2009 (8) TMI 557 - HC - Income Tax

Reassessment- The petitioner submitted its return u/s 139 but later he submitted revised return disclosing a lower income. The reduction of income was due to decrease in the value of the stock in trade of R which was amalgamated with the petitioner. The assessing officer issued a notice under section 154. The proceeding for rectification were dropped later. Subsequently, a notice for reassessment was issued for the same reasons. Held that- (i) the writ petition was maintainable. Moreover in this case, where the writ petition had been entertained and kept pending for about six years and directions issued for filing of affidavits, the court was not inclined to decline relief only on the ground of existence of an alternative remedy. (ii) the reassessment notice issued virtually the same reason for which rectification proceedings had earlier been initiated but dropped. The Assessing officer had not disclosed any new material for reopening the assessment. The notice for the assessment was not valid and was liable to be quashed.

Issues Involved:
1. Validity of the notice under section 148 of the Income-tax Act for reopening the assessment.
2. Legitimacy of the grounds for reopening the assessment.
3. Whether reassessment can be initiated on the basis of the same reasons previously considered and dropped under section 154.

Issue-wise Detailed Analysis:

1. Validity of the Notice under Section 148 of the Income-tax Act:
The petitioner challenged the notice dated August 28, 2003, issued under section 148 for reopening the assessment for the assessment year 1999-2000. The petitioner contended that no income had escaped assessment and requested the Assessing Officer to furnish reasons for the decision to reassess income. The reasons provided were practically the same as those for the earlier notice under section 154, which had been dropped.

2. Legitimacy of the Grounds for Reopening the Assessment:
The reasons for reopening the assessment included:
- Difference in unpaid customs and excise duty: The difference of Rs. 307.56 lakhs between unpaid customs and excise duty on opening and closing stock was not allowable, referencing CIT v. Berger Paints (India) Ltd. However, this decision had been reversed by the Supreme Court.
- Valuation of stock-in-trade: The reduction of income by Rs. 3,27,37,810 due to the change in accounting procedure post-amalgamation of Rajdoot Paints Ltd. was questioned. The petitioner argued that this change was disclosed and accepted previously.
- Deduction under section 80-IA: The deduction of Rs. 12.50 crores was disallowed on the grounds of inflated profits of the Pondicherry unit. This issue had been settled in favor of the petitioner by the Income-tax Appellate Tribunal for subsequent years.
- Deduction under section 80-O: The claim of deduction of 50% of gross income in convertible foreign exchange was disputed. The petitioner asserted that only net income was claimed, excluding expenses.
- Sales tax deduction: The debit of Rs. 194.6 lakhs on account of sales tax without corresponding credit was questioned. The petitioner clarified that sales tax was neither credited nor debited in the profit and loss account.
- Cessation of sales tax liability: The deduction of Rs. 25.97 lakhs was disallowed, questioning the correctness of the petitioner's claim.
- Inadmissible debits: The income of Rs. 30 lakhs was alleged to have escaped assessment due to inadmissible debits in the profit and loss account.

3. Reassessment Based on Previously Dropped Grounds:
The court noted that the grounds for reopening the assessment were the same as those considered and dropped under section 154. The petitioner argued that the reassessment was initiated on mere change of opinion, which is not permissible in law. The court emphasized that the Assessing Officer cannot start reassessment proceedings on the same materials that were previously considered and found to have no apparent mistake. The court referred to the judgment in CIT v. Kelvinator of India Ltd., which held that mere change of opinion is no ground for reassessment.

Conclusion:
The court concluded that the reassessment notice was issued on virtually the same grounds as the earlier rectification notice, which had been dropped. There were no new materials or reasons for the belief that income had escaped assessment. Therefore, the Assessing Officer lacked jurisdiction to issue the impugned notice. The notice under section 148 of the Income-tax Act was set aside, and the writ petition was disposed of accordingly.

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