2018 (12) TMI 1217 - HC - Income Tax

Reopening of assessment - disallowance of deduction u/s 80HHC - whether interest received from dealers for belated payments cannot be included in the business profits for the purpose of deduction under section 80HHC? - Held that - As decided in case of JET AIRWAYS (I) LTD. 2010 (4) TMI 431 - HIGH COURT OF BOMBAY the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed juris- diction. Further, it was held that for every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148 of the Act. Thus, it was held that the Assessing Officer had jurisdiction to reassess the income other than the income in respect of which the proceedings under section 147 were initiated, but, he was not justified in doing so when the reasons for the initiation of those proceedings ceased to survive. Therefore, the argument advanced by the Revenue placing reliance on Explanation 3 to section 147 is of little avail. Reopening of the assessment itself was bad in law, we may not be required to decide other issue as to whether the finding of the Assessing Officer with regard to computation of eligible profits for the purpose of section 80HHC of the Act was correct or not. We are convinced that reopening of the assessment on the said ground itself was unsustainable for the reason that in the scrutiny assessment under section 143(3) of the Act, this very issue, namely, regarding deduction under section 80HHC was considered by the Assessing Officer and a detailed working had been done and the tax pay- able was calculated. Therefore, if the Assessing Officer is to reopen the finding rendered in the scrutiny assessment, then it would clearly amount to change of opinion, which is impermissible. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under section 147 beyond four years.
2. Reopening of assessment on the same set of facts available at the time of regular assessment under section 143(3).
3. Inclusion of interest received from dealers for belated payments in business profits for the purpose of deduction under section 80HHC of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147 Beyond Four Years:
The court examined whether the reopening of the assessment was valid and proper. The assessee had filed a return of income for the assessment year 1997-98, which was processed under section 143(1)(a) and later scrutinized under section 143(3). Subsequently, a notice under section 148 was issued beyond three years to disallow a contribution to a welfare fund, which was not an approved fund. However, there was no allegation of the assessee failing to disclose fully and truly all material facts necessary for assessment. The court referenced the Supreme Court decision in Calcutta Discount Co. Ltd. v. ITO, stating that if material facts are disclosed, it is the duty of the Assessing Officer to draw proper legal inferences. Since there was no failure on the part of the assessee to disclose material facts, the reopening of the assessment under section 147 was deemed invalid.

2. Reopening of Assessment on the Same Set of Facts:
The court considered whether the assessment could be reopened on the same set of facts available at the time of completing the regular assessment under section 143(3). The court held that the Assessing Officer, after considering the deduction claim under section 80HHC, found that the assessee had to exclude 90% of the interest receipts for computing eligible profits. However, the court concluded that reopening the assessment on the same facts previously considered during the original assessment amounted to a change of opinion, which is impermissible.

3. Inclusion of Interest Received from Dealers for Belated Payments in Business Profits:
The court addressed whether interest received from dealers for belated payments could be included in business profits for the purpose of deduction under section 80HHC. The Tribunal had restricted the claim of deduction by excluding 90% of the interest received from dealers. The court referenced the decision in CIT v. Malwa Cotton Spinning Mills Ltd., which held that interest received on delayed payments is to be excluded when determining business profits for the purpose of section 80HHC. However, the court found this issue academic because reopening the assessment on this ground was unsustainable, as it had been considered during the original scrutiny assessment under section 143(3).

Conclusion:
The court concluded that the reopening of the assessment under section 147 was invalid due to the absence of any failure by the assessee to disclose fully and truly all material facts. Consequently, the court did not need to decide on the correctness of the computation of eligible profits for the purpose of section 80HHC. The appeal was allowed, and the substantial questions of law were answered in favor of the assessee and against the Revenue.