2015 (12) TMI 834 - HC - Income Tax

Reopening of assessment - Held that - This Court does not find any tangible material warranting the Assessing Officer to reopen the assessment. As far as the first respondent has no power to reopen the assessment year after a period of four years and the same is hit by limitation, the judgment relied by the petitioner reported Fenner (India) Ltd 1998 (11) TMI 66 - MADRAS High Court holds the field. - Decided in favour of assessee.

Issues Involved: Validity of reopening assessments under Section 147 of the Income Tax Act, 1961; Approval of Export Oriented Unit (EOU) status under Section 10B of the Income Tax Act; Limitation period for reassessment.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessments under Section 147 of the Income Tax Act, 1961:

The petitioner, a Private Limited Company engaged in the manufacture and export of ready-made garments, challenged the reopening of assessments for the years 2007-2008, 2008-2009, and 2009-2010. The assessments were initially completed under Section 143(3) after detailed scrutiny. However, the Assessing Officer issued notices under Section 148, stating that the income had escaped assessment as the EOU was not approved by the Specified Authority, making the company ineligible for deduction under Section 10B.

The petitioner argued that the reopening was unjustified as the company had already received approval from the Specified Authority, and the reasons for reopening were not legally valid. The court noted that the approval by the Development Commissioner, ratified by the Board of Approval (BOA), was sufficient for claiming deductions under Section 10B. The court held that the reopening of assessments was not proper as the reason assigned by the Assessing Officer was not legally correct.

2. Approval of Export Oriented Unit (EOU) Status under Section 10B of the Income Tax Act:

The petitioner contended that the company was a 100% Export Oriented Unit (EOU) and had received the necessary approvals from the Development Commissioner, which were ratified by the BOA. The court confirmed that the approval granted by the Development Commissioner was valid once ratified by the BOA, as per the instructions issued by the Central Board of Direct Taxes (CBDT). The court found that the Assessing Officer's reason for reopening the assessment, based on the alleged lack of approval from the Specified Authority, was not legally sustainable.

3. Limitation Period for Reassessment:

The petitioner argued that the reassessment for the years 2007-2008 and 2008-2009 was barred by limitation as per Section 147 of the Act, which restricts reopening beyond four years unless there is a failure to disclose material facts. The court referred to the judgment in Fenner (India) Ltd., which held that the power under Section 147 could not be exercised beyond four years without tangible evidence of income escaping assessment. The court found that there was no tangible evidence to justify the reopening of assessments for these years, making the reassessment time-barred.

For the year 2009-2010, the court noted that the notice was issued within the permissible time frame, but the reopening was still invalid due to the lack of proper reasons and tangible evidence.

Conclusion:

The court concluded that the reopening of assessments for the years 2007-2008, 2008-2009, and 2009-2010 was not justified due to the lack of valid reasons and tangible evidence. The court allowed the writ petitions, quashing the notices and consequential orders, and emphasized that the Assessing Officer could not review his own orders without proper grounds. The court also highlighted the importance of adhering to the limitation period for reassessment and the necessity of having a reasonable belief based on tangible material before reopening assessments.

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