2024 (2) TMI 1538 - HC - Income Tax

Validity of Revision u/s 263 - deduction u/s 80HHC on the book profit has been wrongly claimed - HELD THAT - We note that the ITAT while interfering with the order passed u/s 263 has principally taken note of the judgment rendered by the Court in Ranbaxy Laboratories Ltd. 2011 (6) TMI 4 - DELHI HIGH COURT which had essentially held that once the AO had failed to make any additions in respect of matters on which the notice u/s 147 or 148 was founded no other items forming part of the original order of assessment could have been reopened. The order framed by the Revisional Authority u/s 263 of the Act essentially compels the AO to proceed contrary to the above. AO has pursuant to the order passed by the Revisional Authority framed a consequential order of assessment which forms subject matter of the connected appeal. We note that the judgment in Ranbaxy Laboratories 2011 (6) TMI 4 - DELHI HIGH COURT and the doubt which was expressed in respect of its correctness in Jakhotia Plastics Private Ltd. 2018 (1) TMI 1525 - DELHI HIGH COURT were noticed in some detail by us while considering ITA 756 of 2023 2024 (2) TMI 404 - DELHI HIGH COURT Thus we admit these appeals on the following question of law Whether Ld. ITAT has erred on the facts and circumstances of the case in not appreciating Explanation 3 of Section 147 of the Income Tax Act 1961 and whether the same would empower the Assessing Officer to assess or reassess income in respect of any issue which has escaped assessment notwithstanding the reasons recorded under sub-section (2) of Section 148 having not alluded to the same or formed the basis for reopening?

Summary

The Delhi High Court, comprising Hon'ble Justices Yashwant Varma and Purushaindra Kumar Kaurav, addressed an appeal concerning the Income Tax Appellate Tribunal's (ITAT) decision to quash an order under Section 263 of the Income Tax Act, 1961. The key legal issue was whether the ITAT was justified in its decision regarding the deduction of Rs.33,03,65,358 under Section 80HHC on the book profit of Rs.20,70,37,383, which was claimed to be wrongly claimed.The ITAT's interference was based on the precedent set in Ranbaxy Laboratories Ltd. v. CIT, which held that if the Assessing Officer (AO) did not make additions on matters for which a notice under Section 147 or 148 was issued, other items from the original assessment could not be reopened. The Revisional Authority's order under Section 263, which compelled the AO to act contrary to this principle, was thus challenged.The Court also noted the ongoing debate on the correctness of the Ranbaxy judgment, as seen in Principal Commissioner of Income Tax (Central)-3 vs. Jakhotia Plastics Private Ltd. The Court admitted the appeals on the question of whether the ITAT erred by not considering Explanation 3 of Section 147, which empowers the AO to assess or reassess income on any issue that has escaped assessment, irrespective of the reasons recorded under Section 148(2).The matters were ordered to be tagged with ITA 756/2023 and scheduled for further hearing on March 27, 2024.