2006 (2) TMI 88 - HC - Income Tax

Notice u/s 148 reassessment - maintainability of the writ petition for quashing a notice under section 148 of the Act and/or a speaking order disposing of the objections filed thereto. - main thrust of the objections was that the deductions under section 10A had been rightly claimed and rightly allowed in the original assessment and there was no question of any income escaping assessment - whether the proposed reassessment is based only on a change of opinion or is founded on some other material that the Assessing Officer has noticed to initiate action against the assessee

Issues Involved:
1. Maintainability of the writ petition for quashing a notice under section 148 of the Income-tax Act, 1961.
2. Merits of the reassessment proceedings initiated under section 147/148 of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Maintainability of the Writ Petition:

The primary contention was whether a writ petition could be maintained to challenge the initiation of reassessment proceedings under section 147/148 of the Income-tax Act, 1961. The petitioners argued that if the initiation of proceedings was without jurisdiction, they could challenge it via a writ petition both at the stage of issuance of the notice and after the speaking order disposing of objections. The Revenue contended that a writ petition was not maintainable due to the availability of an alternative remedy of appeal post-reassessment.

The court relied on the Supreme Court's decision in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, which affirmed that the High Courts could issue orders to prevent executive authorities from acting without jurisdiction, even if alternative remedies were available. This position was further supported by the Supreme Court in Whirlpool Corporation v. Registrar of Trade Marks [1998] 8 SCC 1, which stated that the High Court's jurisdiction under Article 226 of the Constitution remains unaffected by the existence of alternative statutory remedies, especially where the authority acted without jurisdiction.

The court also referenced the Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19, which outlined the procedure for challenging a notice under section 148, indicating that objections to the notice must be disposed of by a speaking order, which could then be challenged via a writ petition.

The court agreed with the views of the Gujarat High Court in Garden Finance Ltd. v. Asst. CIT [2004] 268 ITR 48 and the Allahabad High Court in Indra Prastha Chemicals P. Ltd. v. CIT [2004] 271 ITR 113, which upheld the maintainability of writ petitions in similar circumstances.

2. Merits of the Reassessment Proceedings:

The petitioners contended that the reassessment proceedings were initiated based on a mere change of opinion, which is not permissible. They argued that the original assessment had already considered all relevant factors, and the subsequent notice under section 148 was issued without any new material, merely representing a change in the Assessing Officer's opinion.

The court examined whether the reassessment was based on new material or a mere change of opinion. It noted that during the original assessment, a detailed inquiry was conducted, and the allocation of expenses between the software and human resources divisions was specifically addressed. The original assessment had allowed the deduction under section 10A based on the profits of the eligible undertaking.

In the reasons for reopening, the Assessing Officer merely stated that the deduction under section 10A had been allowed in excess without presenting any new material. The court referenced its decision in Jindal Photo Films Ltd. v. Deputy CIT [1998] 234 ITR 170, which held that reopening an assessment based on a change of opinion is not permissible. This position was reaffirmed in Transworld International Inc. v. Joint CIT [2005] 273 ITR 242.

The court found that the reassessment was indeed based on a mere change of opinion, as no new material had come to light. The original assessment had already addressed the issue of allocation of expenses and the computation of deduction under section 10A. The court also noted that the amendment to sub-section (4) of section 10A, effective from April 1, 2001, clarified that the deduction should be computed based on the profits of the eligible undertaking, not the entire business. This aspect was not considered in the speaking order dated August 17, 2005.

Conclusion:

The court allowed the writ petition, quashing the notice under section 148 dated February 10, 2005, and the speaking order dated August 17, 2005. It also quashed all proceedings initiated pursuant to the said notice, holding that the reassessment proceedings were without jurisdiction and based on a mere change of opinion.

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