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Facts

The subject of the assessment managed a company that developed and sold computer software and other services related to human resources.

The assessee sent in a return claiming a loss after subtracting common expenses from its two sources of revenue, which were software development and human resource development. The assessee also submitted a claim for a deduction under section 10A of the Income Tax Act,1961 for the income generated from software development.

When the return was chosen for evaluation under section 143 of the Income Tax Act,1961, a specific question was raised regarding the distribution of shared expenditures between the two headings, namely software development and human resource development (2). Upon the provision of an adequate explanation of the circumstances, a directive was issued that designated the income as “Nil.” When it was determined that an excess deduction had been allowed following section 10A of the Income Tax Act,1961, a notification following section 148 of the Income Tax Act,1961 was subsequently sent.

Concerns were raised by the assessee over the proposed reopening of the establishment. The reasons presented by the assessee were rejected.

On writ, the High Court reversed the reassessment notice that had been issued.

Issue

An assessment might be reopened to address the issue of excessive deductions claimed under section 10A if the allocation of expenses was a matter of debate during the first stages of the assessment.

Legal

1. Section 10A of the Income Tax Act,1961
2. Section 148 of the Income Tax Act,1961
3. Section 147 of the Income Tax Act,1961

Views

Before interfering with the requested reopening of the assessment because it is simply based on a change in opinion, the court should determine whether the previous assessment stated a view on an issue that forms the foundation of the claimed escapement of income. This is because the issue forms the foundation of the claimed escapement of income. If the assessment order is vague, obscure, or superficial, it may be difficult to determine what the assessing officer thinks about the concerns raised in the suggested reassessment processes.

In this particular case, it was clear from a casual reading of the notice that the matter that was brought up in the reassessment processes had been fully considered in the proceedings that came before it.

Held

The Assessing Officer (AO) decided to begin the section 147 reassessment procedures only because he now believes that the excess deduction was permitted. This decision was solely based on a change of heart about the same facts and circumstances that were previously known to him even during the initial assessment processes.

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Judgement Reviewed by Jay Kumar Gupta