracted if there is a failure on the part of the tax-payer to fully and correctly disclose the income. It is also held that the policy of law is that there must be a point of finality in all legal proceedings and that stale issues should not be reactivated beyond a particular stage. It was held that the reopening of the assessment is not permissible after a period of expiry of four years from the end of assessment year unless there is omission or failure on the part of assessee to disclose fully and truly all material facts necessary for the assessment.

9. We find that the petitioner in the scrutiny proceedings had already disclosed all the aspects by providing the necessary documentary evidence, which resulted into the assessment order dated 12.03.2014.

10. In light of the foregoing observations, the writ petition stands allowed. The impugned notice dated 27.03.2018 as well as the order dated 15.06.2018 are hereby quashed and set aside.