DCIT can’t Re-Open Assessment after 4 years to deny Deduction unless any Income Chargeable to Tax escaped Assessment: Madras HC [Read Judgment]

The High Court of Madras held that Deputy Commissioner of Income Tax (DCIT) cannot reopen assessment after 4 years to deny deduction unless any income chargeable to tax escaped assessment.

The petitioner, M/s. International Flavours and Fragrances India Private Limited, is engaged in the manufacture of flavor essences, mixed seasoning powders, and formulated perfumery compounds, etc. The petitioner started a new manufacturing unit in the State of Jammu & Kashmir in the year 2007 after obtaining all the necessary registrations and approvals with an installed capacity of 5000 MT per annum. The petitioner has claimed deduction under Section 80IB of the Income Tax Act, 1961. In this regard, DCIT the respondent authority had specifically asked for the details of the new undertaking vide separate notices for the Assessment Year 2009-2010. The petitioner replied to the same vide separate letters.

The respondent authority issued the impugned notice under Section 148 of the Income Tax Act, 1961 to the petitioner, to re-open the Assessment Year 2010-11. The petitioner replied to the same and asked the respondent for reasons to reopen the assessment vide letter. By communication, the respondent has given the reasons for re-opening the assessment. The petitioner submitted its objections against the reasons for re-opening the assessment vide letter. The respondent has thereafter issued the impugned communication. In the impugned communication, the respondent has observed that the Assessing Officer has not examined the issue or formed an opinion and since no opinion was formed, change of opinion cannot be said to exist or arise.

The court consisting of Justice C. Sarvanan held that reopening of the assessment to deny the deduction under Section 80IB of the Act, is without jurisdiction. Therefore, the proviso to Section 147 of the Income Tax Act, 1961 puts an embargo on the respondent from proceeding further as no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Section 142 (1) or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

“I direct the petitioner to participate in the proceedings before the respondent. The respondent is however precluded from disturbing the deductions allowed to the petitioner in the respective assessment orders under Section 80IB of the Income Tax Act, 1961,” the single judge bench said.