2014 (7) TMI 1240 - HC - Income Tax

Reopening of assessment - Deduction claim under Section 80 HHC - Held that - Jurisdictional requirement of having reason to believe that income chargeable to tax has escaped assessment was not satisfied, as the applicable facts were not considered. The order disposing of the objections records that the effect was given to the order dated 29 December 2013 by him on 15 February 2005. This was undisputedly much after the impugned notice. Therefore, admittedly the impugned notice has been issued on the basis of incorrect facts. On this ground also, we find merit in the submissions made on behalf of the petitioner. In any view of the matter, the stand of the petitioner on merits with regard to interest income being included while computing the claim for deduction under Section 80HHC has been upheld not only by the CIT(A) but also by the Tribunal in its order dated 22 November 2006. Besides the amendment to Section 80HHC (3) of the Act by addition of fifth proviso thereto with retrospective effect will work to the benefit of the petitioner. In the above view of the matter, allowing reassessment proceedings would be a mere academic exercise only because the Assessing officer would bound by the orders of the Tribunal. Moreover, the very basis of the impugned notice dated 10 January 2005 will not be sustainable. In view of all the above reasons, we set aside the impugned notice dated 10 January 2005.

Issues:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for Assessment Year 2000-01.
2. Consideration of interest income while computing the deduction under Section 80HHC of the Act.
3. Jurisdictional requirement for reopening the assessment.
4. Effect of appellate orders on the assessment proceedings.

Analysis:

Issue 1: Validity of the notice under Section 148:
The petition challenged the notice dated 10 January 2005 issued by the Assessing Officer under Section 148 of the Income Tax Act, seeking to reopen the assessment for A.Y. 2000-01. The Assessing Officer's reasons for reopening included the judgment of Mangalya Trading and Investment Limited and IPCA Laboratories Limited, stating that the deduction under Section 80HHC would not be available on balance incentives if there is no net profit from trading and manufacturing export. The petitioner objected to the notice, arguing that the Assessing Officer ignored the order of CIT(A) dated 29 December 2003, which modified the assessment order passed earlier. The High Court held that the notice was based on a change of opinion by the Assessing Officer and was not sustainable.

Issue 2: Consideration of interest income for Section 80HHC deduction:
The petitioner contended that interest income should be included while computing the deduction under Section 80HHC, a stance upheld by CIT(A) and the Tribunal. The Assessing Officer failed to consider the interest income as directed by CIT(A) in the order dated 29 December 2003, leading to incorrect figures in the impugned notice. The High Court found merit in the petitioner's argument and emphasized that the Assessing Officer's failure to give effect to the appellate order rendered the notice unsustainable.

Issue 3: Jurisdictional requirement for reopening assessment:
The High Court reiterated that a notice under Section 148 can only be issued if there is a reason to believe that income has escaped assessment, not based on a mere change of opinion. In this case, the Assessing Officer's grounds for reopening were deemed a change of opinion as the petitioner's response on deduction under Section 80HHC was already considered during the original assessment. The Court held that the impugned notice lacked jurisdiction and was not sustainable.

Issue 4: Effect of appellate orders on assessment proceedings:
The High Court highlighted that the Assessing Officer's failure to give effect to the CIT(A) order dated 29 December 2003 before issuing the impugned notice led to incorrect facts being considered. The order disposing of objections confirmed that the CIT(A) order was implemented after the notice was issued, indicating a lack of proper consideration of relevant facts. The Court concluded that the impugned notice was issued on incorrect grounds and set it aside.

In conclusion, the High Court allowed the petition, emphasizing that the notice to reopen the assessment was unsustainable due to the Assessing Officer's failure to consider relevant facts and appellate orders.

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