2014 (5) TMI 509 - AT - Income Tax

Validity of reopening of assessment u/s 147 of the Act Mere change of opinion Held that - There is no dispute that reopening of assessment in this case has been done within 4 years - AO while allowing claim of the assessee u/s 80HHC on traded goods - while allowing the claim of the assessee u/s. 80HHC detailed inquiry was made as to why all the other expenses which were not directly attributable to export of trading goods should not be considered as indirect cost and be apportioned accordingly and only after verifying the assessee s contention which was found to be correct as the assessee was able to identify and co-relate every export with specific purchases made from Baroda office, AO allowed the claim of the assessee - reopening of the assessment on the part of the AO was nothing but a case of change of opinion which is not sustainable in law. Following Gujarat Power Corporation Ltd vs. ACIT 2012 (9) TMI 69 - Gujarat High Court and CIT Vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA - the AO did not give any specific finding accepting the claim of the claim of the assessee makes no difference if the issue was processed at the time of original assessment proceedings - if the entire material has been placed by the assessee before the AO at the time when the original assessment was made and the AO 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 - order passed by AO u/s 143(3) read with section 147 is not sustainable in law Decided in favour of Assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Allocation of indirect expenses for the purpose of computing deduction under Section 80HHC.
3. Charging of interest under Section 234B.
4. Recovery of interest under Section 244A.

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The primary issue was whether the reopening of the assessment by the Assessing Officer (AO) under Section 147 was justified. The assessment was originally completed under Section 143(3) on 16-02-1998. A notice under Section 148 was issued on 29-03-2000, which the assessee contested, arguing that the reopening was based on a change of opinion and not on any new information. The AO's reason for reopening was the alleged incorrect allocation of indirect costs for calculating the deduction under Section 80HHC, leading to excess relief.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's action, stating that the reopening was valid under Section 147 Explanation 2(c)(iii), which allows reopening if excess relief has been granted. The CIT(A) emphasized that the AO had a bona fide belief that income was under-assessed, which justifies reopening even if it involves a change of opinion.

However, the Appellate Tribunal found that the original assessment had involved a detailed inquiry into the allocation of indirect costs, and the AO had accepted the assessee's method after verification. The Tribunal concluded that reopening the assessment on the same issue amounted to a change of opinion, which is not permissible under the law. This view was supported by various judicial precedents, including the Gujarat High Court's decision in Gujarat Power Corporation Ltd v. ACIT and the Supreme Court's ruling in CIT v. Kelvinator of India Ltd.

2. Allocation of Indirect Expenses for Deduction under Section 80HHC:
The second issue involved the AO's reduction of the assessee's claim for deduction under Section 80HHC from Rs. 39,60,973 to Rs. 20,99,054, based on the allocation of indirect costs. The AO argued that the assessee had not allocated the entire indirect cost of the business for computing the deduction, which led to excess relief.

The Tribunal noted that during the original assessment, the AO had thoroughly examined the allocation of indirect costs and accepted the assessee's method after verifying that the entire export activity of trading goods was carried out from Baroda. The Tribunal held that the AO's reopening of the assessment on this ground was unjustified, as it was merely a change of opinion.

3. Charging of Interest under Section 234B:
The assessee also contested the CIT(A)'s confirmation of the AO's action in charging interest under Section 234B. However, since the Tribunal quashed the reopening of the assessment, this ground did not require further adjudication.

4. Recovery of Interest under Section 244A:
Similarly, the issue of recovering interest under Section 244A was rendered moot by the Tribunal's decision to quash the assessment order.

Conclusion:
The Tribunal allowed the appeals, quashing the assessment order passed by the AO under Section 143(3) read with Section 147, on the grounds that the reopening was based on a change of opinion, which is not sustainable in law. Consequently, the other grounds related to charging and recovery of interest did not require further adjudication. This decision was pronounced in open court on 24.04.2014.