Section 148 — Reassessment proceedings — Assessee’s appeal allowed by the CIT(A) on merits — In the appellate proceedings whether the assessee can challenge the validity of the reassessment proceedings — Held, Yes.

Section 148 — Reassessment proceedings — Assessee’s appeal allowed by the CIT(A) on merits — In the appellate proceedings whether the assessee can challenge the validity of the reassessment proceedings — Held, Yes.

The assessee firm was engaged in the business of manufacturing and trading in fabrics. Pursuant to the scrutiny assessment proceedings, the assessment for the A.Y. 2001-02 was finalised on 19-12-2003. In its return the assessee had claimed deduction u/s.80HHC amounting to Rs.3.18 crores which was computed after considering the sum of Rs.24.03 lac received on account of sale of DEPB licence. The assessment for A.Y. 2002-03 was made u/s.143(1). By the Taxation Laws (Amendment) Act, 2005, the receipt on account of the sale of DEPB licence was excluded from the definition of the term ‘total turnover’. The amendment made was retrospective from April 1, 1998. In view thereof, the AO reopened the assessment u/s.147 and issued the notice dated 28-3-2008 u/s.148. The assessee challenged validity of the action of the AO.

On appeal, the CIT(A) treated the grievance against reopening of assessment as not pressed but gave relief to the assess on merits in respect of additions made on account of the sale of DEPB licence by following the Special Bench decision of the Mumbai Tribunal in the case of Topman Exports [318 ITR (AT) 87]. Before the Tribunal, the Revenue relied on the decision of the Bombay High Court in the case of Kalpataru Colours & Chemicals (328 ITR 451) whereunder the Special Bench decision of the Mumbai Tribunal in the case of Topman Exports was reversed. As regards the validity of reopening of assessment, it was contended that since the assessee did not object to reopening of assessment before the CIT(A), it was not open to do so now.

Held:

According to the Tribunal, the mere fact that the assessee was not allowed to, or did not, press the grievance against the reopening of assessment before the CIT(A), particularly in a situation in which the resultant addition on merits could not have been sustained because of binding judicial precedent then holding at the relevant point of time, the assessee cannot be deprived of his rights to adjudicate the reopening of assessment at a later stage. Accordingly, it proceeded to decide the validity of the reassessment proceedings. Relying on the Mumbai Tribunal decision in the case of Dharmik Exim Pvt. Ltd. v. ACIT, (ITA No. 232/ Mum./2009), the Tribunal observed that it was a settled legal position that when the assessment is reopened beyond four years from the end of the relevant previous year and unless it cannot be established that the assessee had failed to disclose all the material facts necessary for the purpose of assessment, such reassessment proceedings cannot be upheld under the law. In the case of the assessee, the assessment for the A.Y. 2001-02 was made u/s.143(3) on 19-12-2003 while the notice u/s.148 was issued after 4 years on 28-3-2008. Therefore, the Tribunal upheld the grievance raised by the assessee in its cross-objection and allowed the same.

According to it, the fact that the assessment for A.Y. 2002-03 was framed u/s.143(1) would not have any impact on the validity of reassessment proceedings. As per the decision of the Mumbai Tribunal in the case of Pirojsha Godrej Foundation v. ADIT, [133 TTJ (Mumbai) 194] where it was held that irrespective of whether the assessment was finalised u/s.143(1) or section 143(3), the requirements of section 147 have to be fulfilled, the Tribunal allowed the cross-objection of the assessee challenging the reassessment proceedings and the appeals filed by the Revenue was dismissed as infructuous.