2015 (11) TMI 1296 - AT - Income Tax

Reopening of assessment - disallowance of deduction u/s 80IB - CIT(A) allowed claim - Held that - CIT(A) has given clear finding that the assessee is eligible to claim deduction u/s 80IB as per the provisions of sec. 80IB(3)(ii) of the Act. The Ld CIT(A) has further held that the question as to whether the assessee is a Small Scale Undertaking or not has to be examined as per the provisions of Industries (Development and Regulation) Act, 1951. Another important point noted by the Ld CIT(A) is that the assessee had been allowed deduction u/s 80IB of the Act in the years earlier to the two years under consideration, meaning thereby the eligibility of the assessee to claim deduction u/s 80IB of the Act had already been examined in the earlier years. Hence, by placing reliance on some of the judicial decisions, the Ld CIT(A) held that the assessing officer, after having accepted the eligibility of the assessee to claim deduction u/s 80IB of the Act in the earlier years and after having allowed the deduction in the initial year as well as in some of the subsequent years, is not correct in examining the eligibility of the assessee again in other subsequent years. Accordingly he held that the action of the AO has to be considered as taken on mere change of opinion only. CIT(A) was justified in holding that the assessing officer has proceeded to examine the eligibility of the assessee to claim deduction u/s 80IB of the Act for the two years under consideration merely on change of opinion. Further, the various judicial decision relied upon by Ld CIT(A) would show that, after having accepted that the assessee is a small scale industry for a good number of earlier years, it is not open for the AO to change his view, that too only for two years under consideration. Accordingly, we uphold the orders passed by Ld CIT(A) for both the years under consideration. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reopening of assessment.
2. Eligibility of the assessee to claim deduction under section 80IB of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessment:

The revenue contested the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] in holding that the reopening of assessment was bad in law for the assessment years 2004-05 and 2005-06. The original assessments were completed under section 143(3) of the Income Tax Act, allowing the deduction under section 80IB claimed by the assessee. The Assessing Officer (AO) later noticed that the assessee commenced manufacturing activities on 14.6.1995, which was after the cutoff date of 31.3.1995 for eligibility under section 80IB(3)(i), and that the investment in plant and machinery exceeded Rs. 1 crore, disqualifying the assessee as a small scale undertaking under section 80IB(3)(ii). The AO thus believed the income had escaped assessment and reopened the assessments to disallow the deduction.

The assessee argued before the CIT(A) that the reopening was based on a mere change of opinion since the deduction under section 80IB had been allowed in earlier years. The CIT(A) noted that all relevant details were available during the original assessments, and no fresh material was brought on record by the AO. Hence, the CIT(A) concluded that the reopening was based on a change of opinion, which is not permissible, and held the reopening invalid.

For the assessment year 2005-06, the CIT(A) also noted that the reopening was based on an audit objection, which further invalidated the reopening. The Tribunal upheld the CIT(A)'s decision, agreeing that the AO had no new information and had merely changed his opinion, which is not a valid ground for reopening assessments.

2. Eligibility of the Assessee to Claim Deduction under Section 80IB:

On the merits of the case, the CIT(A) examined whether the assessee was eligible for the deduction under section 80IB. The CIT(A) observed that the assessee was classified as a "Small Scale Industrial Undertaking" under the Industries (Development & Regulation) Act, 1951, and had commenced operations within the prescribed period. The CIT(A) found that the assessee had been allowed the deduction in earlier years, and there was no change in its status.

The CIT(A) relied on judicial precedents, including the Supreme Court's decision in Kelvinator of India Ltd., which held that once a deduction is allowed in the initial year, it cannot be denied in subsequent years unless there is a change in facts. The CIT(A) concluded that the assessee continued to qualify as a small scale undertaking and was eligible for the deduction under section 80IB.

The Tribunal agreed with the CIT(A)'s findings, noting that the AO's action was merely a change of opinion and that the eligibility of the assessee had already been examined and accepted in earlier years. The Tribunal upheld the CIT(A)'s order, affirming that the assessee was entitled to the deduction under section 80IB.

Conclusion:

The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decision that the reopening of assessments was invalid and that the assessee was eligible for the deduction under section 80IB. The Tribunal emphasized that the AO's action was based on a change of opinion and that the assessee's status as a small scale undertaking had been consistently accepted in earlier years.