2010 (7) TMI 368 - HC - Income Tax

Reassessment Time limitation - Deduction u/s 80IB - Petitioner was informed that the profit and loss account revealed that deduction at the rate of 25 per cent. under section 80-IB of the Act has been claimed on the duty drawback while such deduction is not allowable and therefore there is escaped assessment Appeal is dismissed

Issues Involved:
1. Validity of notices under Section 148 of the Income-tax Act, 1961.
2. Reopening of assessment based on subsequent Supreme Court decision.
3. Applicability of Section 147 of the Income-tax Act, 1961.
4. Relevance of prior judicial decisions and their applicability.

Issue-wise Detailed Analysis:

1. Validity of Notices under Section 148 of the Income-tax Act, 1961:
The petitioner challenged the notices issued under Section 148 for the assessment years 2005-06 and 2006-07. The notices were issued within four years from the expiry of the relevant assessment years. The petitioner argued that the reopening of the assessment was based on a subsequent Supreme Court decision, which does not constitute valid material for reopening.

2. Reopening of Assessment Based on Subsequent Supreme Court Decision:
The petitioner contended that the decision of the Supreme Court in Liberty India v. CIT, which held that "duty drawback" is not eligible for deduction under Section 80-IB, does not constitute material for reopening the assessment. The petitioner relied on prior decisions, including CIT v. India Gelatine and Chemicals Ltd., which allowed such deductions. The petitioner argued that reopening based on a subsequent decision is equivalent to a review, which is not permitted under Section 147.

3. Applicability of Section 147 of the Income-tax Act, 1961:
The court examined Section 147, which allows the Assessing Officer to reassess income if there is reason to believe that income has escaped assessment. The court referred to the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which emphasized that reopening should be based on "tangible material" and not mere change of opinion. The court held that a subsequent Supreme Court decision constitutes material to form a belief of escaped assessment.

4. Relevance of Prior Judicial Decisions and Their Applicability:
The petitioner cited several decisions to support their argument, including:
- Geo Miller and Co. Ltd. v. Deputy CIT, which dealt with rectification under Section 154 and not reopening under Section 147.
- CIT v. Ramachandra Hatcheries, where reopening was not allowed based on a subsequent Supreme Court decision when the issue was already settled by the appellate authority.
- State of West Bengal v. Kamal Sengupta, which related to review under Order 47, rule 1 of the Civil Procedure Code and not reopening under Section 147.
- CIT v. Rao Thakur Narayan Singh, where reassessment was invalid as the issue was already decided by the Tribunal.
- Jiyajeerao Cotton Mills Ltd. v. ITO, which related to rectification of mistakes and not reopening.

The court distinguished these cases, stating that Section 147 pertains to reopening and reassessment, not review. The court held that the decision in Liberty India v. CIT applies retrospectively and constitutes valid material for reopening the assessment.

Conclusion:
The court dismissed the writ petitions, holding that the initiation of proceedings under Section 148 read with Section 147 for the assessment years 2005-06 and 2006-07 was legal and in accordance with the law. The subsequent Supreme Court decision in Liberty India v. CIT constituted valid material for reopening the assessment, and the petitioner was not entitled to the deduction on the duty drawback amount under Section 80-IB.

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