2005 (10) TMI 497 - AT - Income Tax

Summary

Issues Involved:
1. Carry forward of investment allowance.
2. Reopening of assessment based on change of opinion.
3. Interpretation and application of Section 115J of the Income-tax Act, 1961.
4. Application of the decision of the Andhra Pradesh High Court in Suryalatha Spinning Mills Ltd. v. Union of India.
5. Validity of reopening under Section 147 of the Income-tax Act, 1961.

Detailed Analysis:

1. Carry Forward of Investment Allowance:
The Commissioner of Income-tax (Appeals) directed the Assessing Officer to allow the carry forward of the investment allowance of Rs. 36,05,370 instead of Rs. 14,59,896. The Assessing Officer had restricted the claim to 70 percent of Rs. 73,43,219 to align the income computed under the normal provisions of the Income-tax Act with the income computed under Section 115J, resulting in a carry forward of Rs. 36,05,370. The reassessment allowed only Rs. 14,59,896 to be carried forward.

2. Reopening of Assessment Based on Change of Opinion:
The Commissioner of Income-tax (Appeals) held that the reopening of the assessment was unjustified, stating it was based on a change of opinion regarding the treatment of book profit under Section 115J. The Commissioner relied on the decisions in CIT v. Khetani Textile Industries P. Ltd. and CIT v. Bhanji Lavji, which held that reassessment based on a change of opinion is invalid.

3. Interpretation and Application of Section 115J:
Section 115J involves two stages of assessment: computation of income under normal provisions and computation of 30 percent of book profit. The Supreme Court in Karnataka Small Scale Industries Development Corporation Ltd. v. CIT held that deductions are taken into account in the first stage, and only the balance of unabsorbed allowances is carried forward. The Tribunal noted that the decision in Lallacherra Tea Co. P. Ltd. v. CIT, relied upon by the Commissioner, was overruled by the Supreme Court in the KSSIDC case.

4. Application of the Decision of Andhra Pradesh High Court:
The Revenue contended that the Commissioner's decision was contrary to the Andhra Pradesh High Court's decision in Suryalatha Spinning Mills Ltd. v. Union of India. However, this argument was not elaborated upon in the judgment.

5. Validity of Reopening under Section 147:
The Tribunal found that the reopening of the assessment was justified. The Assessing Officer had reason to believe that income had escaped assessment due to excessive relief granted. The Tribunal held that the computation of income under normal provisions is part of the assessment and that any incorrect determination of investment allowance to be carried forward constitutes escapement of income under Explanation 2 to Section 147.

Conclusion:
The Tribunal allowed the Revenue's appeal, holding that the reopening of the assessment was justified and that the Assessing Officer's original order, which allowed only Rs. 14,59,896 to be carried forward, was correct. The Commissioner of Income-tax (Appeals)'s order was set aside, and the Assessing Officer's order was restored. The decision was based on the binding precedent set by the Supreme Court in the KSSIDC case, which clarified the interpretation of Section 115J and the computation of income under the Income-tax Act.