2017 (8) TMI 1695 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - Disallowance of deduction u/s 80HHC - whether there was any failure on the part of the petitioner-assessee to disclose fully and truly all material facts necessary for the assessment? - HELD THAT - The basic requirement of section 80HHC is earning in foreign exchange and retention of profits for export business. Profits are embedded in the income earned. Earning of income depends on sale of goods and services. Today the difference between the two is getting blurred with globalization and cross-border transaction. Today with technological advancement one has to change our thinking regarding concepts like goods, merchandise and articles. In the case of B. Suresh 2009 (3) TMI 4 - SUPREME COURT the assessee had bought rights of various decoders and had recorded movies on beta-cam tapes which were transferred as telecasting rights to Star TV for five years (it has a limited life). Hence such rights would certainly fall in the category of articles of trade and commerce, hence, merchandise. Transaction in question was covered under section 80HHC, it was inappropriate to hold that merely because section 80HHF was not on the statute book during the assessment years in question, the assessee was not entitled to claim deduction without any hindrance under section 80HHC in spite of compliance of the ingredients thereunder. Reopening of assessment - Taking into consideration the main aspect that the earlier order has not been challenged and the basis for Section 148 was not sound, it ought to have been quashed in view of the decision reported in the case of CIT Vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason to re-open - The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then,in the garb of re-opening the assessment, review would take place - to reopen an assessment tangible material should be there. Meaning of the expression, reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression has reason to believe' in place of the words for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new Section 147, however, remain the same. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Eligibility for deduction under Section 80HHC for the assessee engaged in the business of exporting advertisements, printed and published in books, magazines, and earning foreign exchange.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 of the Income Tax Act:

The appellant challenged the Tribunal's decision, which upheld the reopening of the assessment under Section 147. The appellant argued that all material facts were fully and truly disclosed in the return of income, and there was no escapement of income. The court considered several precedents to determine the validity of the reassessment.

In Diamond World v. CIT, the Rajasthan High Court held that the reassessment was valid despite the assessee's full disclosure, as the CIT found the original assessment erroneous and prejudicial to the revenue's interest.

In CIT v. Kelvinator of India Ltd., the Supreme Court emphasized that "reason to believe" must be based on tangible material and not merely a change of opinion. The Assessing Officer has no power to review but can reassess based on new material.

In Pine Chemicals Ltd. v. DCIT, the Gujarat High Court held that reassessment based on a mere change of opinion is not justified if all primary facts were disclosed in the original return.

In Ganesh Housing Corporation Ltd. v. DCIT, the Gujarat High Court reiterated that reassessment is invalid if it is based on a mere change of opinion without any new material.

In CIT v. Hindustan Zinc Ltd., the Rajasthan High Court held that reopening a completed assessment without fresh material is illegal and amounts to a mere change of opinion.

In Praful Somabhai Patel HUF v. ITO, the Gujarat High Court emphasized that reassessment cannot be based on an audit report if the material was already available during the original assessment.

In CIT v. Vaishali Avenue, the Rajasthan High Court held that reopening based on a mere change of opinion is not sustainable.

In Austin Engineering Co. Ltd. v. JCIT, the Gujarat High Court held that reassessment is invalid if there was no failure to disclose material facts fully and truly.

In NDT Systems v. ITO, the Bombay High Court held that reopening based on a mere change of opinion is not permissible.

In ICICI Home Finance Co. Ltd. v. ACIT, the Bombay High Court held that reassessment based on an audit report without independent application of mind by the Assessing Officer is invalid.

Based on these precedents, the court concluded that the Tribunal erred in upholding the reopening of the assessment, as it was based on a mere change of opinion without any new material. The reopening proceedings were deemed invalid, legal, and beyond the jurisdiction of the respondent.

2. Eligibility for Deduction under Section 80HHC:

The appellant argued that the assessee, engaged in exporting advertisements printed and published in books and magazines, should be allowed a deduction under Section 80HHC, as the exported items qualify as "goods" and earn foreign exchange. The court considered several precedents to determine the eligibility for the deduction.

In CIT v. B. Suresh, the Supreme Court held that foreign exchange earned by transferring feature film rights for exploitation outside India qualifies for Section 80HHC deduction, as such "rights" are considered merchandise.

In CIT v. Faqir Chand HUF, the Supreme Court affirmed that telecasting rights of TV serials are entitled to the benefit of Section 80HHC.

In CIT v. Sun TV Ltd., the Madras High Court held that intangible property, such as telecasting rights, qualifies as "goods" if it has utility, can be bought and sold, and can be transmitted, transferred, delivered, stored, and possessed.

In CIT v. Giza Impex Pvt. Ltd., the Madras High Court held that music software exported by the assessee qualifies as "goods" under Section 80HHC.

In CIT v. Motor Industries Co. Ltd., the Karnataka High Court held that income derived from developmental work connected to the business of manufacturing and exporting goods qualifies for Section 80HHC deduction.

In CIT v. Prasad Productions Pvt. Ltd., the Madras High Court held that transferring rights for manufacturing cassettes outside India amounts to exporting goods eligible for Section 80HHC deduction.

Based on these precedents, the court concluded that the assessee's business of exporting advertisements printed and published in books and magazines qualifies for the deduction under Section 80HHC. The Tribunal erred in not allowing the deduction, as the exported items qualify as "goods" and earn foreign exchange.

Conclusion:

The court allowed the appeal, holding that the reopening of the assessment under Section 147 was invalid and that the assessee was entitled to the deduction under Section 80HHC for the export of advertisements printed and published in books and magazines.