2014 (6) TMI 112 - AT - Income Tax

Validity of Re-opening of assessment u/s 143(3) r.w. section 147 of the Act Mere change of opinion - Eligibility for deduction u/s 80IA of the Act Held that - The assessment originally completed u/s 143(3) was reopened by him without there being any new information or material coming to his possession after completion of the assessment Relying upon Commissioner of Income-tax-VI, New Delhi Versus Usha International Ltd. 2012 (9) TMI 767 - DELHI HIGH COURT - the expression change of opinion postulates the formation of opinion and then change thereof - what it implies in the context of section 147 is that the AO should have formed his opinion at the first instance i.e. in the proceedings u/s 143(3) and thereafter by initiating reassessment proceedings u/s 147, the AO proposed to take different view also in Commissioner of Income Tax, Delhi Versus M/s. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT OF INDIA it has been held that fulfilment of only condition viz, that the AO should have reason to believe that income has escaped assessment confers jurisdiction to reopen the assessment - It was held that although the power to reopen the assessment is much wider post 1st April 1989, one needs to give schematic interpretation to the words reason to believe failing which, section 147 would give arbitrary powers to the AO to reopen assessment on the basis of mere change of opinion which cannot be per se reason to reopen. The issue relating deduction allowable to the assessee u/s 80IA was examined by the AO during the course of assessment proceedings originally completed u/s 143(3), the deduction claimed by the assessee us/ 80IA was recomputed by the AO by rejecting the basis adopted by the assessee for apportionment of Overhead of head office and sales depots to the Kanpur Unit and taking turnover as basis for such apportionment - This issue thus was examined and decided by the AO on application of mind and in the absence of any tangible material coming to his possession after completion of original assessment, the reopening of the assessment by the AO on recompute the deduction eligible to the assessee u/s 80IA was clearly based on a mere change of opinion which is not permissible in law Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Correctness of the apportionment method used for overheads in computing the deduction under Section 80IA.
3. Adjustment for the transfer of raw materials between units for computing the deduction under Section 80IA.

Issue-Wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The primary issue in this case was whether the reopening of the assessment by the Assessing Officer (AO) under Section 147 of the Income Tax Act was valid. The assessee argued that the reopening was based on a mere change of opinion since no new material had come to the AO's possession after the original assessment under Section 143(3). The Tribunal noted that the AO had already examined the issue of deduction under Section 80IA during the original assessment and had made necessary adjustments. The Tribunal referred to the Supreme Court's decision in the case of Kelvinator of India Ltd., which held that reopening based on a mere change of opinion is not permissible. The Tribunal concluded that the AO's reopening of the assessment was not based on any new tangible material and was merely a change of opinion, rendering the reopening invalid. Consequently, the reassessment made under Section 143(3) read with Section 147 was cancelled.

2. Correctness of the Apportionment Method Used for Overheads:
The AO had originally computed the profit of the Kanpur unit eligible for deduction under Section 80IA by apportioning the overheads of the head office and sales depots based on turnover. However, in the reassessment, the AO noticed a mistake in the apportionment and recomputed the deduction, which was further restricted. The CIT(A) upheld this method, stating that the overheads should be allocated based on the value of turnover rather than the volume. The Tribunal, however, did not delve into this issue in detail since it had already invalidated the reassessment on the preliminary ground of invalid reopening.

3. Adjustment for Transfer of Raw Materials:
The CIT(A) had noted that there were transfers of raw materials between the Kanpur unit and other units, and the valuation of these transfers was not substantiated by the assessee. The CIT(A) made an adjustment of 10% to the value shown by the assessee for these transfers and directed the AO to recompute the deduction under Section 80IA accordingly. The Tribunal did not address this issue in detail due to the cancellation of the reassessment proceedings on the preliminary issue.

Conclusion:
The Tribunal allowed the appeal of the assessee, primarily on the ground that the reassessment proceedings initiated by the AO under Section 147 were invalid as they were based on a mere change of opinion without any new tangible material. Consequently, the other grounds raised by the assessee became academic and were not adjudicated upon. The order was pronounced in the open court on 23rd May 2014.