2019 (8) TMI 652 - HC - Income Tax

Reopening of assessment u/s 147 - benefit under Section 80-IC - reopening on one reason and assessment on different reasons - HELD THAT - No reassessment order has been passed on any of the ground and therefore we do not have a situation on which the above law can be made applicable. All which is presently done is notice u/s 147/148 and thereafter the reasons have been fully assigned by the Revenue as to why reassessment is being done. It is not a case of change of opinion but discovery of new material which is the basis of reassessment proceedings. Moreover in any case it is not a case where the Revenue has assigned A reason and then again reason B as well. The reason for the reassessment is that correct books of account have not been shown to the Revenue and that manufacturing activity was not being done at Haridwar as claimed. This appears to be the only reason. This reason has still to be tested. Even for the assessment year 2005-06 a separate notice has been sent after the survey. Whether firm to whom notice was issued is same or different entity - As regarding the first argument of the petitioner that the reassessment in fact is of a different entity this too is not liable to be accepted inter alia for the reasons that it still remains a family firm. Initially the father mother and two sons were the partners and now all what has happened by the reconstitution of the firm is that it remains a firm of father and two sons. Practically it is the same firm and in any case the present partners cannot escape the liability. From the records presently before this Court also it is very clear that the dominant partners of the firm continue to be the same. To that extent there has been no change in the firm particularly as to the control of the affairs of the firm. The father i.e. Jitendra Kumar Gupta had 10% share of the firm whereas the remaining 90% share was divided equally between the two sons i.e. Aditya Kumar Gupta and Ashish Kumar Gupta having 45% share each. Thereafter when in the year 2005 the mother was also included as a partner the sons continued to retain their share and only the share of Jitendra Kumar Gupta was now divided between him and his wife. In the newly constructed firm in the year 2009 although the share of the partners is not stated in the writ petition but the fact is clear that all the earlier three partners i.e. Jitendra Kumar Gupta Aditya Kumar Gupta and Ashish Kumar Gupta continue to be dominant partners of the firm. In any case this argument is always available for the petitioner which can be taken before the assessing authority which shall not be prejudiced by any remarks in this regard. Petitioner has also submitted that the assessment is being carried out for the new firm for assessment year 2010-11 onwards in accordance with law. However this is the matter to be decided again by the assessment authority and nothing can be said on this aspect.

Summary

Issues Involved:
1. Validity of reassessment proceedings initiated by the Income Tax Department.
2. Whether the reassessment pertains to a different entity than the one assessed earlier.
3. Compliance with the legal provisions under Section 147/148 of the Income Tax Act.
4. Applicability of the legal principle established in the case of Commissioner of Income-Tax-5, Mumbai v. Jet Airways (I) Ltd.

Detailed Analysis:

1. Validity of Reassessment Proceedings Initiated by the Income Tax Department:
The petitioner, a partnership firm, challenged the reassessment proceedings initiated by the Income Tax Department for the assessment years 2005-06 to 2008-09. The reassessment was based on a survey conducted under Section 133-A of the Income Tax Act, which revealed that no manufacturing activity was being carried out in Haridwar, Uttarakhand, as claimed by the petitioner. The Revenue discovered that the actual manufacturing activities were being conducted in Meerut and Delhi. The reassessment notices were issued under Section 147/148, and the reasons for reassessment were provided by the Revenue, indicating discrepancies in the books of accounts and the location of the manufacturing activities.

2. Whether the Reassessment Pertains to a Different Entity Than the One Assessed Earlier:
The petitioner argued that the reassessment pertained to a different firm, as the original firm was dissolved on 31.03.2009, and a new firm was constituted on 01.01.2009. However, the court found that the firm remained a family firm with the same dominant partners, and the reconstitution did not change the nature of the entity. The court noted that the control of the firm's affairs remained with the same individuals, and thus, the reassessment was valid for the same entity.

3. Compliance with Legal Provisions Under Section 147/148 of the Income Tax Act:
The court examined the compliance with the legal provisions under Section 147/148 of the Income Tax Act. It was found that the reassessment was based on the discovery of new material, not a change of opinion. The Revenue had provided detailed reasons for the reassessment, indicating that the manufacturing activities were not conducted in Haridwar as claimed. The court emphasized that the reassessment was still in the notice stage, and no reassessment order had been passed yet. Therefore, the conditions for reassessment under Section 147/148 were met.

4. Applicability of the Legal Principle Established in the Case of Commissioner of Income-Tax-5, Mumbai v. Jet Airways (I) Ltd.:
The petitioner relied on the legal principle established in the case of Commissioner of Income-Tax-5, Mumbai v. Jet Airways (I) Ltd., which states that reassessment can only be done for the reason initially recorded, and any additional reasons can be considered only if the initial reason is valid. The court found that this principle did not apply in the present case, as the reassessment was still in the notice stage, and no reassessment order had been passed. The court noted that the reasons for reassessment were based on new material discovered during the survey, and not on a change of opinion. Therefore, the principle from the Jet Airways case was not applicable.

Conclusion:
The court dismissed the writ petitions, holding that the reassessment proceedings initiated by the Income Tax Department were valid. The reassessment pertained to the same entity, and the legal provisions under Section 147/148 of the Income Tax Act were complied with. The principle from the Jet Airways case was not applicable as the reassessment was still in the notice stage. The court allowed the petitioner to raise any arguments before the assessing authority during the reassessment proceedings.