2018 (11) TMI 1237 - AT - Income Tax

Reopening of assessment u/s 147 - deduction u/s. 801A/IB - reopening beyond a period of four years - eligibility of reason to believe - Held that - The assessee has correctly relied on the order Hon ble Supreme Court in the case of Hindustan Lever Ltd. v/s. ITO (2004 (2) TMI 42 - BOMBAY HIGH COURT ) wherein the assessment reopened beyond a period of four years from the end of the relevant assessment year were held to be bad in law where there was no failure on the part of the assessee to disclose the material facts fully and truly in the assessment proceedings. We are of the view that the reassessment framed by the AO is bad in law for the three reasons namely that re-assessment is proposed to be done after four years despite there being no failure on the part of the assessee to disclose materials facts in the return of income of original assessment proceedings; that the re-opening of assessment is just change of opinion without being any tangible material before the AO and that the objections filed by the assessee against the re-opening before the AO were not disposed off by way speaking order and therefore quash the re-assessment proceedings as being without valid jurisdiction and also the consequent order - decided in favour of assessee.

Issues Involved:

1. Validity of reassessment proceedings under section 147 of the Income Tax Act.
2. Reduction of deduction under section 80IA/IB.
3. Apportionment of income between new unit and other units.
4. Inclusion of additions to fixed assets in the denominator for recalculating the deduction under section 80IA/IB.

Issue-Wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:

The primary issue raised by the assessee was the validity of the reassessment proceedings initiated under section 147 of the Income Tax Act. The original assessment was completed on 31.01.2003, and the case was reopened twice, with the latest notice issued on 03.07.2006. The reassessment was based on the need to recompute the deduction under section 80IA due to the inclusion of certain business income items and the incorrect application of the Gross Block of Fixed Assets (GBFA) ratio.

The assessee argued that the reassessment was invalid because:
- The issue was already examined in the original assessment.
- The reassessment was initiated beyond four years without any failure on the part of the assessee to disclose material facts.
- The objections filed by the assessee against the reopening were not disposed of by a speaking order.

The Tribunal found merit in these arguments, noting that the reassessment was based on reappreciation and review of the same facts available during the original assessment, which constitutes a change of opinion. The Tribunal cited the Supreme Court's decision in CIT vs. Kelvinator India Ltd., which held that reassessment on the basis of change of opinion is not permissible. Additionally, the reassessment was deemed invalid due to the non-disposal of objections by a speaking order, as required by the Supreme Court in GKN Driveshafts (India) Pvt. Ltd. vs. ITO.

2. Reduction of Deduction under Section 80IA/IB:

The assessee challenged the reduction of the deduction under section 80IA/IB by ?9,20,42,615. The Assessing Officer (AO) had reduced the deduction, arguing that the ratio of GBFA used to apportion profits for the purpose of the deduction was not revised despite substantial additions to fixed assets over the years.

The Tribunal did not specifically adjudicate on this issue since the reassessment itself was quashed on legal grounds. However, it was noted that the consistent application of the GBFA ratio had been accepted by the Revenue in previous assessments and reassessments.

3. Apportionment of Income Between New Unit and Other Units:

The assessee contended that the apportionment of income between the new unit (Crude Distillation Unit - CDU-II) and other units was done based on the ratio of GBFA, a method consistently followed since the first year of claim in A.Y. 1995-96. The AO had argued that this ratio should be revised annually to reflect additions to fixed assets.

The Tribunal found that the method of apportionment had been examined and accepted in the original assessment. The reassessment on this ground was seen as a change of opinion, which is not permissible.

4. Inclusion of Additions to Fixed Assets in the Denominator for Recalculating the Deduction:

The AO included additions to fixed assets in the denominator while recalculating the deduction under section 80IA/IB, which the assessee argued was incorrect. The Tribunal did not specifically address this issue due to the quashing of the reassessment on legal grounds.

Conclusion:

The Tribunal quashed the reassessment proceedings for A.Y. 2000-01 on the grounds of change of opinion, non-disposal of objections, and the reassessment being initiated beyond four years without any failure on the part of the assessee to disclose material facts. Consequently, the other grounds raised by the assessee were rendered academic and were not adjudicated.

For A.Y. 2002-03, 2003-04, and 2004-05, the reassessment proceedings were also quashed on similar grounds, despite being initiated within four years, due to the change of opinion and non-disposal of objections.

All appeals by the assessee were partly allowed, with the reassessment proceedings and consequent orders being declared invalid and quashed.

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