By TIOL News Service

CHENNAI, OCT 09, 2018: THE ISSUE BEFORE THE BENCH IS - Whether reassessment u/s 147 for the reason of omission or default on the part of the AO can be done after the expiry of period of limitation of 4 years by invoking first proviso to Section 147. AND THE VERDICT IS NO.

Facts of the case

THE assessee was carry on the business of manufacturing and testing chemicals and commenced its business of production on May 25, 2000. In its return of income, the assessee claimed deduction u/s 10B to the tune of around Rs 97.34 lakhs. After scrutiny, an order of assessment was passed accepting the claim of deduction, however by making minor additions. The assessee filed an appeal as against the additions and the Appellate Authority deleted the additions and allowed the appeal.

Thereafter, a notice u/s 148 was served on the assessee for reopening of the assessment, on the reason that some income for the AY 2010-11 had escaped assessment. According to the reasons stated by the AO , the assessee had extended its 10B holiday period to the eleventh year and hence, become ineligible for deduction. The assessee, through, objected to the reopening on the ground that the same was beyond four years of the end of the relevant AY and that it had commenced its business of manufacturing activity only after April 1, 2000 and consequently, the initial year, when the undertaking commenced manufacturing activity being the AY 2001-02, the claim of deduction was well on the tenth year itself. The assessee also contended that the reopening was made merely based on change of opinion without there being new tangible material to deny the claim. However, the AO rejected the objection filed by the assessee.

The High Court held that,

++ it cannot be stated that the assessee has availed the benefit under Section 10B by giving false details. If the date of manufacture as referred to in Form 56G is taken as the right date, the Assessing Officer ought not to have allowed the deduction. Likewise, if the number of consecutive year referred to in Form 56G as tenth year is taken as the true statement, the Assessing Officer was right in allowing the deduction. Therefore, it is evident that by furnishing the wrong date of manufacture as 28.03.2000, the assessee has not either deceived or suppressed any material fact before the Assessing Officer to claim deduction under Section 10B. If the exact date of manufacturing could be ascertained or gathered from the conjoined consideration of other material documents, such as relevant certificates of registration by the competent authority, mere wrong mentioning of the date in Column 7 cannot be construed as non disclosure of true and material facts, especially when column 8 of statement supports the claim. One can understand and appreciate the stand of the Revenue for reopening the assessment, if the assessee, by giving a false information regarding the date of commencement of manufacture as 28.03.2000 alone, had obtained deduction under Section 10B. Thus, it is seen that the Assessing Officer, who has originally chosen to allow the deduction based on the materials filed already, has now changed his opinion and has chosen to reopen the assessment, which in my considered view, cannot be done after a period of four years;

++ if, by furnishing incorrect particulars or facts, the assessee got benefited, then one can understand that there was no true and full disclosure by the assessee. On the other hand, if the benefit, in this case the deduction, was granted or allowed inspite of such furnishing of incorrect particulars or facts, then it could, at the best, be called only as the escapement of income from the consideration of the Assessing Officer for being assessed and not the escapement of income by any of the act or omission by the assessee. At this juncture, the admission made by the AO in the counter affidavit, more particularly, at paragraph No.10 is relevant to be quoted. He had admitted that while completing the original assessment, the Assessing Officer failed to take cognizance about the date of commencement of manufacture incorporated in Form No.56G. Thus, it is evident that it is by the mistake or fault of the Assessing Officer in not taking cognizance about the date of commencement of manufacture, according to the Revenue, the income escaped assessment. If that be the case, the Assessing Officer is entitled to reopen the assessment before the expiry of four years only and correct the mistake and make the addition;

++ the term "any income chargeable to tax has escaped assessment" referred to under Section 147 has to be understood to mean that such alleged escapement of assessment is based on the belief of the Assessing Officer with some reasons and that such reasons may include his own omission or default. On the other hand, the very same term "any income chargeable to tax has escaped assessment" referred to in the first proviso to Section 147, certainly not to be construed to mean that such belief of the Assessing Officer with reason will also fit into such proviso to invoke the extended period of limitation. On the other hand, such escapement of assessment can be brought into tax by way of reopen only when either of the two ingredients referred to in the proviso is satisfied. In other words, the Assessing Officer's omission or mistake does not have a role to play for invoking proviso to Section 147 and on the other hand, such invoking should stand or fall solely depending upon the satisfaction of those conditions;

++ every non disclosure of material facts will not or cannot be a justifiable reason for reopening sustainable under judicial scrutiny. On the other hand, such non disclosure of a material fact must be of such nature that, but for such non disclosure, the income, relatable to such material fact, would not have escaped assessment. In other words, it should lead to an irrebuttable conclusion that by the conduct of the assessee, either by providing wrong or incorrect particulars or by not providing the full and correct particulars, he should have made the Assessing Officer not to bring a particular income to tax, which is otherwise liable to be taxed. If this test is applied to the present case, I am of the view that the Revenue has to fail.

(See 2018-TIOL-2115-HC-MAD-IT)