2011 (12) TMI 378 - HC - Income Tax

Reassessment - deduction u/s 80 IB - date of commercial production - the notice u/s 148 as well as notice u/s 154 - assessment year 2003-04 - held that - A reading of the notice under Section 154 of the Act and the reassessment notice dated 11th May 2009 shows that there is absolutely no material difference on the issues sought to be considered under these notices except the fact that while in the proceedings under Section 154 the notice is based on the view that there was a mistake apparent on the face of the record warranting a rectification the proceedings under Section 147 alleged that by reason of the untrue and incorrect particulars given by the assessee there had been an escapement of tax. Given the fact that the area of operation of both these provisions are on totally different fields the simultaneous assumption of jurisdiction under Sections 154 and 147 on the self same issue plainly shows the contradiction in the reasoning of the second respondent and as without logic or reason. There cannot be two parallel proceedings on the self same issue as one based on the view that there were materials available on record which warranted exercise of jurisdiction under Section 154 and the other initiated under Section 147 that there was escapement of income from tax on account of the failure of the assessee from disclosing the full and correct particulars - Notice u/s 148 quashed. Regarding AY 2002-2003 and 2004-2005 - notice u/s 148 - held that - the notices do not even touch on the primary materials disclosing the causal link to believe that there was escapement of income from assessment on account of the failure of the assessee from disclosing the true and full facts. Thus apart from the above going by the period of limitation provided for under Section 147 proviso in the absence of any materials to support the assumption of jurisdiction within the four year limitation period prescribed therein the proceedings initiated after the expiry of four years from the assessment year suffer from lack of jurisdiction on the part of the first respondent in proceeding further in this matter. Ground of alternative remedy of appeal - held that - the existence of an alternative remedy by way of appeal would not stand in the way of this Court granting the relief under Article 226 particularly on the admitted fact as regards the date of commercial production taken up for consideration for the purpose of granting 100% relief.

Issues Involved:
1. Validity of reassessment notice under Section 148 of the Income Tax Act, 1961.
2. Jurisdiction and limitation under Section 147 of the Income Tax Act.
3. Basis for reopening assessment and the role of audit objections.
4. Interpretation and application of Section 80 IB regarding the commencement of commercial production.
5. Simultaneous proceedings under Sections 154 and 147 of the Income Tax Act.
6. Eligibility for deductions under Section 80 IB and inclusion of interest and miscellaneous income.
7. Alternative remedy and maintainability of writ petitions.

Detailed Analysis:

1. Validity of Reassessment Notice under Section 148:
The petitioner challenged the reassessment notice dated 19.03.2009 for the assessment years 2002-03, 2003-04, and 2004-05 issued under Section 148 of the Income Tax Act. The court examined whether the notice was validly issued based on the reasons provided by the Assessing Officer, which included allegations of excessive deductions under Section 80 IB and incorrect inclusion of certain incomes.

2. Jurisdiction and Limitation under Section 147:
The petitioner argued that the reassessment proceedings were barred by the limitation of four years as provided under Section 147. The court noted that the assumption of jurisdiction under Section 147 presupposes the existence of materials to form a belief that there was an omission or failure on the part of the assessee to disclose fully and truly all material facts. The court found that the reasons for reopening did not disclose any material that could justify the assumption of jurisdiction, especially after the expiry of four years.

3. Basis for Reopening Assessment and Role of Audit Objections:
The court observed that the reasons for reopening the assessment were identical to those in the rectification proceedings under Section 154, which were based on audit objections. The court held that reopening based on audit objections without independent application of mind by the Assessing Officer is not permissible. The court emphasized that there must be tangible material to justify the reopening of assessment.

4. Interpretation and Application of Section 80 IB:
The court examined the provisions of Section 80 IB, which grants deductions based on the date of commencement of commercial production. The court held that the deduction period should be calculated from the date of commercial production, not from the date of obtaining the license. The court found that the Assessing Officer's view that the deduction should be from the date of the license was legally incorrect.

5. Simultaneous Proceedings under Sections 154 and 147:
The court noted that the issues raised in the reassessment proceedings under Section 147 were the same as those in the rectification proceedings under Section 154. The court held that simultaneous proceedings under both sections on the same issues are contradictory and without legal basis. The court quashed the reassessment notices for the assessment year 2003-04 on this ground.

6. Eligibility for Deductions under Section 80 IB and Inclusion of Interest and Miscellaneous Income:
The court examined whether the interest and miscellaneous income could be included in the income eligible for deduction under Section 80 IB. The petitioner argued that the interest income was related to belated payments from purchasers and was part of the business income. The court found that the Assessing Officer had verified these claims during the original assessment, and there was no failure on the part of the assessee to disclose material facts.

7. Alternative Remedy and Maintainability of Writ Petitions:
The court addressed the issue of whether the petitioner should have exhausted alternative remedies before approaching the court. The court held that the existence of an alternative remedy does not bar the court from exercising its jurisdiction under Article 226 of the Constitution, especially when there is a lack of jurisdiction or violation of principles of natural justice. The court found that the reassessment proceedings were without jurisdiction and allowed the writ petitions.

Conclusion:
The court quashed the reassessment notices for the assessment years 2002-03, 2003-04, and 2004-05, holding that the proceedings were barred by limitation, lacked jurisdiction, and were based on an erroneous interpretation of Section 80 IB. The court emphasized that reopening of assessment cannot be based on mere change of opinion or audit objections without independent application of mind by the Assessing Officer.

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