2024 (9) TMI 1061 - HC - Income Tax

Reopening of assessment - Deduction u/s 10B - petitioner's claim for deduction u/s 10B countenanced on the basis of the information found in the course of a survey conducted - whether the deduction was rightly allowed in view of the fact that the units were not new units? - assessment u/s 143 (3) was completed disallowing the benefit u/s 10B on the ground that the processing of iron ore does not amount to manufacture within the meaning of section 10B and also Amona and Chitradurga units are not new units HELD THAT - Tribunal allowed the claim for deduction under Section 10B. One of the questions that was raised in the Tax Appeal was whether the deduction was rightly allowed in view of the fact that the units were not new units. This Court in its order admitting the appeal vide order dated 23.09.2013 did not formulate this question. However, this Court in its judgment 2021 (5) TMI 466 - BOMBAY HIGH COURT has noted the argument of Revenue to the effect that the Amona and Chitradurga units were not new units. The subject matter of Tax Appeal was the entitlement of the petitioner to a claim for deduction under Section 10B of the profits that are derived from its export oriented undertakings situated at Amona, Chitradurga and Codli. It is this claim which was adjudicated by the appellate authorities in the original assessment proceedings. Respondent no. 1 wants to reassess this claim by relying on certain additional evidence found in the course of the survey which according to him supports its case that the deduction under Section 10B could not be allowed. According to us, such a course of action cannot be countenanced as it would be in the teeth of the third proviso to Section 147. For the reasons stated above, in our opinion, respondent no. 1 has acted wholly without jurisdiction when he has sought to assume jurisdiction to reassess the petitioner's income so as to once again disallow a claim for deduction under Section 10B. Decided in favour of assessee.

Issues Involved:
1. Jurisdiction under Article 226 of the Constitution of India.
2. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
3. Eligibility for deduction under Section 10B of the Income Tax Act.
4. Allegations of under-invoicing and illegal mining.
5. Reopening of assessment based on new material facts.
6. Application of the third proviso to Section 147 of the Income Tax Act.
7. Compliance with jurisdictional preconditions for reassessment.

Issue-wise Detailed Analysis:

1. Jurisdiction under Article 226 of the Constitution of India:
The petitioner invoked the jurisdiction of the High Court under Article 226 of the Constitution of India to challenge the notice dated 16.07.2014 issued by the Assistant Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the Assessment Year 2009-10.

2. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the validity of the notice issued under Section 148 on the grounds that the Assessing Officer acted without jurisdiction and that the reasons for reopening were not justified. The Court noted that the Assessing Officer must have a reason to believe that the income had escaped assessment and that the reopening should not be based on a change of opinion. The Court found that the reasons recorded for reopening were not sustainable in law, particularly concerning the allegations of under-invoicing and illegal mining, which had already been addressed in previous judgments.

3. Eligibility for Deduction under Section 10B of the Income Tax Act:
The petitioner claimed a deduction under Section 10B for its units situated at Amona, Chitradurga, and Codli. The Court observed that the Tribunal had upheld the petitioner's claim for deduction under Section 10B, and this decision was also upheld by the High Court in its judgment dated 07.05.2021. The Court noted that the Tribunal had conducted a detailed analysis and found that the petitioner was engaged in the business of manufacture and production of iron ore, thus eligible for the deduction.

4. Allegations of Under-invoicing and Illegal Mining:
The Court found that the allegations of under-invoicing and illegal mining had been previously addressed. The CIT(A) had revised the assessment and found no basis for the allegation of under-invoicing. The High Court had also held that the observations made in the third report of Justice M.B. Shah Commission and the Supreme Court's declaration in Goa Foundation v. Union of India did not justify the reopening of the assessment.

5. Reopening of Assessment Based on New Material Facts:
The Court examined whether the new material facts found during the survey conducted on 20.03.2014 justified the reopening of the assessment. The Court noted that the new materials were not considered by the Assessing Officer or the appellate authorities, and the third proviso to Section 147 precluded the reopening of assessment on matters that were the subject of any appeal, reference, or revision.

6. Application of the Third Proviso to Section 147 of the Income Tax Act:
The Court emphasized the application of the third proviso to Section 147, which states that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference, or revision. The Court found that the reassessment proceedings initiated based on new materials would result in an anomalous situation where conflicting decisions could arise, thus violating the third proviso to Section 147.

7. Compliance with Jurisdictional Preconditions for Reassessment:
The Court reiterated that the Assessing Officer must comply with jurisdictional preconditions, including having a reason to believe that the income had escaped assessment, ensuring that the reopening is not based on a change of opinion, obtaining valid sanction, and issuing and serving the notice validly. The Court found that these conditions were not met in the present case, particularly concerning the new materials found during the survey which were not part of the original assessment proceedings.

Conclusion:
The petition was allowed, and the impugned notice dated 16.07.2014 issued under Section 148 of the Income Tax Act, 1961, together with the order dated 06.02.2015 dealing with the petitioner's objections, was quashed and set aside. The Court held that the Assessing Officer acted wholly without jurisdiction in seeking to reassess the petitioner's income to disallow the claim for deduction under Section 10B.

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