1982 (6) TMI 69 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 147(b) of the Income-tax Act, 1961.
2. Entitlement to deduction under section 80K of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147(b):
- Background: The Income Tax Officer (ITO) initially allowed the assessee a deduction under section 80K for dividends received. Later, based on a letter from the Inspecting Assistant Commissioner (IAC) indicating that the dividends did not qualify for deduction under section 80K, the ITO reopened the assessment under section 147(b).
- Assessee's Argument: The assessee contested the reassessment, arguing that the ITO lacked new information prior to issuing the notice under section 148. The assessee also pointed out that a certificate under section 197(3) was issued and never revoked, and that a similar issue had been previously decided in their favor without an appeal from the department.
- Department's Argument: The department contended that the reassessment was valid as it was based on new information from the IAC, which came after the original assessment. The ITO's initial understanding was incorrect, and the new assessment order showed that the industrial undertaking had suffered a loss.
- Tribunal's Decision: The Tribunal upheld the validity of the reassessment proceedings. It concluded that the letter from the IAC and the subsequent assessment order constituted new information, providing a valid basis for the ITO's belief that income had escaped assessment. The Tribunal found a nexus between the new information and the ITO's reason to believe that the relief under section 80K was wrongly allowed initially.

2. Entitlement to Deduction under Section 80K:
- Background: The ITO withdrew the deduction under section 80K, arguing that the new industrial undertaking had suffered a loss and, therefore, no profit was available for deduction. The Assistant Appellate Commissioner (AAC) reversed this decision, directing the ITO to allow the deduction under section 80K.
- Assessee's Argument: The assessee argued that the entitlement to section 80K relief should be based on whether the company was entitled to deduction under section 80J, regardless of whether the deduction was actually allowed in that year.
- Department's Argument: The department argued that section 80K relief could not be allowed if the industrial undertaking showed a loss, as there would be no profits to attribute the dividends to.
- Tribunal's Decision: The Tribunal referred to the Supreme Court's decision in the case of Coromandel Fertilizers Ltd., which established that section 80K relief is available if the company is entitled to deduction under section 80J, irrespective of actual profits in that year. The Tribunal noted that the Gujarat High Court had a contrary view but chose to follow the Supreme Court's ruling, which was binding. The Tribunal concluded that the AAC was correct in allowing the deduction under section 80K, as the company was entitled to relief under section 80J, even though the actual deduction was carried forward due to the industrial undertaking's loss.

Conclusion:
The Tribunal dismissed both the departmental appeal and the cross-objection by the assessee. It upheld the validity of the reassessment proceedings under section 147(b) and confirmed the AAC's decision to allow the deduction under section 80K, aligning with the Supreme Court's interpretation of the relevant provisions.