2010 (12) TMI 138 - HC - Income Tax

Deduction u/s 80 I - Re assessment u/s 143(3)/147 of the Act - Jurisdiction - Excess deduction of Rs. 27,47,98,246/- was allowed to the assessee under Section 80-I. it was only during the course of assessment proceedings for the assessment year 1998-99, when the assessee was requested to furnish details of profit/loss of different units for each year starting from the year of commercial production that it came to the notice of the Assessing Officer that income to the extent of Rs. 27,47,98,246/- had escaped assessment and a notice under Section 148 of the Act was issued Tribunal has failed to consider the case from its proper perspective and has set aside the orders of the Assessing Officer, unstintingly approved by the Commissioner of Income Tax after detailed consideration, in a perfunctory manner, and without taking into account the fact that the assessee had by suppression of material facts (in this case the losses incurred by it) availed of an undue deduction of Rs. 27,47,98,246/- which had escaped assessment. - Order of ITAT set aside - matter remanded to tribunal

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer under Section 147 read with Section 148 of the Income-Tax Act, 1961.
2. Validity of the reassessment proceedings for the assessment year 1993-94.
3. Consideration of unabsorbed losses for computing deduction under Section 80-I of the Act.
4. Allegation of non-disclosure of material facts by the assessee.
5. Time-barred notice under Section 148 of the Act.
6. Change of opinion as a basis for reopening assessment.
7. Requirement of satisfaction from the Chief Commissioner/Commissioner of Income Tax under Section 151.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer under Section 147 read with Section 148:
The ITAT quashed the reassessment order for the assessment year 1993-94, stating that the initiation of action under Section 147 read with Section 148 was without jurisdiction. The ITAT observed that the reassessment for the assessment year 1992-93, which adjusted the carried-forward losses of assessment years 1989-90 and 1990-91, had been quashed. Consequently, no unabsorbed losses survived to be carried forward for the assessment year 1993-94, rendering the reassessment proceedings for 1993-94 without foundation and jurisdiction.

2. Validity of the Reassessment Proceedings for the Assessment Year 1993-94:
The High Court found that the ITAT failed to appreciate the provisions of Section 80-I(6) correctly. The profits and gains of an industrial undertaking must be computed as if such undertaking was the only source of income. The non-disclosure of losses incurred in earlier years by the assessee led to an excess deduction under Section 80-I. The Court held that the reassessment proceedings were valid as the assessee had failed to disclose material facts, and the necessary approval from the Commissioner of Income Tax was obtained for issuing the notice under Section 148.

3. Consideration of Unabsorbed Losses for Computing Deduction under Section 80-I:
The Assessing Officer determined that losses from the Aonla Unit for the assessment years 1989-90 to 1991-92 were to be carried forward and set off against profits of subsequent years before computing the deduction under Section 80-I. The ITAT's reliance on Sections 72 and 80 was misplaced as these provisions did not apply to the issue of computing deduction under Section 80-I. The High Court emphasized that the Assessing Officer was obligated to adjust unabsorbed losses of earlier years, whether declared or not.

4. Allegation of Non-Disclosure of Material Facts by the Assessee:
The High Court noted that the assessee failed to disclose the losses incurred by the Aonla Unit in its returns, leading to an undue deduction under Section 80-I. The Assessing Officer found that the information regarding losses was not disclosed during the original assessment or the first reassessment. It was only during the assessment proceedings for the assessment year 1998-99 that the losses were disclosed, prompting the issuance of a notice under Section 148.

5. Time-Barred Notice under Section 148:
The High Court addressed the respondent's contention that the notice under Section 148 was time-barred. The Court referred to the proviso to Section 147, which allows reopening of assessment beyond four years if there is a failure to disclose fully and truly all material facts. The Commissioner of Income Tax's approval for issuing the notice under Section 148 was based on the failure of the assessee to disclose material facts, thus justifying the reopening of the assessment.

6. Change of Opinion as a Basis for Reopening Assessment:
The High Court rejected the respondent's argument that the reassessment was based on a mere change of opinion. The Court held that the reopening was not due to a change of opinion but due to the non-disclosure of material facts by the assessee. The Assessing Officer's belief that income had escaped assessment due to non-disclosure was reasonable and justified the reassessment.

7. Requirement of Satisfaction from the Chief Commissioner/Commissioner of Income Tax under Section 151:
The High Court confirmed that the necessary satisfaction from the Commissioner of Income Tax was obtained before issuing the notice under Section 148. The approval noted that there had been a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, thus validating the issuance of the notice.

Conclusion:
The High Court set aside the ITAT's order and restored the order of the Assessing Officer, as affirmed by the CIT(A). The Court concluded that the reassessment proceedings were valid, the assessee had failed to disclose material facts, and the deduction under Section 80-I was wrongly claimed. The appeal was disposed of accordingly.