VE Commercial Vehicles Ltd Vs DCIT (ITAT Delhi)
ITAT Delhi held that reopening of assessment beyond four years period is invalid as there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment.
Facts-
The assessee has mainly taken up the issue of reopening of assessment under section 148 of the Income Tax Act. CIT(A) has ruled the decision in favour of the revenue. Being aggrieved, the present appeal is filed by the assessee.
Conclusion-
The Hon’ble Courts have in this context held that reassessment proceedings initiated beyond four years from the end of the relevant assessment year to be invalid in terms of the proviso to section 147 of the Act where there was no failure on the part of the assesses to disclose fully and truly all material facts necessary for assessment. The Courts have consistently held that where there was no failure on the part of the assessee to truly disclose all material facts and it was only a question of drawing an inference from these facts, reopening of assessment beyond the four years period is invalid.
Held that in the facts of the present case, the impugned notice under section 148 issued on 26.03.2018, i.e., after expiry of period of four years from the end of relevant assessment year, is beyond limitation in terms of the proviso to section 147 of the Act, no case could be made with regard to failure on part of assessee to disclose fully and truly all material facts.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the Assessee against the order of the ld. CIT(A)-9, New Delhi dated 3 1. 07 .2020.
2. Following grounds have been raised by the assessee:
“1. That the CIT(A) erred on facts and in law in upholding action of the assessing officer of reopening assessment u/s 147 of the Income Tax Act.
1.1 That the CIT(A) erred on facts and in law in sustaining the action of the assessing officer of reopening assessment proceedings which are barred by limitation of 4 years as provided in proviso to section 147 of the Income Tax Act.
1.2 That the CIT(A) erred on facts and in law in rejecting appellant contention that the reopening of the assessment proceedings by assessing officer are invalid and void ab initio as the reason to believe for reopening of assessment was not served to appellant within a reasonable time limit.
1.3 That the CIT(A) erred on facts and in law in rejecting appellant contention that reason recorded by assessing officer are defective as the same are undated and therefore re-assessment proceedings are invalid.
1.4 That the CIT(A) erred on facts and in law in sustaining the action of assessing officer of passing reassessment order u/s 147 and rejecting the contention of appellant that the procedure laid down by the honorable Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 was not followed in the reassessment proceedings.
1.5 That the CIT(A) erred on facts and in law in sustaining the action of assessing officer in reopening the assessment u/s 147 which is mere change of opinion by assessing officer. The basis on which assessment order u/s 147 of the Income Tax Act has been passed is invalid.
1.6 That the CIT(A) erred on facts and in law in observing that the copy of the approval obtained from Pr. CIT-9, New Delhi u/s 151 of the Income Tax Act was provided to appellant before passing the assessment order u/s 147 of Income Tax Act.
1.7 That the CIT(A) erred on facts and in law in upholding the action of assessing officer of passing assessment order u/s 147 without disposing off the objections raised by the appellant in respect of reason to believe for reopening of assessment u/s 147 by passing appropriate order.
2. That the CIT(A) erred on facts and in law in upholding action of assessing officer in disallowing additional deduction of Rs. 14,98,00,000/- in respect of research and development expenditure u/s 35(2AB) of the Income Tax Act.
2.1 That the CIT(A) has grossly erred on facts and in laws in confirming disallowance of additional deduction of R&D without considering the submission filed by the appellant on the allow ability of additional deduction of R&D expenditure claimed u/s 35(2AB) of the Income Tax Act.
2.2 That the CIT(A) has grossly erred on facts and in laws in holding that competent authority (Department of Scientific and Industrial Research) decides the amount of additional deduction of R&D expenditure claimed u/s 35(2AB) of Income Tax Act.”
Deduction u/s 35(2AB):
Reopening u/s 148:
3. The assessee company is engaged in the business of manufacturing & trading of commercial vehicles and components including gears, engineering solutions and providing services in relation to commercial vehicles.
The reasons recorded by the Assessing Officer for issue of notice u/s 148 are as under:
“Reasons for issue of notice u/s 148 for reopening of assessment u/s 147 of the Income Tax Act, 1961 for the A.y. 2012-13 in the case of M/s V.E. Commercial Vehicles Ltd.
Return for AY 2012-13 declaring income of Rs. 297,55,70,558/- was filed by the assessee company on 28.09,2012 The JCIT (OSD), Circle-26(1), New Delhi vide his order dated 18.04.2016 made several additions/disallowance in the return income and assessed at income of Rs. 575,09,21,452/- under the MAT provision. From the perusal of P&L account, computation of income and other details filed by the assessee company, it was seen that the assessee had claimed weighted deductions u/s 35(2AB) of Rs. 120.39 crores.
As per the provisions of section 35(2AB) and I.T. Rules, the assessee is required to furnish the report submitted b y the prescribed authority i.e. Department of Scientific and Industrial Research, which in the assessee case is given in the Form 3CL. From perusal of the copy of the form 3CL reported by the DSIR. It is seen that the approval for eligible expenditure for R&D u/s 35(2AB) is given only for Rs.10,541.69 lakhs. The deduction u/s 35(2AB) is admissible to the extent of Rs.10541.69 lakhs only. Thus, the assessee has claimed excess deduction of Rs.14.98 crores (calculated as below in the table).
From the perusal of Section 35(2AB) and rules, is is very clear that to claim deduction u/s 35(2AB), the assessee needs to take approval from the prescribed authorities which in the present case is DSIR. Further, the Rule 7A provides for taking approval of expenditure incurred on Research and Development from the Secretary DSIR. It is clearly provided that the assessee company will maintain and submit separate accounts to the DSIR in respect of the R&D expenditures and then after examining of the same, the DSIR will grant an approval to the assessee. Further, the rules also prescribes that after granting the approval for the expenditure, the DSIR will submit the report to the prescribed authority i.e. DGIT (Exemption) in Form 3CL u/s 35(2AB) of the I.T. Act. Thus, the Section 35(2AB) r.w.r. 6 & 7A clearly makes it mandatory for the assessee to seek the approval of the DSIR and being a technical agency, the act makes it very clear that any approval for the expenditure is to be granted by the DSIR and the same is binding on I.T. Authorities.
Further, the DSIR has been given the mandate to certify he actual and eligible expenditure incurred on R&D activities after due examination of the assessee account. Further, the DSIr is well within its right to consider some expenditure as ineligible for R&D expenses based on their own guidelines because being a technical agency they have more clear idea about the things which are used to research and development or otherwise and all this is necessary so that the concerns/companies do not take excess/ineligible deduction u/s 35(2AB)/35 of the I.T. Act.
Details of additional deduction claimed by the assessee and eligible deduction as per Form No. 3CL from the DSIR for the Assessment Year 2012-13 are listed as below:
