2016 (1) TMI 458 - AT - Income Tax

Reopening of assessment - assessee has wrongly claimed deduction u/s 80IC - Held that - Assessee has furnished the consolidated tax audit report and financial statement and the notes claiming deduction under section 80IC of the Act. During the course of assessment proceeding and thereafter claim was allowed in other assessment years. Now, the Assessing Officer has taken a different stands for reopening the assessment without looking into the fact that in succeeding year the claim of deduction u/s 80IC of the Act was allowed and no interference was made by the AO by invoking the provisions of section 147 of the Act. In the light of these facts, we are of the considered view that reopening is bad in law as it amounts to change of opinion. Accordingly, we find ourselves in agreement with the order of the CIT(A). So far as the issue on merit is concerned, we find that assessee has categorically stated that entire investment in Sitarganj Unit in plant and machinery of ₹ 37,52,759/- was made during relevant assessment year as compared to NIL opening balance as on 01.04.2008 being new undertaking/enterprises. Therefore, we are of the view that the assessee is entitled for deduction u/s 80IC of the Act as the addition to the plant and machinery is required to a particular undertakings and not the assessee as whole. - Decided in favour of assessee.

Issues Involved:
1. Legality of initiation of proceedings under section 147 and issuance of notice under section 148 of the Income Tax Act, 1961.
2. Disallowance of deduction under section 80IC amounting to Rs. 1,50,09,117/-.

Detailed Analysis:

Issue 1: Legality of Initiation of Proceedings under Section 147 and Issuance of Notice under Section 148

The Revenue contended that the Commissioner of Income Tax (Appeals) [CIT(A)], Lucknow, erred in law and on the facts by declaring the initiation of proceedings under section 147 and issuance of notice under section 148 as bad in law. The CIT(A) relied on the assessee's submission without appreciating that the assessee did not disclose complete facts during the assessment proceedings, specifically failing to furnish a separate Tax Audit Report for the Sitarganj Unit as required under Rule 18BBB.

The Tribunal noted that the assessee had filed an e-return declaring total income and the assessment was completed under section 143(3). The assessment was reopened based on the belief that the assessee had not disclosed complete facts necessary for the AY 2009-10 and had wrongly claimed deduction under section 80IC for the Sitarganj Unit. The assessee contended that the return filed earlier should be treated as compliance with the notice under section 148 and provided explanations regarding the Sitarganj undertaking and substantial expansion.

The CIT(A) examined the reasons for the initiation of proceedings under section 147 and the issuance of notice under section 148. It was found that the Assessing Officer (AO) initiated proceedings without proper verification of facts and documents, including the tax audit report and the report of the auditor in form No. 10CCB. The CIT(A) held that the AO was not justified in initiating proceedings under section 147 and issuing notice under section 148, as it was based on a change of opinion. Consequently, the reopening was deemed bad in law.

Issue 2: Disallowance of Deduction under Section 80IC

The Revenue argued that the CIT(A) erred in deleting the addition made on account of disallowance of deduction under section 80IC amounting to Rs. 1,50,09,117/-. The AO disallowed the claim on the grounds that the assessee did not qualify for 'substantial expansion' as defined in section 80IC(8)(ix).

The CIT(A) examined the written submissions, assessment records, and various judicial pronouncements. It was observed that the AO had allowed the deduction under section 80IC in other assessment years and had not taken these facts into account while reopening the assessment. The CIT(A) found that the AO had not properly appreciated the applicability of the relevant provisions of the Income Tax Act, 1961, and held that the assessee had fulfilled the conditions laid down under section 80IC.

The Tribunal agreed with the CIT(A), noting that the AO had allowed the deduction in other assessment years and had examined all relevant records during the original assessment proceedings. The Tribunal found that the reopening of the assessment was based on a change of opinion and was thus invalid. On merit, the Tribunal held that the assessee had made substantial investment in the Sitarganj Unit and was entitled to the deduction under section 80IC.

Conclusion:

The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order that the initiation of proceedings under section 147 and issuance of notice under section 148 were invalid as they were based on a change of opinion. Additionally, the Tribunal upheld the CIT(A)'s decision to allow the deduction under section 80IC, as the assessee had fulfilled the necessary conditions and made substantial investment in the Sitarganj Unit.

← Previous Next →