2006 (11) TMI 165 - HC - Income Tax

Challenged the initiation of proceedings u/s 147 - notice issued u/s 148 - escaped assessment - Time limit for notice u/s 149 - dedution u/s 80HHC - export profits - HELD THAT - On the basis of materials which were there with the concerned authorities at the material time, when the assessment order was passed, a decision has now been taken to disallow certain expenses, deduction of which had earlier been allowed. In the case of India Steamship Co. Ltd. v. Joint CIT 2005 (2) TMI 46 - CALCUTTA HIGH COURT , this court held that assessment could not be reopened by reason of mere change of opinion of the assessing authority on the same facts. The same view has been taken by this court in the case of Mercury Travels Ltd. v. Deputy CIT 2002 (9) TMI 95 - CALCUTTA HIGH COURT . In this case too, the assessing authority has purported to reopen the assessment upon change of opinion on the same facts. Significantly, the Revenue has in its affidavit-in-opposition purported to take yet another ground, that is, benefit of section 80HHC could not be allowed unless export sale proceeds were received in convertible foreign exchange. As rightly pointed out on behalf of the petitioner by Mr. Bajoria there could be no question of the deduction of export profits being allowed in the first place, unless the petitioners had been able to demonstrate that the sale proceeds were received in convertible foreign exchange. It was never the case of the Revenue, not even at the time of reopening of the assessment, that the proceeds were not received in convertible foreign exchange. In any case, it is well-established that the Revenue cannot by way of affidavit improve upon reasons initially disclosed for reopening of the assessment. As held by a Division Bench of the Bombay High Court in the case of Hindustan Lever Ltd. 2004 (2) TMI 41 - BOMBAY HIGH COURT reasons recorded by the assessing authority cannot be supplemented or substituted either by affidavit or by oral arguments. The writ application is, therefore, allowed. The impugned notice is set aside and quashed.

Issues:
1. Challenge of initiation of proceedings under section 147 of the Income-tax Act, 1961 for the assessment year 1994-95.
2. Consequential issuance of notice under section 148 of the Income-tax Act.
3. Allegation of no reasons to believe that the petitioner's income had escaped assessment.
4. Barred action by limitation.
5. Reopening of assessment based on calculation errors.
6. Discrepancies in allowing deductions under section 80HHC.
7. Change of opinion leading to reopening of assessment.
8. Requirement of export sale proceeds in convertible foreign exchange for claiming deductions under section 80HHC.

Analysis:
1. The petitioner challenged the initiation of proceedings under section 147 of the Income-tax Act for the assessment year 1994-95, contending that respondent No. 1 had no valid reasons to believe that the petitioner's income had escaped assessment. The petitioner operated two independent businesses and filed tax returns declaring income. The assessment was initially completed, but a notice under section 148 was issued later, which the petitioner argued was barred by limitation.

2. The Revenue argued that the notice was within the limitation period as the income amounting to over Rs. 1 lakh had escaped assessment. The court examined sections 148 and 149 of the Income-tax Act, emphasizing the time limits for issuing notices in cases where income has escaped assessment.

3. The court noted the distinction between "action" and "notice" as used in the relevant sections of the Act. It highlighted that once an assessment is made under section 143(3), reopening is restricted after four years unless specific conditions are met. The judgment referenced a previous case to support the interpretation of the relevant provisions regarding the limitation period for initiating actions under section 147.

4. The court held that the impugned action against the petitioner was barred by limitation as it was not initiated within four years from the end of the relevant assessment year. The notice for reopening the assessment did not provide valid reasons initially, and the later reasons disclosed were related to calculation errors in deductions under section 80HHC.

5. The court found that the Revenue's decision to disallow certain expenses, based on existing materials at the time of the original assessment, did not justify reopening the assessment. It cited previous judgments where assessments could not be reopened solely based on a change of opinion by the assessing authority.

6. Additionally, the court addressed the Revenue's argument regarding the requirement of export sale proceeds in convertible foreign exchange for claiming deductions under section 80HHC. It emphasized that such a condition should have been raised earlier and could not be introduced later through affidavits.

7. Ultimately, the court allowed the writ application, setting aside and quashing the impugned notice dated March 20, 2001. The judgment highlighted the importance of adhering to the statutory limitations and providing valid reasons for reopening assessments to ensure procedural fairness and legal compliance.

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