ITAT grants relief to MRF Ltd

ITAT grants relief to MRF Ltd

The Income Tax Tribunal quashed notice of re-assessment holding that it was not based on sound footing, is illegal and liable to be quashed

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) quashed the notice of re-assessment against MRF Ltd (Appellant) and held that if the assessment is reopened after four years from the end of the assessment year and such assessment was completed under Section 143(3) of the Income Tax Act, 1961 (IT Act) no action can be taken after the expiry of four years from the end of the relevant assessment year.

Unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee/appellant to disclose fully and truly all material facts necessary for assessment for that assessment year, ruled the ITAT.

The coram consisting of Mahavir Singh (Vice President) and G. Manjunatha (Accountant Member) noted in its judgement delivered on 28 January 2021 that the Assessing Officer (AO) had not recorded the failure, if any, on the part of the assessee. The assessment is re-opened after four years from the end of the assessment year.

The appellant/assessee company, M/s MRF Limited claimed to be engaged in the business of manufacture and sale of automobile tyres, tubes, and automobile rubber products and had filed its return of income for the assessment year 2009-2010 on 30 September 2009, admitting a total income of Rs 59.56 crore. The assessment for the impugned assessment year was completed under section 143(3) of the IT Act, vide order and assessed total income at Rs 64.42 crore.

The case was subsequently reopened under section 147 of the IT Act, for the reasons recorded as per which income chargeable to tax had been escaped assessment on account of the excess claim of deduction under section 80JJAA of the IT Act for Rs 79.73 lakh.

The assessee had filed objections for reopening assessment and the same has been disposed of vide speaking order. The assessment had been completed under Section 143(3) read with section 147 of the IT Act and determined total income at Rs 66.45 crore after making addition towards disallowance of excess claim of deduction under Section 80JJAA of the IT Act, for Rs 72.36 lakh.

The assessee contended that the Commissioner of Income Tax (Appeals) (CIT[A]) had erred in upholding reopening of assessment under section 147 of the IT Act, ignoring the fact that the assessment had been reopened beyond the period of four years from the end of the assessment year and the original assessment had been completed and in such case, the assessment cannot be reopened unless the AO alleged that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the completion of the assessment.

On the other hand, the Assistant Commissioner of Income Tax (respondent) strongly supported the order of CIT(A) and submitted that there was a failure on part of the assessee to disclose fully and truly all material facts necessary for assessment which was evident from the fact that the assessee had made the excess claim of deduction even though the number of employees employed during the year was lesser than what was considered by the assessee to claim deduction under Section 80JJAA of the IT Act.

The ITAT noted that, in case where the assessment was reopened after four years, for invoking proper jurisdiction, the AO has to record the reason to believe that any income chargeable to tax had escaped by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. However, in the present case on perusal of reasons recorded for reopening of the assessment, it was found that there was no allegation by the AO on failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

The ITAT stated that there are two important conditions that are required to be fulfilled for undertaking the reassessment.

Firstly, the ITAT mentioned that in such cases, for invoking proper jurisdiction, the AO has to record the reason to believe that any income chargeable to tax escaped for any assessment year.

Secondly, the ITAT had clarified that any income chargeable to tax escaped assessment for such assessment year by reason of the failure on the part of the assessee.

The ITAT held that the second condition was not fulfilled and the notice issued under section 148 had no legal sanction and hence the impugned assessment is quashed.

The ITAT observed, "Therefore, we are of the considered view that reopening of assessment is not based on sound footing and hence the impugned assessment order framed under Section143(3) read with Section 147 of the IT Act, is illegal and liable to be quashed."