2014 (5) TMI 845 - AT - Income Tax

Validity of reopening of assessment Reason to believe - Reduction of Claim of Deduction U/s 80 IB of the Act - Held that - Assessee contended that the reopneing of assessment vide notice u/s 148 dated 31st March 2010 is beyond four years from the end of the assessment year - the reassessment is not valid in view of the proviso to section 147 of the Income Tax Act - since no disallowance has been made by the AO in the reassessment proceedings u/s 80IB thus, the grounds for reopening of the assessment becomes infructuous Decided in favour of Assessee. Reduction in the Claim of Deduction U/s 80HHC of the Act Held that - The original assessment was completed u/s 143(3) and after expiry of four years - The AO has reopened the assessment vide notice u/s 148 issued on 31st March 2010 - the assessee has made the reference to Circular No. 772 dated 23.12.1980 and claimed that when the deduction is claimed for more than 100% only in such cases suitable safeguard is provided to prevent undue advantage of double deduction - Relying upon Lalitha Chem Industries Pvt. Ltd Vs. DCIT 2013 (11) TMI 1494 - BOMBAY HIGH COURT - the AO has power to re-assess but has no power to review an assessment - The power of re-assessment could only be exercised if certain pre-conditions are satisfied - the AO must have reason to believe that income chargeable to tax has escaped assessment. For reopening the assessment the primary condition to be satisfied is that the AO must have reason to believe that the income chargeable to tax has escaped assessment and this reason to believe must be based on some tangible material and cannot be a mere assertion of the AO - the reopening of assessment after four years from the end of the assessment year in the case of the assessee is without any tangible material on the basis of which the AO could have formed the belief that the income assessable to tax has escaped assessment and further since the assessment has been reopened after expiry of four years - in the absence of any allegation that income assessable to tax has escaped assessment by the reason of failure on the part of the assessee to disclose fully and truly all material facts relevant for the assessment, the reopening is hit by the proviso to section 147 - the reopening of assessment is not sustainable and set aside Decided in favour of Assessee.

Issues Involved:
1. Validity of reopening proceedings under Section 147 read with Section 148 of the Income Tax Act.
2. Reduction of claim of deduction under Section 80IB.
3. Reduction in the claim of deduction under Section 80HHC.
4. Levying of interest under Section 234D of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening Proceedings under Section 147 read with Section 148 of the Income Tax Act:

The assessee challenged the validity of reopening the assessment for A.Y. 2003-04, arguing that the notice under Section 148 dated 31st March 2010 was beyond four years from the end of the assessment year, thus rendering the reassessment invalid under the proviso to Section 147. The original assessment was completed under Section 143(3) on 28.02.2006. The AO reopened the assessment on three grounds: the assessee not being engaged in manufacturing or production to qualify for deduction under Section 80IB, non-furnishing of Form No. 10CCB, and failure to reduce profits of the 80IB unit from business profits while computing deduction under Section 80HHC. The AO did not make any disallowance under Section 80IB in the reassessment, rendering the first two grounds for reopening irrelevant. The Tribunal noted that the AO had raised specific queries on the reduction of 80IB unit profits during the original assessment, which were duly replied to by the assessee. The Tribunal held that the reopening was based on a change of opinion without any tangible material, and since the reopening was beyond four years, it was invalid due to the absence of any failure by the assessee to fully and truly disclose all material facts necessary for assessment. Consequently, the reassessment was quashed.

2. Reduction of Claim of Deduction under Section 80IB:

The assessee contended that the interest received should be treated as profit or gains derived from business for the purpose of deduction under Section 80IB. The AO had disallowed the deduction in respect of the interest income during the reassessment, which was overlooked in the original assessment. However, since the reassessment itself was quashed, this ground became infructuous.

3. Reduction in the Claim of Deduction under Section 80HHC:

The assessee raised multiple issues under this ground:
- Inclusion of Excise and Countervailing Duty in the adjusted total turnover.
- Reduction of 90% of gross interest instead of net interest while calculating the deduction under clause (baa) of sub-section (4) to Section 80HHC.
- Reduction of profits calculated under Section 80IB from the profits of the business while calculating deduction under Section 80HHC.
- Direction to reduce 90% of gross receipts from job work business instead of net income.

The Tribunal did not address these issues on merits as the reassessment was quashed, making these grounds infructuous.

4. Levying of Interest under Section 234D of the Income Tax Act:

The assessee challenged the levy of interest under Section 234D. However, since the reassessment was quashed, this ground also became infructuous.

Conclusion:

The Tribunal concluded that the reopening of the assessment was not sustainable due to the lack of tangible material and the absence of any failure by the assessee to disclose fully and truly all material facts necessary for assessment. Consequently, the reassessment was quashed, and the appeal of the assessee was allowed.

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