2018 (12) TMI 763 - HC - Income Tax

Reopening of assessment - deduction u/s 80HHC - knowledge about scheme of amalgamation of two companies - rectification u/s 154 was sought on the ground that, there could be no claim made under sub-Clause (b) of Section 80HHC(1) of the Act, since there is no previous year to the relevant previous year. - Held that - AO was in the know-how of the amalgamation proceedings. Annexure-F permission was granted for change of assessment year to HCL only by way of a request made at Annexure-E, which is specifically read in Annexure-F as letter dated 28.08.1984. The request for change of previous year specifically indicated that the amalgamation process was on and that they expect the order of the High Court of Kerala approving the scheme of arrangement and amalgamation, shortly. There is no warrant to assume that the assessment order at Annexure-G was passed without knowledge of the amalgamation. We also see that the order at Annexure-G specifically noticed the amalgamation as ordered by Annexure-D. It is also stated in the assessment order that HCL was amalgamated with the assessee Company w.e.f. 01.01.1983. In such circumstances, we do not think that there could be any re-assessment made under Section 147, since then it would merely be a change of opinion as decided in ANDHRA BANK LIMITED VERSUS COMMISSIONER OF INCOME-TAX 1996 (5) TMI 3 - SUPREME COURT - Decided in favor of assessee. Permissibly to rectification u/s 154 - deduction under Section 80HHC(1)(b) - Held that - The business of HCL when amalgamated with MPL, continued as the trading division of MPL. For the 27 months comprised in the previous year to the relevant assessment year, the trading division had an export turnover of ₹ 35,31,66,651/- to which was added the export turnover of the business of MPL, which was also ITAs.87,102, 108 201/2002 -19- continuing, coming to ₹ 37,16,659/-. The total of ₹ 35,68,83,310/- was taken for deduction under Section 80HHC(1)(a) at 1%. Then, the total export turnover of MPL for the previous year relevant to the assessment year 1985-86 was taken from which was deducted the export turnover of MPL for the previous year to the previous year which was only ₹ 87,34,764/-. The balance of ₹ 34,81,48,546/- was taken for deduction under Section 80HHC(1)(b) @ 5%. No infirmity in the same. But for the decision in Saraswati Industrial Syndicate Ltd., MPL 1990 (9) TMI 1 - SUPREME COURT would have had to deduct the export turnover of HCL for the period from 01.01.1983 to 31.12.1983 being the previous year to the previous year comprising of 27 months, between 01.01.1983 to 31.03.1985. Correctly, the AO had also not at the time of passing Annexure-G order sought to deduct such turnover presumably being aware of the Supreme Court judgment. In such circumstances, we do not see any reason to interfere with the order passed at Annexure-G and the interference caused under Section 154 on rectification is found to be bad in law. - Decided in favour of the assessee

Summary

Issues Involved:
1. Change of previous year due to amalgamation.
2. Claim under Section 80HHC of the Income Tax Act, 1961.
3. Rectification under Section 154 by the Assessing Officer (AO).
4. Re-assessment under Section 147 and issuance of notice under Section 148.

Detailed Analysis:

1. Change of Previous Year Due to Amalgamation:
The judgment addresses the amalgamation of two companies, HCL and MPL, effective from 01.01.1983, and the subsequent change in the previous year for income tax assessment purposes. MPL applied for and was granted a change of the previous year to 30.06.1984, resulting in a 27-month assessment period for the assessment year 1985-86. This change was documented and approved by the relevant authorities.

2. Claim Under Section 80HHC of the Income Tax Act, 1961:
A claim was made under Section 80HHC, which was initially allowed but later rectified by the AO under Section 154. The rectification was based on the premise that the new company, M/s. Harrisons Malayalam Limited, formed post-amalgamation, did not have a previous year to the relevant previous year, thus disqualifying it from claiming benefits under sub-Clause (b) of Section 80HHC(1). The court examined the figures and found that the export turnover of MPL, including the business of HCL treated as its trading division, was correctly computed for the deduction under Section 80HHC(1)(a) and (b).

3. Rectification Under Section 154 by the Assessing Officer (AO):
The rectification under Section 154 was challenged and found to be based on a misconception that a new company was formed post-amalgamation. The court clarified that MPL continued to exist post-amalgamation, and the business of HCL was integrated into MPL. The court referred to the Supreme Court decision in Saraswati Industrial Syndicate Ltd., which established that the transferee company continues to exist post-amalgamation. Consequently, the rectification was deemed unsustainable as it was based on incorrect premises.

4. Re-assessment Under Section 147 and Issuance of Notice Under Section 148:
The AO issued a notice under Section 148 for re-assessment, arguing that HCL did not have assessments for the years 1983-84 and 1984-85, and the income for these years should be assessed in the hands of M/s. Harrisons Malayalam Limited. The first appellate authority and the Tribunal found that re-assessment under Section 147 was not permissible as the facts were already known to the AO when the original assessment was made. The court upheld this view, stating that re-assessment based on a mere change of opinion is not allowed, referencing the cases of Andhra Bank Ltd. and Kelvinator of India Limited.

Conclusion:
The court concluded that the re-assessment under Section 147 was not permissible and the rectification under Section 154 was based on incorrect premises. The original assessment, including the claim under Section 80HHC, was found to be correctly computed. The appeals by the Revenue were rejected, and the decisions of the first appellate authority and the Tribunal were upheld.