Rule. Learned advocate Mrs.Mauna Bhatt waives service of rule on behalf of the respondent. 2. Petitioner is a company registered under the Companies Act. It is assessed to tax regularly under the Income Tax Act. By way of present petition, the petitioner seeks to challenge notice dated 23.3.2011 issued by the Assistant Commissioner of Income Tax, seeking to reopen the assessment for the year 2004-
05. The petition arises in the following factual background.
3. For the assessment year 2004-05, originally assessment was framed after scrutiny. After one round of remand by the Tribunal, final assessment came to be framed on 30th April 2010, determining total income of the assessee at Rs.15,56,86,104/-.
4. The Assessing Officer issued notice for reopening the assessment on 23rd March 2011, stating that he had reason to believe that income of the assessee chargeable to tax had escaped assessment. He gave 30 days time to the assessee to file return in response to such notice.
5. At the request of the petitioner, the Assessing Officer supplied reasons recorded by him for reopening such assessment which reads as under:
“In this case, the assessee had filed its return income for A.Y.2004-05 on 28.10.2004 and notice u/s.143(2) of the Act was issued on 26.07.2005. However, before completion of the assessment proceedings, a search operation u/s.132(1) of the Act was conducted in the case of Maghmani Group of proceedings u/s.153C r.w.s. 153A of the Act was initiated in the case of the assessee. Accordingly, the proceedings initiated u/s 143(3) of the Act abated as per 2nd proviso to section 153A of the Act.
The assessee filed its return of income u/s.153C of the I.T.At declaring total income of Rs.13,93,34,480/-. Assessment u/s. 153C rws 153A rws 143(3) was completed on 31.12.2007. Hon. ITAT has set aside/canceled the order u/s.153C r.w.s. 153A. Therefore, the assessment proceeding initiated vide notice u/s.143(2) of the Act dated 26.07.2005 was revived. Thereafter, assessment u/s. 143(3) of the Act was finalized on 30.04.2010 determining the total income at Rs.15,56,86,104/-.
Later on, verification of schedule 21 of profit & loss a/c revealed that during the year the assessee had claimed custom duty paid on behalf of the customers of Rs.1,42,55,270/-. It is seen from the records that custom duty has been paid by the assessee on behalf of its customers. Therefore, the same is not expenses of the assessee and the same was required to be disallowed. However, this has not been considered and discussed in the assessment order dated 31.12.2007 passed u/s.153C r.w.s. 153A and order dated 30.04.2010 passed u/s 143(3) of the Act.
Further, scrutiny of records also revealed that during the year the assessee company claimed sales commission of Rs.3,88,023 and Rs.10,97,730 totalling to Rs.14,85,753/- in respect of Unit no.I and II respectively. The balance sheet of the assessee has total liability of sales commission payable of Rs.3,51,99,394/-. This outstanding sales commission pertains to earlier years. The liability is very old. The liability pertaining to more than three years is required to be treated as ceased liability and taxed. This issue has also not been considered and discussed in the assessment order dated 31.12.2007 passed u/s.153C r.w.s. 153A and order dated 30.4.2010 passed u/s.143(3) of the Act.
In view of the above facts, I have reason to believe that income assessable to tax has escaped assessment by reason of the failure of the assessee to disclose fully and truly all material facts necessary for assessment. Therefore, this is a fit case for reopening the assessment within the meaning of Section 147 of the Act.”
6. The petitioner raised objection to the re- assessment proposed by the Assessing Officer vide its communication dated 23rd August 2011. Such objections were, however, disposed of by the Assessing Officer by order dated 19.9.2011. At that stage, the petitioner approached this Court challenging the validity of the reopening of the assessment.
7. Learned counsel for the petitioner took us through the reasons for reopening of the assessment and submitted that the assessment previously framed after scrutiny could not have been reopened beyond four years from the end of relevant assessment year. It was contended that there was no failure on the part of the assessee to disclose truly and fully all material facts. Our attention was also drawn to the correspondence entered into between the Assessing Officer and the petitioner during the original assessment proceedings to contend that all aspects were examined by the Assessing Officer threadbare. In the final order of the assessment, no additions on the grounds that Customs Duty allegedly paid on behalf of the customers or the ceasing of liability of sales commission payable were made.
8. On the other hand, counsel for the Revenue relying on the reasons stated in the affidavit in reply filed by the respondent in this petition contended that notice was validly issued and the assessment proceedings should be allowed to be proceeded.
9. Having thus heard the learned counsel for the parties and having perused the documents on record, we recall that the Assessing Officer in his reasons recorded has indicated two grounds on which he formed an opinion that income chargeable to tax in case of the assessee had escaped assessment. First ground according to the Assessing Officer was that the assessee had wrongly claimed customs duty which was paid by the assessee on behalf of the customers. Second ground was that according to the Assessing Officer, the assessee had shown outstanding sales commission liability of Rs.3,51,00,000/- (rounded off). Such commission payments pertained to the earlier years and were old. According to the Assessing Officer, since more than three years had passed, such liability should be treated to have ceased. Thus the issue was not considered by the Assessing Officer in the original assessment.
10. On 17th December 2007, while original assessment proceedings were going on, the assessee in response to certain queries raised by the Assessing Officer had given an explanation, relevant portion of which reads as under:
“3. Payment of Customs Duty.
As per the pricing policy of the assessee company, its invoice price is inclusive of customs duty as recovered from the customers. Further, the said duty is payable on Delivery i.e. DDP. Vide Annexure -4 the assessee provides with customs duty ledger along with respective sales invoices.”
xxxx xxxx 6. Copy of Accounts of parties to whom sales compensation is paid.
Copy of Accounts of Parties to whom sales commission is paid is furnished vide Annexure.”
It may be noted that after receiving such response from the assessee, the Assessing Officer framed assessment order, but made no additions either on account of the customs duty paid on behalf of the customers or continuation of the commission liability.
11. From the above clarifications issued by the assessee, it can be easily seen that both the issues were within the knowledge of the Assessing Officer while original assessment was being framed. Not only that the assessee had disclosed all facts pertaining to these issue but had made further clarifications in response to the queries raised by the Assessing Officer. Thus, it cannot be said that there was failure on the part of the assessee to truly and fully disclose all material facts. In the present case, therefore, when the assessment is sought to be reopened beyond the period of four years from the end of the relevant assessment year, the same would not be permissible.
12. In the result, the petition is allowed. Notice dated 23rd March 2011 is quashed. Rule is made absolute accordingly.
(Akil Kureshi J.) (Ms.Sonia Gokani, J.) (vjn)