2013 (8) TMI 109 - HC - Income Tax

Validity of notice u/s 148 - Claim u/s 10B scrutinized in original assessment - Tribunal held notice not valid - Held that - claim of the assessee for exemption under section 10B of the Act was scrutinized by the Assessing Officer in detail in the original assessment - The claim of exemption under section 10Bof the Act was not disturbed and this was done without giving detailed reasons for the same - The mere fact that the Assessing Officer did not give reasons for not disturbing the claim made by the Assessee in the final order of assessment would not authorize the Assessing Officer to reopen the same issue even within a period of four years from the end of relevant assessment year - Following decision of Gujarat Power Corporation Ltd. Vs. Assistant Commissioner of Income Tax 2012 (9) TMI 69 - Gujarat High Court - Decided against Revenue.

Summary

Issues involved:
Validity of notice of reopening under section 148 of the Income tax Act, 1961 within four years from the end of relevant assessment year.

Detailed Analysis:

Issue 1: Validity of notice of reopening under section 148 of the Income tax Act

The case involved an appeal by the Revenue against the judgment of the Income tax Appellate Tribunal regarding the validity of a notice of reopening under section 148 of the Income tax Act, 1961 within four years from the end of the relevant assessment year (2001-02). The Assessing Officer had issued the notice based on discrepancies in the allocation of expenses between the Domestic Tariff Area (DTA) and Export Oriented Unit (EOU) of the assessee. The Tribunal noted that the Assessing Officer had already examined the claim for exemption under section 10B of the Act during the original assessment. The Tribunal observed that the Assessing Officer had raised queries regarding the allocation of expenses, and the assessee had provided detailed justifications for the allocation. Despite not providing detailed reasons in the final assessment order, the Tribunal held that the claim for exemption under section 10B was not disturbed, and the notice of reopening was unjustified. The Tribunal relied on the decision of the Apex Court in CIT v. Kelvinator of India Ltd. to support its conclusion.

Issue 2: Legal Principles and Precedents

The Tribunal's decision was in line with legal principles that reopening an assessment based on a mere change of opinion was not permissible. The Tribunal emphasized that if the Assessing Officer had scrutinized a claim during the original assessment, not rejecting it or providing detailed reasons did not imply that the claim could be revisited through reopening. The Tribunal referred to the case law of Gujarat Power Corporation Ltd. Vs. Assistant Commissioner of Income Tax to support its reasoning. The judgment highlighted the special nature of the powers under section 147 of the Act, which allowed reopening of assessments under specific grounds to protect the revenue's interests. However, the judgment underscored that reopening assessments without tangible material indicating income escapement would lead to undue hardship for the assessee.

Issue 3: Judicial Interpretation and Safeguards

The judgment discussed the conflicting interests involved in reopening assessments and the need for safeguards to prevent arbitrary exercise of powers by the Assessing Officer. It noted that assessments, once finalized after scrutiny, should not be reopened solely on a change of opinion. The judgment emphasized that the Assessing Officer's failure to provide detailed reasons for not rejecting a claim during assessment did not imply a lack of opinion formation. The judgment highlighted that the burden of proof for income escapement lay with the revenue, and reopening assessments without tangible material would cause uncertainty and hardship for the assessee. The judgment cited the Delhi High Court's decision in Commissioner of Income Tax-VI, New Delhi vs. Usha International Ltd. to reinforce the principle that assessments should not be reopened based on non-reasoned orders.

In conclusion, the High Court dismissed the tax appeal, affirming the Tribunal's decision that the notice of reopening under section 148 of the Income tax Act was unjustified due to the Assessing Officer's thorough examination of the claim during the original assessment, despite the lack of detailed reasons in the final assessment order.