2021 (9) TMI 473 - HC - Income Tax

Reopening of assessment u/s 147 - deductions claimed by the assessee u/s 10B on approval from the Software Technology Parks of India (STPI) based on the delegation granted to the directors of STPI by IMSC - order of ratification by the Board had not been furnished - HELD THAT - Non obtaining of ratification certificate from the Board has not been attributed to the assessee as a default committed by the assessee. There may be various reasons, for which, the Board might not have granted a ratification. Nevertheless, the approval granted by the Authority, to whom the power had been delegated was valid and hence, as long as the said approval was not withdrawn, the assessee would be entitled to rely upon the approval and claim deduction under Section 10B of the Act, which is a special provision for earning of foreign exchange. In such circumstances, the reopening of assessment is without jurisdiction and bad in law. - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Alleged non-disclosure of primary facts by the assessee.
3. Requirement of ratification certificate from the Board of Approval (BoA) for claiming deduction under Section 10B.
4. Impact of CBDT Instruction No.2/2009 on the reassessment.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The appellant-assessee challenged the reassessment proceedings initiated by the respondent under Section 147 of the Income Tax Act, 1961 for the assessment year 2006-07. The primary contention was that the reassessment was based on a mere change of opinion, which is not permissible under law. The appellant relied on the Supreme Court decision in CIT Vs. Kelvinator of India Ltd., which held that the concept of 'change of opinion' must act as a check against the abuse of power by the Assessing Officer. The court noted that the reassessment could not be justified as there was no allegation that the assessee failed to fully and truly disclose all material facts necessary for the assessment.

2. Alleged Non-Disclosure of Primary Facts:
The appellant argued that all primary facts necessary for the assessment were fully disclosed and that the absence of any findings by the Assessing Officer regarding non-disclosure rendered the reopening invalid. The court agreed, emphasizing that the duty of the assessee is to place all material facts before the Assessing Officer, and in the absence of any such allegation of non-disclosure, the reassessment proceedings could not be justified.

3. Requirement of Ratification Certificate from the BoA:
The reassessment was initiated on the grounds that the appellant did not produce the ratification certificate from the BoA as required under Section 10B Explanation 2(iv) and CBDT Instruction No.2/2009. The court found that the reasons for reopening were solely based on the non-production of the ratification certificate and did not involve any allegation of non-disclosure of financial details or transactions by the assessee. The court questioned whether obtaining such a ratification was within the control of the assessee and whether the absence of such ratification would automatically invalidate the approval granted by the Development Commissioner.

4. Impact of CBDT Instruction No.2/2009:
The appellant had also challenged the validity of CBDT Instruction No.2/2009 in a separate writ petition. The court noted that the challenge to the Instruction had no impact on the relief sought in the current writ petition regarding the reopening of the assessment. The court emphasized that the reopening could not be justified merely on the basis of the Instruction, especially when the approval by the Development Commissioner was valid and had not been withdrawn.

Additional Considerations:
The court also referred to a similar case involving Kone Elevators (India) Private Limited, where the reopening of assessment was quashed on similar grounds. The court found that the failure to obtain a ratification certificate could not be attributed to the assessee as a default, and the approval granted by the Development Commissioner remained valid. The court concluded that the reassessment proceedings were without jurisdiction and bad in law.

Conclusion:
The writ appeal was allowed, setting aside the impugned order and quashing the reassessment proceedings initiated under Section 147 of the Act. The court held that the reassessment was based on a mere change of opinion and lacked jurisdiction, thus rendering it invalid.

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