The judgment of the court was delivered by
Akil Kureshi J.- The petitioner has challenged a notice dated March 21, 2006, issued by the respondent-Assessing Officer under section 148 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). Under such notice, he proposed to reopen the assessment of the petitioner for the assessment year 1999-2000, which was framed after scrutiny. The notice was, thus, issued beyond the period of four years from the end of relevant assessment year.
2. The Assessing Officer had recorded the following reasons for issuance of notice :
"In this case, the return of income declaring a total income at Rs. 68,09,01,730 was filed on December 29, 1999. The assessment under section 143(3) of the Income-tax Act was completed on March 30, 2002, determining the total income at Rs. 92,07,62,670, which was revised at Rs. 69,17,49,861 as a result of the Commissioner of Incometax (Appeals)-VI, Baroda, order dated April 30, 2004.
2. The assessee has amortized GDR (global depository receipts) issue expenses over a period of 10 years and debited Rs. 87.73 lakhs (being one-tenth of the total expenditure on GDR issue) to its profit and loss account for the financial year 1995-96 onwards. No adjustment has been made in the statement of the total income, in this regard, thereby treating the expenses as deductible under section 35D as mentioned in clause No. 2. 3 of the notes forming part of the return of income. In this regard, during the course of the reassessment proceedings for the assessment year 2000-01, it was seen that part of the GDR issue was used for making investments, which includes the investment of Rs. 96.62 crores in UTI. On scrutiny of clause 5 of schedule 6 to the balance-sheet (page 20), investments in UTI and other funds mentioned at Rs. 96.64 crores. As such, the assessee has not utilized the full amount of the GDR issue for the purpose of investment in the new project. Hence, the admissible deduction per year was worked out at Rs. 13,50,000 on the basis of 2.5 per cent. of the cost of project for which the assessee had utilized the proceeds of the GDR issue. Thus, the assessee has claimed the excess deduction under section 35D of the Act in the assessment year 1999-2000 also. The excess deduction under section 35D of the Act was allowed to the assessee on account of its failure to disclose all material details like cost of project, necessary for the purpose of working out admissible deduction. Thus, the income of Rs. 74,23,000 has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment.
3. I have, therefore, reason to believe that the income chargeable to tax has escaped to the tune of Rs. 74,23,000. It is a fit case for issue of notice under section 148 of the Income-tax Act."
3. The petitioner raised several objections under a communication dated October 10, 2006, opposing the Assessing Officer's action of reopening of assessment. It was contended, inter alia, that in the assessment the claim of deduction under section 35D of the Act was accepted. Any change on the part of the Assessing Officer would be based on similar set of facts and, therefore, change of opinion. It was also contended that the claim on the merits was also otherwise valid.
4. The Assessing Officer rejected the objections by an order dated October 27, 2006. The petitioner, therefore, filed this petition and challenged the notice of reopening.
5. The learned counsel, Shri J. P. Shah, for the petitioner contended that the sole ground, on which the notice is based, is the petitioner's claim of deduction under section 35D of the Act. According to the Assessing Officer, there was excess deduction under the said head. Counsel submitted that this was the fifth year of the amortised deduction spread over ten assessment years. After scrutiny in the earlier years, the claim was accepted. Excess claim was made and allowed. Necessary facts were not produced by the assessee. Sufficiency of the reasons recorded by the Assessing Officer cannot be gone into by this court at this stage.
6. Having thus heard the learned counsel for the parties, we may recall that notice for reopening has been issued beyond the period of four years from the end of the relevant assessment year. The additional requirement flowing from the provisions of section 147 of the Act that the income chargeable to tax had escaped assessment for the reasons of the assessee's failure to disclose truly and correctly all the material facts, must be satisfied. In this context, we may notice that along with the return filed by the assessee, notes which form part of the return of income were produced. In such notes in the context of the claim of deduction under section 35D of the Act, it was stated as under.
"The company has incurred the expenditure on Euro Issue (GDR) for the first time in the assessment year 1995-96 and one-tenth of the total expenditure amounting to Rs. 87,73,074 is debited to the profit and loss account for the year ended March 31, 1999 (assessment year 1999-2000). This amount is claimed as deduction under section 35D (fifth year) of the Income-tax Act. Similar claim has been allowed in the regular assessment for the assessment year 1995-96."
7. Thus, the assessee not only made a claim in the return filed but also clarified in the notes that such claim was for expenditure incurred on Euro Issue for the first time in the assessment year 1995-96 and one-tenth out of the total expenditure of Rs. 87,73,074 is debited to the profit and loss account for the year ended on March 31, 1999. In the current year, such amount is claimed as deduction under section 35D of the Act for the fifth time. Similar claim was also allowed in the earlier regular assessments.
8. In our opinion, the assessee made full and true disclosure of all the material facts. Had this been the first year of assessment for the claim of deduction under section 35D of the Act, we would have been tempted to examine the learned counsel for the Revenue's contention that fully and truly all the material particulars were not produced along with the return or in the notes forming part of the return. In such context, Explanation (1) to section 147 of the Act would assume significance. Such Explanation provides that production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the proviso to section 147 of the Act. The Revenue's contention is that the deduction under section 35D of the Act is subject to fulfilment of certain conditions. One of them being flowing from sub-section (2) of section 35D is that the aggregate amount of expenditure exceeds 2.5 per cent. of the costs of the product or the capital employed in the business of the company, the deduction has to be limited to 2.5 per cent. It is true that, in the present case, the assessee did not produce either the costs of the project or the capital employed in the business of the company. It was, therefore, not possible for the Assessing Officer to ascertain from such return whether the assessee's claim for deduction was hit by the provision of section 35D(2) of the Act. In that context, as noted above, had this been the first year of claim, the Revenue's contention would require closer scrutiny. However, this was the fifth year of the assessee's claim for deduction under section 35D. As per section 35D of the Act, the expenditure clarifying such deduction would be spread over a span of ten assessment years. In the four previous years, when such claim was made and as pointed out by the assessee in the note forming part of the return, the same was accepted in a scrutiny assessment for the first year of the claim, the rest was a matter of computation. In that context, it can safely be stated that the assessee disclosed all the material facts. As held and observed by the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO reported in [1961] 41 ITR 191 (SC), the duty is on the assessee to disclose all the facts which had a bearing on the question of a claim.
9. In the context of the above decision, the assessee's disclosure that the company had incurred expenditure for the first time in the year 1995-96, which was also allowed after regular assessment and that in the present year, a tenth of the total amount recognised in the year 1995-96 is claimed under section 35D of the Act, in our opinion, was a sufficient disclosure of material facts. If the Assessing Officer had doubt about the validity of the claim in law, during scrutiny the same could have been examined. However, beyond the period of four years, it would not be open for the Assessing Officer to disturb such claim in the absence of failure on the part of the assessee to disclose fully and truly all material facts. Only on this count, the petition is allowed. The impugned notice is quashed. We make it clear that we have not expressed any opinion on the other grounds pressed by the petitioner to question the legality of the impugned notice. Rule is made absolute accordingly. There shall be, however, no order as to costs.