2007 (10) TMI 11 - HC - Income Tax

Reassessment AO issued a notice of reassessment on the ground of income chargeable to tax had escaped assessment Held that reassessment proceeding on the basis of mere change in opinion of the AO is not valid

Summary

Issues Involved:
1. Validity of the notice issued under section 148 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings were based on a mere change of opinion.
3. Interpretation of sections 10-A and 10-B of the Income Tax Act regarding the set-off of losses against profits.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice issued under section 148, arguing it was without jurisdiction as no income had escaped assessment and it was based on a mere change of opinion. The respondent contended that the petitioner had not made a true and full disclosure of material facts, justifying the issuance of the notice. The court examined whether the conditions for issuing a notice under section 148 were met, specifically if there was a "reason to believe" that income had escaped assessment. The court concluded that the reasons cited by the assessing officer were either non-existent or constituted a mere change of opinion, thus invalidating the notice.

2. Whether the reassessment proceedings were based on a mere change of opinion:
The court delved into whether the reassessment was initiated merely because a new assessing officer held a different view from his predecessor. It was noted that the original assessment had been completed after detailed queries and clarifications, and the deductions under sections 10-A and 10-B were allowed based on the methodology adopted by the petitioner. The court cited several judgments, including CIT v. Kelvinator of India Ltd. and Zuari Estate Development and Investment Co. Pvt. Ltd., emphasizing that a mere change of opinion cannot justify reopening an assessment. The court found that the second assessing officer's different interpretation of the same provisions without new material amounted to a mere change of opinion, which is insufficient for reassessment.

3. Interpretation of sections 10-A and 10-B of the Income Tax Act regarding the set-off of losses against profits:
The petitioner argued that deductions under sections 10-A and 10-B should be allowed without setting off losses from other units not eligible for such deductions. The court referred to the Supreme Court's judgment in CIT v. Canara Workshops P. Ltd., which held that losses of an undertaking eligible for a deduction should not be set off against the profits of another undertaking eligible for the same deduction. The court noted that the second assessing officer's view, which required setting off losses of non-eligible units against profits of eligible units, was a different interpretation of the same provisions and did not constitute new information or material.

Conclusion:
The court concluded that the notice issued under section 148 was invalid as it was based on a mere change of opinion and not on new material or information. The court emphasized that reassessment cannot be justified merely because a new assessing officer holds a different view on the interpretation of the provisions. Consequently, the petition was allowed, and the notice under section 148 was quashed.

Final Judgment:
The court ruled in favor of the petitioner, making the rule absolute in terms of prayer clauses (a) and (c) of the petition, effectively quashing the notice issued under section 148 of the Income Tax Act, 1961.