2010 (4) TMI 718 - AT - Income Tax

Reopening of assessment u/s 147 - whether the AO was correct in reopen the completed assessment with the reasons recorded - The important words of amended provison under s. 147 are has reason to believe and these words are stronger than the words is satisfied - the assessment cannot be reopened merely because subsequently the Assessing Officer changes his opinion or some other officer takes a different view Appeal is allowed

Summary

Issues:
1. Challenging reopening of assessment u/s 147 of the Act
2. Reduction of profit under section 80IB while computing deduction under section 80HHC
3. Calculation of deduction under section 80HHC in respect of DEPB

Analysis:

Issue 1: Challenging reopening of assessment u/s 147 of the Act
The appeal challenges the reopening of assessment under section 147 of the Act for the assessment year 2001-02. The CIT(A) upheld the reopening, stating that it was within four years and the power to reopen assessments is wider post the amended provisions of section 147. The appellant argued against the reopening citing the Supreme Court's judgment in CIT Vs. M/s Kelvinator of India Ltd., emphasizing that there was no valid reason to believe that income had escaped assessment. The tribunal analyzed the legal grounds and reasons recorded by the AO for reopening. They highlighted that for jurisdiction under section 147, the AO must have a valid reason to believe that income has escaped assessment, which cannot be arbitrary or irrational. The tribunal emphasized that the AO cannot initiate reassessment based on mere suspicion and must rely on reasons recorded at the initiation of proceedings. They concluded that the controversial issue cited by the AO was not a valid reason for reopening, as it did not meet the criteria under section 147, and hence, the appeal on this ground was allowed.

Issue 2: Reduction of profit under section 80IB while computing deduction under section 80HHC
The second and third grounds of the appeal related to the reduction of profit under section 80IB and calculation of deduction under section 80HHC in respect of DEPB. However, since the tribunal allowed the appeal on the legal issue of reopening the assessment, they did not delve into the merits of these grounds.

Conclusion:
The tribunal allowed the appeal of the assessee based on the legal issue of challenging the reopening of assessment under section 147 of the Act. The judgment emphasized the importance of a valid reason to believe that income had escaped assessment for initiating reassessment proceedings. The tribunal did not address the other grounds related to reduction of profit under section 80IB and calculation of deduction under section 80HHC due to the decision on the primary legal issue.