2018 (11) TMI 1255 - HC - Income Tax

Addition u/s 80IA(10) read with Section 80IC (7) - no business transacted - addition made on agreed basis in the preceding assessment years though no business had been transacted between the appellant and his alleged sister concern - principle of res judicata - Held that - It is not in dispute that the reason assigned by the Assessing Officer in applying the provisions of Section 80IA (10) of the Act, is based only on an admission made by the assessee in relation to the two preceding assessment years i.e. 2006-07 and 2007-08. Well, in our considered view, about which there cannot be a dispute, assessment of each year is required to be independently carried out on the basis of material before the AO. The authorities below failed to consider compliance of essential ingredients required for invocation of the said provisions. AO as also other authorities proceeded on the presumption that since in the preceding years the assessee admitted deduction to the extent of 10%, hence, in future also assessee would continue to be bound by the same. This, in our considered view, is not a reasonable approach adopted by the authorities, for each case of the assessee has to be considered independent of the each assessment year and not on the basis of assessment carried out in the preceding year. The approach adopted by the authorities below is erroneous and perverse - Remand the matter back to the Assessing Officer for consideration afresh.

Summary

Issues:
1. Interpretation of Section 80IA(10) and Section 80IC(7) of the Income Tax Act, 1961.
2. Application of the principle of res judicata in income tax assessments.
3. Allegations of perversity in the order of the Income Tax Appellate Tribunal.

Analysis:

Issue 1: Interpretation of Section 80IA(10) and Section 80IC(7)
The judgment revolves around the application of Section 80IA(10) and Section 80IC(7) of the Income Tax Act, 1961. The Deputy Commissioner of Income Tax had assessed the income of the assessee by reducing the net profit based on the close connection with another concern. The Tribunal upheld this addition, citing the previous assessment years. However, the High Court emphasized that each year's assessment should be independent and not based on preceding years. The Court found the approach adopted by the authorities to be erroneous and perverse, leading to the quashing of the previous orders and remanding the matter back for fresh consideration by the Assessing Officer.

Issue 2: Application of Res Judicata
The second substantial question of law raised was regarding the application of the principle of res judicata in income tax assessments. The Tribunal had made an addition based on res judicata, despite a previous ruling by the same Bench that no addition could be made if no business was transacted. The High Court found this application incorrect and emphasized that legal principles should be applied correctly, especially when there was no actual business transaction between the parties involved.

Issue 3: Allegations of Perversity
The final issue addressed in the judgment was the allegation of perversity in the order of the Income Tax Appellate Tribunal. The High Court noted that the legal and factual submissions were not properly considered by the authorities below. The Assessing Officer and other authorities had presumed the assessee's future conduct based on admissions from previous years, which the Court deemed unreasonable. Consequently, the High Court set aside the previous orders and remanded the matter back for a fresh assessment, highlighting the need for a more independent and thorough evaluation of each assessment year.

In conclusion, the High Court's judgment focused on ensuring a fair and independent assessment process, emphasizing the need to consider each year's assessment independently and apply legal principles accurately in income tax matters.