ITAT quashes Reopening of Assessment against Red Hat India [Read Order]

ITAT - assessment - Red Hat India - Taxscan

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench quashed reopening of assessment against Red Hat India.

The assessee company,  Red Hat India is engaged in the business of marketing, promotion and distribution of ‘Red Hat Subscriptions’ to customers in Indian Sub-Continent. The assessee basically acts as a distributor of Red Hat Subscription which enables the customers in India to avail the support services for open source software systems.

The return of income for the Assessment Year 2007-08 was filed by the assessee company admitting loss of Rs 5,27,32,540. The original assessment was completed under section 143(3) of the Act determining total loss of Rs 5,03,97,261.

Later this assessment was sought to be reopened by the AO vide issuance of notice under section 148 of the Act. This reopening notice was admittedly issued beyond 4 years but within 6 years from the end of the relevant assessment year. The assessee filed its return of income in response to notice under section 148 of the Act and sought for reasons recorded for reopening the assessment.

The preliminary issue raised by the assessee is with regard to challenging the validity of reopening of assessment for the Assessment Year 2007-08 under section 147 of the Act.

The coram of Amarjit Singh and M.Balaganesh observed that the reopening in this case had been made beyond 4 years from the end of the relevant assessment year. Hence the applicability of proviso to section 147 of the Act would come into operation.

The ITAT found that the reasons recorded by the AO for reopening the assessment should duly mention the failure, if any, on the part of the assessee in disclosing full and true information relevant for the assessment if the reopening is made beyond 4 years from the end of the relevant assessment year; and that the reasons recorded cannot be substituted at a later point in time by subsequent evidences by the AO and that the reasons recorded should speak by itself and duly express the clear mind of the AO which enabled him to frame an opinion that income of the assessee had escaped assessment within the meaning of section 147 of the Act.

The tribunal while allowing the appeal of the assessee, Red Hat India held that the reopening of assessment made for the Assessment Year 2007-08 is to be declared void ab initio and is quashed.

“In view of this decision on one aspect of reopening of assessment, the other legal arguments advanced by the ld AR on the aspect of non-compliance with provisions of section 151 of the Act , absence of tangible material for reopening etc, need not be gone into and they are left open. Since the reopening of assessment for the Asst Year 2007-08 is quashed, there is no need to adjudicate the other grounds in assessee as well as revenue appeal on merits as they would be academic in nature,” the ITAT said.

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