ITAT quashes Re-assessment Notice against MRF Limited

ITAT quashes Re-assessment Notice against MRF Limited

The Income Tax Appellate Tribunal (ITAT), Chennai Bench, coram consisting of Mahavir Singh and G. Manjunatha, quashed the notice of re-assessment against M/s MRF Limited (Assessee Company) stating that the Assessing Officer (AO) has not recorded the failure, on the part of the assessee, in the case of M/s MRF Ltd. (Appellant/Assessee Co.) v. The ACIT (Respondent).

The factual background of the case is that the assessee company has been engaged in the business of manufacture and sale of automobile tyres, tubes, and automobile rubber products, filed its return of income on 30 September 2009 for the assessment year 2009-10, admitting a total income of Rs.59.56 Crores.

The assessment for the impugned assessment year was completed under Section 143(3) of the Income Tax Act, 1961 (IT Act) and assessed total income at Rs.64,42,73,804.

The case was 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.79,73,230.

Objections were filed by the assessee company for reopening assessment and it was disposed of through a speaking order.

The assessment was completed under Section 143(3) read with Section 147 of the IT Act and determined total income at Rs.66,45,78,250 after making addition towards disallowance of excess claim of deduction under Section 80JJAA of the IT Act, for Rs.72,36,875.

It was contended by the assessee company that the Commissioner of Income Tax (Appeals) [CIT(A)] has erred in upholding the reopening of assessment under Section147 of the IT Act. That the CIT(A) has completely ignored the fact that the assessment has been reopened beyond 4 years from the end of the assessment year and the original assessment has been completed.

It was further contended by the assessee company that in such a case the assessment cannot be reopened unless the AO alleged that there is a failure on behalf of the assessee to disclose fully and truly all material facts necessary for the completion of the assessment.

The respondents submitted that there was a failure on part of the assessee company to disclose fully and truly all material facts necessary for assessment. That the assessee company has an excess claim of deduction although the number of employees employed by them was lesser than what was considered by the assessee to claim deduction u/s. 80JJAA of the IT Act. Hence, the assessment is re-opened after 4 years from the end of the assessment year.

An appeal was filed before the ITAT against the order of the CIT(A). The ITAT noted, "As per the proviso provided to Section 147 of the IT Act, if the assessment is reopened after 4 years from the end of the assessment year and such assessment was completed u/s.143(3) of IT Act, no action shall be taken after the expiry of 4 years.

It cannot be done unless any income chargeable to tax has escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year."

The ITAT stated that two conditions need to be fulfilled for undertaking the reassessment. Following are those two conditions-

- 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.

- Any income chargeable to tax escaped assessment for such assessment year by reason of the failure on the part of the assessee.

After hearing the submissions of both the parties and perusing the material evidence on record, the ITAT held that the second condition was not fulfilled in this case. Hence, the notice issued under Section 148 has no legal sanction and it quashed the impugned assessment.