2009 (6) TMI 75 - HC - Income Tax

Reassessment income escaping assessment reason to believe transport subsidy and insurance subsidy earlier sanctioned u/s 80 IC - held that - reason to believe to be valid has to have a rational and logical inter relation with the belief that a taxable income has escaped assessment. The belief necessarily has to be genuine and bona fide and not a charade - notice initiating the proceeding under section 148 of the Act against the petitioner is not in conformity with the legislative prescriptions mandated in section 147 of the Act - As a mere change in opinion cannot be a valid ground for reopening an assessment already made, on an objective evaluation of the return and the supporting materials thereof, the impugned reassessment proceeding is vitiated by want of jurisdiction

Issues Involved:
1. Legality and jurisdiction of the reassessment notice under section 148 of the Income-tax Act, 1961.
2. Eligibility of transport and insurance subsidies for deductions under section 80-IC of the Income-tax Act.
3. Validity of the reassessment proceeding based on alleged escapement of income.
4. Prematurity of the writ petition challenging the reassessment notice.

Detailed Analysis:

1. Legality and Jurisdiction of the Reassessment Notice under Section 148:

The petitioner challenged the reassessment process initiated by the Deputy Commissioner of Income-tax, Circle, Jorhat, under section 148 of the Income-tax Act, 1961, seeking to reassess the income for the assessment year 2004-05. The court noted that the original assessment was completed under section 143(3) of the Act, allowing deductions for transport and insurance subsidies. The Revenue's justification for reassessment was based on the belief that these subsidies were incidental to the business and not eligible for deductions under section 80-IC. The court emphasized that the reassessment notice must be backed by a "reason to believe" that income chargeable to tax had escaped assessment, which must be genuine and based on tangible materials. The court found the reasons provided by the Revenue to be unconvincing and lacking a rational basis, rendering the reassessment notice unauthorized.

2. Eligibility of Transport and Insurance Subsidies for Deductions under Section 80-IC:

The petitioner argued that the subsidies were received for the actual conduct of its business and were duly accounted for in the profit and loss account, making them eligible for deductions under section 80-IC. The court examined the legislative intent of section 80-IC, which aims to provide deductions for profits and gains derived by an undertaking from its business. The court highlighted that the language of section 80-IC is of wider import compared to section 80HH, allowing for deductions of profits and gains derived from the business rather than strictly from the industrial undertaking. The court concluded that the subsidies, being government assistance to promote industrial growth, contributed to the profits and gains derived from the business and were thus eligible for deductions under section 80-IC.

3. Validity of the Reassessment Proceeding Based on Alleged Escapement of Income:

The Revenue contended that the subsidies were merely incidental to the business and not eligible for deductions, leading to escapement of income. The court scrutinized the reasons for reassessment and found them to be based on a misinterpretation of the legal provisions and previous judicial decisions. The court noted that the earlier assessment was conducted after thorough scrutiny, and the reassessment attempt appeared to be a mere change of opinion rather than a genuine belief of escapement of income. The court emphasized that any reassessment must be based on a bona fide belief supported by objective facts, which was lacking in this case.

4. Prematurity of the Writ Petition Challenging the Reassessment Notice:

The Revenue argued that the writ petition was premature as the reassessment proceeding was still pending. The court, however, observed that the Revenue had already made a final decision on the objections raised by the petitioner, leaving no meaningful scope for further challenge at the departmental level. The court referenced the decision in GKN Driveshafts (India) Ltd. [2003] 259 ITR 19 (SC), where it was held that objections to reassessment notices must be disposed of by the Revenue before the assessee can seek judicial intervention. In this case, since the objections were already addressed, the court deemed the writ petition maintainable.

Conclusion:

The court concluded that the reassessment notice under section 148 and the subsequent communication were not in conformity with the legislative prescriptions mandated in section 147 of the Income-tax Act. The impugned notice and communication were quashed, and the petition was allowed. No costs were imposed.

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