Whether assessment can be reopened when issue of non-receipt of forex within a period of 6 months from end of AY was not subject matter of original assessment - YES: HC

THE issues before the Bench are - Whether the assessment can be reopened when the issue of non receipt of convertible foreign exchange within a period of 6 months from the end of the assessment year was not the subject matter of original assessment; Whether when the issue whether the assessee has declared its book profits after reducing the amount of deductions u/s 10AA was not considered during the original proceedings, the assessment can be reopened and Whether there is any bar on reopening of an assessment even if there has been no failure to make full and true disclosure necessary for assessment within the period of 4 years from the end of the relevant AY. And the verdict goes against the assessee.

Facts of the case

The assessee is established as a 100% Export Oriented Unit (EOU) in Special Economic Zone (SEZ) and engaged in the business of manufacture and export of gold and diamonds jewellery. The assessee is entitled to a deduction u/s 10AA in respect of its income. The assessment was completed and the deduction u/s 10AA was granted to the extent of Rs. 28.74 crores. However, in March 2013, the AO issued a notice u/s 148 for reopening the assessment. The reason give in the notice was that the assessee had relied on the RBI circular No. 91 dated 1.04.2003 for removing the stipulation of time limit for bringing in convertible foreign exchange and although its exports proceeds in convertible foreign exchange amounting to Rs. 100,74,49,184/- it claimed deduction against the export turnover of Rs. 114,10,82,258. This lead to excess deduction and thus escapement of income. Further, the notice mentioned that the book profit was shown to be NIL after reducing by the amount of profits of 10AA unit. However, as per the amended provision with effect from A.Y. 2008-09, the amount of income as per section 10A/10B would not have been reduced while computing the book profit. The assessee contended on the ground that reopening of assessment was based on mere change of opinion since all the details were furnished by the assessee. Also, it was submitted that when previous claims of deduction u/s 10AA have been allowed, the same should also have been. Finally, the assessee placed reliance on the RBI Circular. However, the contentions were rejected. Aggrieved, the assessee has filed this petition before the High Court.

The Counsel of the assessee reiterate the submissions as raised before the AO and further submitted that the lifting of time limit of 6 months for receiving the export proceeds in convertible foreign exchange had been lifted and was duly considered by the AO at the time of passing the assessment order. It was also submitted that the export turn over as defined in Section 10A of the Act was being sought to be introduced while interpreting Section 10AA of the Act under which the assessee sought deduction.

On the other hand, the Departmental Representative contended that even though the assessee had disclosed all the details, the AO had the power to reopen the assessment within the period of 4 years from the end of the relevant AY and also submitted that the issue relating to realization of exports proceeds was not examined in the original assessment.

Having heard the parties, the High Court held that,

++ we find that, in this case, there has been a full and true disclosure of all relevant material necessary by the petitioner for the purpose of assessment. However, as the assessment sought to be reopened i.e., assessment year 2008-09 by a notice dated 25 March 2013 is less than 4 years from the end of the assessment year, the jurisdictional requirement of there being a failure to make full and true disclosure would not be applicable. In such cases of less than 4 years from the end of the relevant assessment year even if there has been no failure to make full and true disclosure of all relevant material necessary for assessment, there is no bar/prohibition for issuing a notice under Section 147/148 of the Act for reopening of an assessment;

++ therefore, in this particular case the only thing to be examined is whether or not the Assessing Officer had reason to believe that income chargeable to tax has escaped assessment while issuing the impugned notice dated 25 March 2013. It is well settled that the reason to believe cannot be founded merely on change of opinion. In this case the grounds/reasons recorded for reopening the assessment were not the issues which were considered by the Assessing Officer while passing the assessment order dated 18 May 2010 in respect of assessment year 2008-09. This is evident from the fact that during the assessment proceeding no query was raised by the Assessing Officer with regard to the grounds/reasons now recorded for reopening the assessment under Section 147/148 of the Act. Therefore, there was no occasion for the Assessing Officer to apply his mind to the tangible material to form any opinion with regard to it during the original assessment proceeding. It has been held by this Court in Export Credit Guarantee Corporation India Ltd. vs. Additional that reopening of an assessment is permissible when the original assessment order passed under Section 143(3) of the Act is silent in respect of the issue/point on which reassessment notice is issued. Further, no query with regard to the above issue having been made during the assessment proceeding would also indicate absence of application of mind to the tangible material;

++ in this case non receipt of convertible foreign exchange within a period of 6 months from the end of the assessment year was not the subject matter of consideration nor the fact that the petitioner had declared its book profits after reducing the amount of deductions under Section 10AA of the Act during the original proceedings. Both these issues were not the subject matter of consideration during the original assessment proceedings leading to assessment order dated 18 May 2010. In the above view, it is permissible for the Assessing Officer to have a reasonable belief that income chargeable to tax has escaped assessment and the same does not stem from a change of opinion.