2012 (8) TMI 40 - AT - Income Tax

Allocation of expenses between the DTA and EOU unit - expenses are to be charged to the EOU also in order to compute the benefit u/s 10B - Re assessment made u/s 147 r.w.s. 143(3) - Held that - It is well settled that if the entire material has been placed by the assessee before the A.O. at the time when the original assessment was made and the A.O. applied his mind to that material and accepted the view taken by the assessee, merely because he did not express this in the assessment order that by itself would not come as a ground to a conclude that assessee has escaped assessment and therefore, the assessment needed to be reopened. On the other hand, if the A.O. did not apply his mind and omitted a lapse, there is no reason why the assessee should be made to suffer the consequence of that laps. The question of such claim was subject matter of enquiry at the stage of original assessment proceedings with a questionnaire dated 18.03.2004 in which A.O. specifically required the assessee to furnish certified copy of the profit and loss accounts and the balance sheet of the unit EOU claiming exemption of income u/s 10B and to furnish the same along with the detail of sales/purchases, other income and major expenses to which assessee replied furnishing complete break up of the profit and loss accounts, as per schedule-VI of the Companies Act, showing separately for EOU and other units, thus the assessment order is sought not to be reopened though within the period of four year as it is case of change of opinion - order of quashing the reassessment proceedings - in favour of assessee.

Summary

Issues Involved:

1. Reopening of assessment under section 147 of the Income Tax Act.
2. Allocation of depreciation and advertisement expenses between Domestic Tariff Area (DTA) and Export Oriented Unit (EOU) for deduction under section 10B.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:

The Revenue challenged the quashing of the assessment made under section 147 read with section 143(3) by the CIT(A), arguing that the original assessment did not require new information but only a "reason to believe" that income had escaped assessment, as per the amended provisions of section 147 effective from April 1, 1989. The Revenue cited the jurisdictional High Court decision in Praful Chunnilal Patel & Vasant Chunnilal Patel vs. ACIT, which stated that an assessment can be reopened even if the relevant material was available during the original assessment if it was not considered or misinterpreted.

The assessee argued that the reopening was based on reappraisal of the same material available during the original assessment, constituting a change of opinion, which is not permissible. The CIT(A) agreed with the assessee, noting that the original assessment had already considered the details regarding the allocation of expenses between the DTA and EOU. The CIT(A) cited the Delhi High Court decision in Techspan India P. Ltd. v. ITO, which held that reopening an assessment on the same set of facts constitutes a change of opinion and is not justified.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the original assessment had indeed considered the allocation of expenses and that the reopening was based on the same material, thus constituting a change of opinion. The Tribunal referenced the Supreme Court decision in CIT Vs. Kelvinator of India Ltd., which stated that reopening an assessment on a mere change of opinion is not permissible.

2. Allocation of Depreciation and Advertisement Expenses:

The Revenue contended that the CIT(A) erred in canceling the allocation of depreciation on residential quarters, DTA processing machine, and advertisement expenses to the EOU in the ratio of turnover for the computation of deduction under section 10B. The original assessment had accepted the assessee's allocation of expenses, but the reopening notice argued that these expenses should also be allocated to the EOU, reducing the taxable profit.

The assessee argued that the allocation of expenses had been fully disclosed and considered during the original assessment, and the reopening was merely a reconsideration of the same evidence. The CIT(A) quashed the reassessment, agreeing with the assessee that the original assessment had considered the allocation details and that the reopening was based on a change of opinion.

The Tribunal upheld the CIT(A)'s decision, noting that the original assessment had accepted the allocation of expenses after detailed inquiries and submissions by the assessee. The Tribunal found that reopening the assessment on the same set of facts constituted a change of opinion, which is not permissible under the law.

Conclusion:

The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decision to quash the reassessment proceedings. The Tribunal emphasized that reopening an assessment based on a change of opinion on the same set of facts is not permissible, as established by various judicial precedents.