2015 (9) TMI 1048 - HC - Income Tax

Validity of reopening of assessment - assessee has not fulfilled the conditions laid down in clause (II) & (III) of subsection (2) of Section 10 A of the Act, the income chargeable to the tax has escaped assessment - contention on behalf of the petitioner that as in the first assessment year i.e. assessment year 2006-07 the assessee was allowed the deduction / exemption under Section 10A and therefore, in the subsequent assessment years the assessee is eligible for deduction / exemption under Section 10A and assessee cannot be denied / doubted in the subsequent years such eligibility under Section 10 A - Held that - Whether the petitioner has fulfilled the conditions mentioned in clause (II) & (III) of subsection (2) of Section 10 A of the Act is not and/or whether the petitioner is eligible to claim exemption / deduction under Section 10 A of the Act are all question of facts and it is a mixed question of law and facts which are to be considered by the AO while framing the assessment / reassessment and at that time, the assessee shall have ample opportunity to put forward its case. Even while disposing of the objections against reopening, the AO is not required to observe anything in detail on merits of the case and with respect to eligibility of the petitioner assessee regarding deduction / exemption under Section 10 A of the Act. When in the respective assessment years, there were intimation under Section 143(1) of the Act and as such there do not appear to be any application of mind while allowing deduction / exemption under Section 10 A of the Act and mechanically same has been allowed on the basis of claim allowed in the previous year i.e. 2006-07 which has been doubted by the revenue, but the assessment for AY 200607 could not be reopened in view of bar under Section 149 of the Act and after considering the material on record and AO has reason to believe that the income chargeable to tax has escaped assessment as the conditions mentioned in clause (II) & (III) of subsection (2) of Section 10 A of the Act have not been fulfilled and therefore, the petitioner assessee is / was not eligible for deduction/ exemption under Section 10 A of the Act and therefore, income chargeable to tax has escaped assessment, in the facts and circumstances of the case, it cannot be said that the impugned notices under Section 148 of the Act are invalid and / or wholly without jurisdiction and / or assumption of jurisdiction under Section 147 of the Act is illegal. Ample opportunity shall be given to the petitioner to put forward its case with respect to eligibility under Section 10 A of the Act as claimed, during the assessment / reassessment proceedings. Under the circumstances and in the facts and circumstances of the case, we are of the opinion that this is not a fit case to exercise powers under Article 226 of the Constitution of India and to quash and set aside the impugned notices under Section 148 of the Act.

Issues Involved:
1. Legality of the notices issued under Section 148 of the Income Tax Act, 1961.
2. Validity of reopening assessments for Assessment Years 2007-08, 2008-09, 2009-10, and 2010-11.
3. Compliance with conditions under Section 10A(2)(ii) and (iii) of the Income Tax Act.
4. Applicability of the principle of res judicata in fiscal statutes.
5. Adequacy of the Assessing Officer's (AO) reasons for reopening assessments.
6. Jurisdictional validity of the AO's actions under Section 147 of the Income Tax Act.

Detailed Analysis:

1. Legality of the Notices Issued Under Section 148:
The petitioner argued that the notices under Section 148 were illegal, invalid, and unjustifiable. It was contended that the formation of opinion by the AO that income chargeable to tax had escaped assessment was vitiated as there was no escapement of income. The petitioner relied on the principle that once an exemption under Section 10A was granted in the initial year, it could not be denied in subsequent years without valid grounds, referencing the case of Saurashtra Cement & Chemical Industries Ltd.

2. Validity of Reopening Assessments:
The respondent argued that the notices under Section 148 were justified as the AO had a reasonable belief that income chargeable to tax had escaped assessment due to non-compliance with conditions under Section 10A(2)(ii) and (iii). The court noted that in the relevant assessment years, there were only intimations under Section 143(1), which do not amount to assessments. Therefore, the question of change of opinion did not arise, making the reopening valid.

3. Compliance with Conditions Under Section 10A(2)(ii) and (iii):
The petitioner claimed compliance with all conditions under Section 10A(2)(ii) and (iii) and argued that the AO's observation to the contrary was unjustified. The petitioner cited decisions from the Madras High Court and Karnataka High Court, and a CBDT circular to support their compliance. However, the court found that these issues involved mixed questions of law and fact, which should be determined during the reassessment proceedings.

4. Applicability of the Principle of Res Judicata in Fiscal Statutes:
The respondent argued, citing the Supreme Court's decision in Deepak Agro Foods, that the principle of res judicata does not strictly apply to fiscal statutes. The court agreed, noting that the revenue had doubted the correctness of the exemption allowed in AY 2006-07 but could not reopen that assessment due to statutory time limits. Therefore, the principle of res judicata did not prevent reopening assessments for subsequent years.

5. Adequacy of the AO's Reasons for Reopening Assessments:
The court examined the reasons recorded by the AO for reopening the assessments, which included the non-fulfillment of conditions under Section 10A(2)(ii) and (iii). The court found these reasons to be sufficient material forming a reason to believe that income had escaped assessment, thus justifying the reopening.

6. Jurisdictional Validity of the AO's Actions Under Section 147:
The court held that the AO had jurisdiction to issue notices under Section 148 based on the belief that income chargeable to tax had escaped assessment. The court emphasized that the AO is not required to delve into detailed merits while disposing of objections against reopening, as these are to be considered during the reassessment proceedings.

Conclusion:
The court dismissed the petitions, upholding the validity of the notices issued under Section 148 and the jurisdiction of the AO to reopen the assessments. The court found that the petitioner would have ample opportunity to present their case during the reassessment proceedings. The petitions were dismissed with no order as to costs.

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