Reassessment — Full and true disclosure of all material facts by the assessee renders the reopening of assessment after expiry of four years not sustainable — as held by MumHC in Jayant Agro Chemicals Ltd v ITO and Others; Writ Petition No. 118 of 2011, 15 April 2011

Decided on: 14 March 2011 — In favour of: The Assessee.

The assessee is engaged in the business of manufacture and export of castor oil and castor oil derivatives claimed deduction in respect of the profits under s 10B. During the course of the assessment proceedings, the AO called upon the assessee to show cause as to why the claim under s 10B should not be disallowed. The AO passed an order under s 143(3) after recording detailed reasons allowing the claim under s 10B. However, subsequently the assessment was sought to be reopened solely on the ground that in the Assessment year in question the assessee had not achieved the value addition of 82% and has in fact achieved value addition of only 2% which was far below the targeted value addition imposed upon by the licensing authority. Being aggrieved the assessee has filed the present appeal. The assessee contended that the value addition to the extent of 82% on the value of imports was in fact achieved by the him and even the licensing authority had accepted the same. It was contended that the method of computing value addition adopted by the AO was faulty and in any event, in the absence of any failure on the part of the assessee to disclose fully and truly all material facts, reopening of the assessment beyond four years from end of the relevant AY cannot be sustained.

The issue is whether reopening of assessment after expiry of four years is permissible even if the assessee has disclosed fully and truly all material facts.

As per the proviso to s 147 of the Act, the assessment can be reopened beyond four years from the end of the relevant assessment year, only if there is failure on the part of the assessee to disclose fully and truly all material facts. In the present case, the assessment is sought to be reopened beyond the period of four years and there is no material on record to suggest that there was failure on the part of the assessee to disclose fully and truly all material facts. From the reasons recorded for reopening of the assessment, it cannot even remotely be said that there is failure to disclose fully and truly all material facts. Presumption on the part of the AO that the assessee has failed to achieve 82% value addition is not even case of the licensing authority who has imposed the condition regarding value addition. The notice impugned in the petition for reopening of the assessment cannot be sustained.