2017 (8) TMI 644 - HC - Income Tax

Reopening of assessment - deduction u/s 10B - eligibility - no manufacturing activity - Held that - It is not disputed that the only ground on which the respondents are trying to sustain the impugned assessment after the notice under Section 147 of the said Act is on the basis that the petitioners were not carrying out manufacturing activities, cannot be a ground to refuse the benefits of deduction in terms of Section 10B of the said Act. The petitioners in fact as such were entitled for the said deduction which otherwise stood concluded by the Assessment Order passed in the proceedings under Section 143 of the said Act in regular Assessment Order. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice under Section 147 of the Income Tax Act, 1961.
2. Entitlement for deduction under Section 10B of the Income Tax Act, 1961.
3. Alternate remedy for challenging the Assessment Order.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 147 of the Income Tax Act, 1961:
The petitioners challenged the notices issued under Section 147 on the grounds that they were not provided reasons for reopening the assessment and that the reassessment was based on a change of opinion rather than new information indicating escaped income. The court observed that the original assessments for the years 2000-2001 and 2001-2002 had been completed after thorough scrutiny under Section 143, where the Assessing Officer had accepted the petitioners' claims for deduction under Section 10B. The court emphasized that issuing a fresh notice under Section 147 based on the same facts amounted to a mere change of opinion, which is not a valid ground for reopening an assessment. Furthermore, the respondents' failure to furnish reasons for reopening the assessment vitiated the proceedings under Section 147.

2. Entitlement for Deduction under Section 10B of the Income Tax Act, 1961:
The petitioners contended that their activities qualified as "production" under Section 10B, entitling them to deductions. The respondents argued that the petitioners were not engaged in manufacturing or production activities and were not 100% export-oriented units, thus disqualifying them from the deduction. The court referred to the Supreme Court's judgment in Commissioner of Income Tax, Goa v. Sesa Goa Ltd., which clarified that mining activities qualify as "production" under the Income Tax Act. The court concluded that the petitioners' extraction of iron ore constituted "production" and thus, they were entitled to deductions under Section 10B. The court also noted that the original assessments had already concluded that the petitioners were 100% export-oriented units.

3. Alternate Remedy for Challenging the Assessment Order:
The respondents argued that the petitioners had an alternate remedy to challenge the Assessment Order before the Appellate Forum. However, the court found that since the Assessment Orders were passed during the pendency of the petitions, the petitioners were justified in raising their challenges within the current proceedings. The court determined that considering the validity of the notice under Section 147 was sufficient to address the petitioners' grievances without necessitating a separate appeal process.

Conclusion:
The court quashed and set aside the notices under Section 147 for the Assessment Years 2000-2001 and 2001-2002, along with the consequent Assessment Orders. The court ruled that the reassessment was based on a change of opinion, which is not permissible, and that the petitioners were entitled to deductions under Section 10B as their activities qualified as "production." The court also dismissed the respondents' argument regarding the alternate remedy, given the circumstances of the case.

Order:
(i) The notice under Section 147 for the Assessment Years 2000-2001 and 2001-2002, both dated 28.11.2005, and the consequent Assessment Order dated 28.12.2006, are quashed and set aside.
(ii) Rule is made absolute in the above terms.
(iii) Both petitions stand disposed of accordingly.