2011 (11) TMI 413 - AT - Income Tax

Reassessment - assessee filed its return of income declaring income of Rs. 1,31,43,480/- on 30/10/2002 which was processed under section 143(1) of the Act - The assessing officer completed the assessment after allowing deduction under section 80-HHC keeping in view the amendment brought into statute by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1/04/1998 - proviso to section 147 where an assessment is made under section 143(3) or u/s 147, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year - it is clear that for assumption of jurisdiction under section 147, the AO is required to issue notice within the time limit specified under section 149 of the Act - there is no issue of sanction to be obtained by the assessing officer before issue of notice u/s 148 from the competent authority which in fact has been obtained by the assessing officer - the assessee vide its letter dated 16/11/2009 (filed on 1/12/2009), filed the reply challenging the reopening of assessment on legal plea that the reopening was based on change of opinion as also supported his claim for deduction under section 80-HHC in respect of DEPB receipts in the light of amendment brought into statute - It is a mere procedural lapse or an irregularity and not illegality making the assessment bad Regarding contention of the assessee is that the reasons recorded are vague and there is no allegation as to what amount of income had escaped assessment - it is clear that for the year under consideration turnover of the assessee was more than Rs.10 crores - There is no dispute about the fact that the AO has not quantified that the amount of income escaped because applicability of the said provisos - AO computed deduction under section 80-HHC by reducing sale of DEPB receipt from profits of business and thereafter computing deduction as per amended provisions of section 80-HHC - Decided against the assessee

Issues Involved:
1. Assumption of jurisdiction under section 147 of the Income Tax Act.
2. Validity of reassessment proceedings.
3. Computation of deduction under section 80-HHC of the Income Tax Act.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 147 of the Act:

The first issue for consideration relates to the assumption of jurisdiction under section 147 of the Act. The assessee argued that the reopening of the assessment was unlawful and without jurisdiction, as the reassessment was based on a mere change of opinion without any new material. The assessee contended that the AO had no valid reasons to believe that income had escaped assessment, and the reassessment was based on hypothetical assumptions rather than concrete evidence.

The AO, relying on the Supreme Court's decision in Rajesh Jhaveri Stock Brokers (P.) Ltd., asserted that processing a return under section 143(1) does not constitute an assessment, thus no question of change of opinion arises. The AO reopened the assessment based on amendments to section 80HHC by the Taxation Laws (Amendment) Act, 2005, which were applicable retrospectively.

The CIT (A) upheld the reopening, noting that the reasons recorded by the AO indicated that the assessee's turnover exceeded Rs. 10 crores, and the deduction claimed under section 80HHC was excessive due to the amended provisions. The CIT (A) found that there was adequate material for the AO to believe that income had escaped assessment, thus justifying the reopening.

2. Validity of Reassessment Proceedings:

The assessee argued that the notice under section 148 was received just before the expiry of six years from the end of the relevant assessment year, and the reasons for reopening were provided much later, beyond the six-year period. The assessee claimed that this delay invalidated the reassessment proceedings.

The Tribunal noted that the issuance of the notice within the prescribed time limit under section 149 is crucial for assuming jurisdiction under section 147. The Tribunal referred to the Supreme Court's decision in R.K. Upadhyaya v. Shanabhai P. Patel, which clarified that the issuance of the notice within the limitation period confers jurisdiction on the AO, while service of the notice is a condition precedent to making the assessment order.

The Tribunal rejected the assessee's contention, stating that the jurisdiction to reassess is vested in the AO upon issuing the notice within the prescribed time limit, and the delay in serving the reasons does not invalidate the reassessment proceedings.

3. Computation of Deduction under Section 80-HHC of the Act:

The assessee challenged the computation of deduction under section 80-HHC, arguing that the amended provisions of section 80-HHC, as per the Taxation Laws (Amendment) Act, 2005, should not be applied retrospectively. The assessee also contended that the deduction should not be reduced by 90% of the DEPB receipts.

The AO computed the deduction by reducing the DEPB receipts from the business profits, in line with the amended provisions. The CIT (A) upheld this computation, relying on the Bombay High Court's decision in Kalpataru Colours & Chemicals, which reversed the ITAT Special Bench's decision in Topman Exports.

The Tribunal concurred with the CIT (A), noting that the issue was covered by the Bombay High Court's decision. The Tribunal found no infirmity in the CIT (A)'s decision to uphold the computation of deduction under section 80-HHC as per the amended provisions.

Conclusion:

The Tribunal dismissed the appeal filed by the assessee, upholding the reopening of the assessment under section 147 and the computation of deduction under section 80-HHC as per the amended provisions. The Tribunal found that the AO had valid reasons to believe that income had escaped assessment and that the reassessment proceedings were initiated within the prescribed time limit. The Tribunal also upheld the computation of deduction under section 80-HHC, in line with the Bombay High Court's decision in Kalpataru Colours & Chemicals.

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