1986 (1) TMI 147 - AT - Income Tax

Summary

Issues:
Reopening of assessment under s. 147(b) of the IT Act
Calculation of deduction for head office expenses under s. 44C of the IT Act

Analysis:

Reopening of assessment under s. 147(b) of the IT Act:
The appeal was filed by the assessee against the order of the CIT(A) related to the assessment year 1977-78. The original assessment allowed a deduction for head office expenses up to 31st May, 1976, and 5% of the adjusted total income for expenses after 1st June, 1976. Subsequently, the ITO reopened the assessment under s. 147(b) and reduced the deduction proportionately, claiming the original allowance was excessive. The CIT(A) upheld the reopening based on the ITO's possession of new information regarding the deduction under s. 44C. However, the source and timing of this information were not specified. The assessee argued that no new information was received post-original assessment, citing the Supreme Court's decision in Bankipur Club Ltd. vs. CIT. The Tribunal found that the ITO lacked fresh information to justify the reopening, as required by s. 147(b), affirming the decision in Bankipur Club.

Calculation of deduction for head office expenses under s. 44C of the IT Act:
The assessee contended that the deduction should be based on 5% of the adjusted total income without proportionate reduction, as the Explanation to s. 44C did not specify such a limitation. The Department argued for proportionate reduction based on the period before and after 1st June, 1976. The Tribunal agreed with the assessee, noting that the definition of adjusted total income did not mandate proportionate reduction. Therefore, the reassessment order reducing the deduction was deemed unsustainable in law, and the appeal was allowed.

In conclusion, the Tribunal held that the reassessment under s. 147(b) lacked valid jurisdiction due to the absence of fresh information post-original assessment, following the precedent set in Bankipur Club. Additionally, the Tribunal ruled in favor of the assessee regarding the calculation of the deduction for head office expenses under s. 44C, finding the reassessment order unsustainable. Consequently, the appeal was allowed in favor of the assessee.