2004 (10) TMI 282 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147.
2. Eligibility for deduction under Section 80-IA.
3. Levy of interest under Section 234B.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:

The assessee challenged the validity of the reassessment proceedings on several grounds. The first argument was related to typographical errors in the dates concerning the incorporation and amalgamation of the companies involved. The Tribunal found these errors immaterial in forming a belief about the escapement of income.

The second argument was that the AO acted on the dictates of his superior without applying his mind. The Tribunal rejected this argument, stating that there was no evidence to show that the AO did not agree with the superior's suggestion for reopening the assessment.

The third argument was that the reassessment was based on a mere change of opinion. The Tribunal noted that post the amendment to Section 147 effective from April 1, 1989, the requirement is the AO's belief about the escapement of income, which should be reasonable. The audit objection provided a material basis for the AO to form such a belief. Therefore, the Tribunal upheld the validity of the reassessment proceedings.

2. Eligibility for Deduction under Section 80-IA:

The main grievance of the Revenue was against the CIT(A)'s order allowing the deduction under Section 80-IA. The Tribunal examined whether the provisions of Section 80-IA(2)(i) and (ii) were applicable to deny the benefits.

Section 80-IA(2)(i): The Tribunal referred to several High Court decisions, including the Calcutta High Court in CIT vs. N. Guru Investments (P) Ltd., which held that amalgamation does not equate to the reconstruction of a business already in existence. Therefore, the action of the AO in resorting to Section 80-IA(2)(i) was rightly disapproved by the CIT(A).

Section 80-IA(2)(ii): The Tribunal concluded that the industrial undertaking was not formed by the transfer to a new business of plant and machinery previously used. The transfer of ownership of M/s MDP Ltd. to the assessee did not constitute the formation of a new industrial undertaking. The deduction under Section 80-IA is available to a unit, not to an assessee. The Tribunal referred to the CBDT's Circular F. No. 15/6/63, which supports that the benefit attaches to the undertaking, not the owner, and the successor is entitled to the benefit for the unexpired period if the undertaking is taken over as a running concern. Therefore, the provisions of Section 80-IA(2)(ii) did not apply, and the CIT(A)'s order was upheld.

3. Levy of Interest under Section 234B:

The assessee's cross-objection included a challenge to the levy of interest under Section 234B, arguing that there was no specific direction in the assessment order to charge such interest. However, this issue was deemed consequential and infructuous due to the dismissal of the Revenue's appeal. Therefore, the Tribunal dismissed this ground as well.

Conclusion:

Both the appeal by the Revenue and the cross-objection by the assessee were dismissed. The Tribunal upheld the CIT(A)'s decision on the validity of reopening the assessment and the eligibility for deduction under Section 80-IA, while the issue regarding the levy of interest under Section 234B was rendered infructuous.