2014 (9) TMI 285 - HC - Income Tax

Notice for reopening of assessment u/s 148 Income escapement Sybsidy treated as capital expenses - Held that - An assessment cannot be reopened beyond the ordinary period of limitation because a mistake therein is detected or realised or that something which ought to have come to the notice of the department went unnoticed - There is also no room for change of opinion relying upon Commissioner of Income-Tax V. Eicher Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA - when there was a specific observation that this particular subsidy was to be taken as a capital receipt and not a revenue receipt it was gross indiscipline on the part of the Income Tax Officer. Also in Steamship Co. Ltd. v. Joint CIT 2005 (2) TMI 46 - CALCUTTA High Court it has been held that if the AO had not questioned the entitlement of the assessee to deduction u/s 80-IB in the assessment years, it was their mistake - All information regarding the alleged manufacturing process of the assessee was before them - After the time limit for making assessment or reassessment had long expired, the Revenue cannot turn round, take recourse to an extraordinary provision which is section 147 and attempt to reopen concluded assessments - If such exercise is permitted that would be quite contrary to the intention of the Act the subsidy was treated as a capital receipt in Section 263 proceedings for the AY 2003-2004 was within the knowledge of the department - Therefore, there was no ground for the Income Tax department to contend that income had escaped assessment and proceed to invoke the extraordinary provisions of Section 147 and 148 of the Act thus, the notice u/s 147/148 is to be set aside Decided in favour of assessee.

Summary

Issues involved:
1. Reopening of assessment under Section 147/148 of the Income Tax Act, 1961 for the assessment year 2006-2007.
2. Treatment of subsidy received as capital or revenue receipt.
3. Application of legal principles regarding escapement of income and change of opinion in assessment proceedings.

Detailed Analysis:
1. The petitioner, engaged in manufacturing paints and computer accessories, filed an income tax return for the assessment year 2006-2007, declaring income and claiming a refund. Subsequently, the income tax department issued a notice under Section 148 to reopen the assessment, alleging that a subsidy received from the government of West Bengal was a revenue receipt, not a capital receipt. The petitioner objected to this reassessment, citing past assessments where similar subsidies were treated as capital receipts. The court examined the legality of the reassessment proceedings under Sections 147/148 and concluded that they were without jurisdiction or in abuse of powers, ultimately quashing the proceedings and the order rejecting the petitioner's objection.

2. The key issue revolved around the treatment of the subsidy received by the petitioner as a capital or revenue receipt. The department contended that the subsidy was a revenue receipt based on the judgment in Sahney Steel case, while the petitioner argued that past assessments and specific observations by the court indicated the subsidy should be treated as a capital receipt. The court referred to various legal precedents, including the House of Lords opinion and judgments in similar cases, to establish that subsidies for business expansion or modernization are capital receipts, contrasting with subsidies for day-to-day operations, which are revenue receipts. The court emphasized the importance of factual analysis in determining the nature of subsidies and criticized the department for misapplying legal principles in this case.

3. The court delved into legal principles regarding escapement of income and change of opinion in assessment proceedings. It highlighted the strictness of laws governing the reopening of assessments, emphasizing that a change of opinion alone does not constitute escapement of income. Citing previous judgments, the court stressed that if all necessary information was available during earlier assessments, reopening under Section 147 amounted to a change of opinion, contrary to the statutory policy of finality in assessments. The court concluded that the reassessment proceedings in this case lacked jurisdiction and were an abuse of power, ultimately ruling in favor of the petitioner and quashing the proceedings.

In summary, the judgment addressed issues related to the reopening of assessment, treatment of subsidies, and legal principles governing income tax assessment proceedings, ultimately ruling in favor of the petitioner due to jurisdictional deficiencies and misapplication of legal principles by the income tax department.