2014 (10) TMI 208 - AT - Income Tax

Reopening of assessment u/s 148 Reason to believe - Held that - The assessee is a pharmaceutical drug manufacturing company - The company started manufacturing at Khatraj from 15-09-1997 - the assessee claimed deduction u/s. 80IB(10) of the Act in AY 2003-04, 2004-05 and 2005-06 which was allowed by the AO in the assessment orders passed u/s. 143(3) of the Act - Thereafter, the AO reopened the assessment for all the three years by issuing notice u/s. 148 of the Act on the ground that as per section 11 of the Industrial (Development & Regulation) Act, 1951 as amended vide SO 857(E) dated 10.12.1999, Small Scale Undertaking is an industrial undertaking in which investment in fixed assets in plant and machinery does not exceed ₹ 1 crore - the alleged reasons to believe were formed on the basis of balance sheet filed along with the return of income by the assessee which was available with the AO at the time of framing of the original assessment - It cannot be held that this material was not available relying upon Parashuram Pottery Works Co. Ltd. Vs. ITO 1976 (11) TMI 1 - SUPREME Court - in the alleged reasons as recorded, no material external to the record which was available has been brought on record for issuance of notice u/s. 148 of the Act - the issuance of notice u/s 148 for AY 2003-04, 2004-05 and 2005-06 cannot be upheld and are to be set aside Decided in favour of assessee.

Issues Involved:
1. Validity of the reopening of assessments under Section 148 of the Income Tax Act.
2. Eligibility of the assessee for deduction under Section 80IB of the Income Tax Act for the Assessment Years 2003-04, 2004-05, and 2005-06.

Issue-wise Detailed Analysis:

1. Validity of the Reopening of Assessments under Section 148:

The assessee challenged the reopening of assessments on the grounds that the notice under Section 148 did not specify how the assessee failed to disclose all material facts fully and truly. The notice was issued based on an audit query without any tangible material indicating that income had escaped assessment. The original assessments were completed under Section 143(3) for the respective years, and the reasons for reopening were based on the same balance sheet that was available at the time of the original assessment.

The tribunal noted that the Assessing Officer (AO) failed to bring any new tangible material to justify the reopening. The reasons recorded for reopening were based on the balance sheet filed with the original return, which was already considered during the original assessment. The tribunal cited the Supreme Court's decision in Parashuram Pottery Works Co. Ltd. Vs. ITO and the Delhi High Court's decision in Madhur Khosla Vs. ACIT, emphasizing that reopening assessments without new tangible material amounts to an impermissible review.

The tribunal concluded that the issuance of notices under Section 148 for the Assessment Years 2003-04, 2004-05, and 2005-06 was unsustainable. Consequently, the reassessment orders for these years were set aside, and the cross-objections of the assessee on the jurisdictional ground were allowed.

2. Eligibility of the Assessee for Deduction under Section 80IB:

The primary issue in the Revenue's appeals was whether the assessee was eligible for deduction under Section 80IB, given the investment in plant and machinery exceeded the limit for a Small Scale Industrial Undertaking (SSI).

The assessee argued that it was entitled to the deduction as it qualified as an SSI unit based on notifications from the Ministry of Industry. The Commissioner of Income Tax (Appeals) (CIT(A)) found that the assessee had switched to SSI status based on the notification dated 10th December 1997, which set the investment limit at Rs. 3 crores. Subsequent notifications clarified that units that had switched to SSI status based on the 1997 notification would continue to be regarded as SSI units despite later changes in the investment limit.

The CIT(A) held that the assessee's investment in plant and machinery was within the prescribed limits for the relevant assessment years, considering the exclusions specified in the notifications. The assessee provided evidence, including a certificate from the District Industries Centre, confirming its SSI status. The CIT(A) concluded that the AO could not question the genuineness of the certificate issued by another central government authority, relying on Supreme Court decisions in Apollo Tyres Ltd. Vs. CIT and Vadilal Chemicals Ltd. Vs. State of Andhra Pradesh and Others.

The tribunal agreed with the CIT(A) that the assessee remained an SSI unit for the assessment years in question and was entitled to the deduction under Section 80IB. Consequently, the appeals of the Revenue were dismissed, and the cross-objections of the assessee were allowed.

Conclusion:

The tribunal set aside the reassessment orders for the Assessment Years 2003-04, 2004-05, and 2005-06, finding that the reopening of assessments was invalid due to the lack of new tangible material. The tribunal upheld the assessee's eligibility for deduction under Section 80IB, confirming that the assessee qualified as an SSI unit based on the relevant notifications and evidence provided. The appeals of the Revenue were dismissed, and the cross-objections of the assessee were allowed.

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