2010 (4) TMI 1134 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the reopening notice under section 148 of the Income-tax Act, 1961.
2. Eligibility of income of Rs. 51,75,000 for deduction under section 80HHC of the Income-tax Act.
3. Overall consideration of facts and circumstances by CIT(A) in the appeal.

Issue-wise Detailed Analysis:

1. Validity of the Reopening Notice under Section 148:
The primary contention was whether the CIT(A) erred in upholding the reopening notice under section 148 of the Income-tax Act, 1961. The facts revealed that a survey under section 133A was conducted, and additional income of Rs. 1.10 crores was offered to tax. The AO allowed deduction under section 80HHC on the amount of stock and advances receivable disclosed during the survey. However, the AO later opined that the assessee was not eligible for the deduction on these amounts and issued a notice under section 148. The assessee argued that the original assessment completed under section 143(3) could not be reopened on a mere change of opinion. The CIT(A) upheld the reopening, citing the AO's power under section 147 and relevant case laws, including Phoolchand Bajrang Lal Vs. ITO and Rakesh Agrawal Vs. ACIT, which support the AO's belief that income had escaped assessment.

2. Eligibility of Income for Deduction under Section 80HHC:
The second issue was whether the income of Rs. 51,75,000 disclosed during the survey was eligible for deduction under section 80HHC. The AO restricted the deduction, arguing that the disclosed stock and receivables were not derived from the business of exports and thus not eligible for deduction. The CIT(A) supported this view, stating that the additional income declared during the survey did not have a nexus with the profit derived from export business. The CIT(A) emphasized that the income declared was of an undisclosed nature and not related to the regular course of business, thereby not qualifying for the deduction under section 80HHC.

3. Overall Consideration of Facts and Circumstances:
The assessee contended that the CIT(A) failed to consider the overall facts and circumstances of the case. The CIT(A) dismissed this ground, stating that the powers of the AO under section 147 are extensive and that there was prima facie material to justify the reopening of the assessment. The CIT(A) concluded that the additional income declared during the survey could not be considered as business income for the purpose of deduction under section 80HHC.

Judgment:
The tribunal found that the AO reopened the assessment on the same set of facts available during the original assessment, which amounted to a change of opinion. Citing various judgments, including Kaira District Co-op. Milk Producers' Union Ltd. v ACIT and Jindal Photo Films Ltd., the tribunal held that reopening on a mere change of opinion is not permissible. Consequently, the tribunal quashed the impugned assessment order, allowing ground nos. 1 and 2 of the appeal. As a result, ground no. 3 became infructuous, and ground no. 4 was dismissed as it was general in nature.

Conclusion:
The appeal was partly allowed, with the tribunal quashing the reopening of the assessment on the grounds of a change of opinion and upholding that the additional income disclosed during the survey was not eligible for deduction under section 80HHC. The order was pronounced in the open court on 9-04-2010.