2011 (5) TMI 621 - HC - Income Tax

Validity of Reassessment proceedings - change of opinion on the question of applicability of Section 80HHB - Held that - Deduction u/s 80HHB was given to assessee in original assessment order after consideration of all materials and relevant facts and attempt has been made u/s 147 to review the original assessment order. Therefore when no action was taken against the order of the CIT (Appeal) by the Revenue in relation to OIA this issue has become final and binding as far as the said AY is concerned. On that ground it was not open for the Auditor for that matter Assessing Officer to reopen u/s 147/148 the settled issue on the quasi judicial side - Decided against the Revenue

Summary

Issues Involved:
1. Legality of initiation of reassessment proceedings based on change of opinion under Section 148 of the Income Tax Act, 1961.
2. Accrual of income for the purpose of deduction under Section 80HHB of the Income Tax Act, 1961.
3. Fulfillment of conditions under Section 80HHB for claiming deduction.

Detailed Analysis:

1. Legality of Initiation of Reassessment Proceedings:
The court examined whether the initiation of reassessment proceedings based on a change of opinion was legally permissible. The original assessment order allowed a deduction under Section 80HHB after considering all relevant facts and materials. The court noted that the Assessing Officer had formed an opinion in the original assessment order, which was affirmed by the Commissioner of Income Tax (Appeals). The court cited various judgments, including CIT v. Kelvinator of India Ltd. and Indian & Eastern Newspaper Society v. CIT, to establish that mere change of opinion cannot justify reopening an assessment. The court concluded that the reassessment proceedings were an attempt to review the original assessment order, which is not permissible under the law. The doctrine of merger was also applied, indicating that the original assessment order had merged with the appellate order, making it final and binding.

2. Accrual of Income for Deduction under Section 80HHB:
The court addressed whether the actual receipt of the amount from the foreign project could be treated as the accrual of income for the purpose of deduction under Section 80HHB. The court held that in cases where the right to receive the amount crystallizes only upon the resolution of disputes or arbitration awards, the income accrues at that point. The court referred to several judgments, including CIT v. Bharat Petroleum Corporation Ltd. and CIT v. Hercules Trading Corporation, to support this view. The court concluded that the right to receive the amount crystallized when the arbitration award was made in favor of the assessee, not when the construction work was completed.

3. Fulfillment of Conditions under Section 80HHB:
The court examined whether the conditions for claiming deduction under Section 80HHB were fulfilled. The conditions include maintaining separate accounts for the foreign project, obtaining a certificate from an accountant, and bringing convertible foreign exchange into India within the stipulated time. The court found that the assessee had maintained separate accounts and brought the convertible foreign exchange into India within the required time. The court rejected the findings of the reassessment order, which claimed that separate accounts were not maintained, as being perverse and based on misreading of the materials.

Conclusion:
The court allowed the appeal, set aside all judgments and orders passed on reassessment, and restored the original assessment order. The reassessment proceedings were deemed legally impermissible as they were based on a mere change of opinion. The court upheld that the income accrued when the arbitration award was made, and the conditions under Section 80HHB were duly fulfilled by the assessee.