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2018 (7) TMI 1172 - HC - Income TaxValidity of reopening of assessment - Assessing Officer empowered to reopen an assessment based on a subsequent Supreme Court decision - Section 80 HHC denied for tyre retreating charges - whether reopening of the assessments both within four years and beyond four years could have been done for the reasons assigned by the Revenue? - Held that - As pointed out in the preceding paragraphs, the Assessing Officer, while reopening the assessment, has not disclosed the reasons for reopening. This is evident from the assessment order dated 05.03.1999, which only states that the assessment was reopened to consider certain points with prior permission of the Commissioner of Income Tax. Thus, the basic requirement for recording reasons to believe that income chargeable to tax has escaped assessment is absent in the instance case, which would be sufficient to hold that the reopening proceedings are wholly without jurisdiction. The power to assess or reassess or recompute the loss or depreciation allowance or any other allowance could be done only if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Therefore, Explanation 2 cannot be read in isolation and it has to be read harmoniously with the powers under Section 147 of the Act including the proviso under the said Section. Therefore, we are unable to accept the submission of the learned Senior Standing Counsel for the Revenue. One more submission, which was made, was that the Assessing Officer without application of mind, had granted the benefit of deduction and therefore, the Revenue had to file appeals before the CIT(A). On a reading of the assessment orders passed under Section 143(3) dated 18.03.1993, it is clear that there has been discussion between the assessee and the Assessing Officer and all materials have been placed before him and then the assessment has been completed granting benefit. Therefore, the order of assessment cannot not be stated to be an order without application of mind. Whether reopening of an assessment could be done based upon the decision in the case of Madurai Pandian Engineering Corporation Ltd (1998 (3) TMI 65 - MADRAS HIGH COURT ) as as held that retreading of tyres does not amount to manufacture? - Held that - The law stood in the case of Madurai Pandian Engineering Corporation Ltd (supra) was in favour of the assessee. Notices, under Section 148 of the Act, were issued on 08.08.1997. Thus, the notices for reopening were issued prior to the decision in the case of Madurai Pandian Engineering Corporation Ltd (supra) and on the date when the notices were issued, the law was clearly in favour of the assessee and retreading of tyres was held to be a manufacturing activity. Based on the decision in Madurai Pandian Engineering Corporation Ltd (supra), reopening could not have been done. The Hon ble Supreme Court in Simplex Concrete Piles (India) Ltd. (2012 (9) TMI 516 - SUPREME COURT ), held that the subsequent reversal of the legal position by the judgment of the Hon ble Supreme Court does not authorise the Department to reopen the assessment, which stood closed on the basis of law, as it stood at the relevant point of time. Thus the reopening proceedings was wholly without jurisdiction - decided in favour of assessee.
Issues Involved:
1. Whether the Assessing Officer is empowered to reopen an assessment based on a subsequent Supreme Court decision? 2. Whether profits from service charges are includible in the profits of business for the purposes of Section 80HH, 80I, and 80IA? 3. Whether explanation "baa" to Section 80HHC is applicable for tyre retreading charges? 4. Whether the Assessing Officer is entitled to restrict the depreciation of the actual cost by invoking Section 43(1)(3)? 5. Whether the excise duty and sales tax form part of the turnover for the purpose of deduction under Section 80HHC? 6. Whether the net amount or the other income has to be excluded from the profits of business for the purpose of Section 80HHC? Detailed Analysis: 1. Reopening of Assessment Based on Subsequent Supreme Court Decision: The primary issue addressed was whether the Assessing Officer (AO) is empowered to reopen an assessment based on a subsequent Supreme Court decision. The court observed that the AO did not disclose the reasons for reopening, which is a fundamental requirement under Section 147 of the Income Tax Act. The Tribunal held that the reopening was not justified as it was based on a decision (Madurai Pandian Engineering Corporation Ltd.) that was rendered after the original assessment period. The court agreed, stating that the reopening was a mere change of opinion and not based on any tangible material indicating that income had escaped assessment. The court cited several precedents, including CIT vs. Kelvinator of India Ltd., which established that mere change of opinion cannot justify reopening an assessment. Therefore, the reopening proceedings were deemed without jurisdiction. 2. Inclusion of Service Charges in Profits for Sections 80HH, 80I, and 80IA: The second issue was whether profits from service charges are includible in the profits of business for the purposes of Sections 80HH, 80I, and 80IA. Since the Tribunal annulled the reassessment proceedings, it did not delve into this issue. The court upheld the Tribunal's decision, leaving this question open as it was contingent on the validity of the reopening. 3. Applicability of Explanation "baa" to Section 80HHC for Tyre Retreading Charges: The third issue concerned whether explanation "baa" to Section 80HHC applies to tyre retreading charges. Similar to the second issue, the Tribunal did not address this due to the annulment of the reassessment proceedings. The court left this question open as well. 4. Restriction of Depreciation by Invoking Section 43(1)(3): The fourth issue was whether the AO is entitled to restrict the depreciation of the actual cost by invoking Section 43(1)(3). This issue was also not addressed by the Tribunal due to the annulment of the reassessment proceedings, and the court left this question open. 5. Inclusion of Excise Duty and Sales Tax in Turnover for Section 80HHC Deduction: The fifth issue was whether excise duty and sales tax form part of the turnover for the purpose of deduction under Section 80HHC. As with the previous issues, the Tribunal did not address this due to the annulment of the reassessment proceedings, and the court left this question open. 6. Exclusion of Net Amount or Other Income from Profits for Section 80HHC: The final issue was whether the net amount or other income should be excluded from the profits of business for the purpose of Section 80HHC. The Tribunal did not address this issue due to the annulment of the reassessment proceedings, and the court left this question open. Conclusion: The court concluded that the reopening of the assessments was without jurisdiction as it was based on a subsequent Supreme Court decision, which constituted a mere change of opinion. Consequently, the other substantial questions of law were left open, and all the tax cases (appeals) filed by the Revenue were dismissed without costs.
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