2015 (2) TMI 325 - HC - Income Tax

Reopening of assessment - Petitioner not entitled to deduction under Section 80M of the Act - Held that - Section 80M of the Act of the dividend received is concerned, the Counsel are agreed that the issue stands covered by the decision of this Court in favour of the Petitioner by virtue of Virtuous Finance Limited v/s. Deputy Commissioner of Income Tax(2014 (12) TMI 978 - BOMBAY HIGH COURT). Therefore, the first ground mentioned in the reasons in support of the reopening notice are not sustainable. Non consideration of diminution in value of investments - Held that - As relying on Rallis India Limited v/s. Assistant Commissioner of Income Tax 2010 (3) TMI 164 - BOMBAY HIGH COURT the validity of the notice issued by the Assessing Officer in seeking to reopen the assessment must be determined with reference to the reasons which are found in support of the reopening of the assessment. These reasons cannot be allowed to be supplemented on a basis which was not present to the mind of the officer and could not have been so present on the date on which the power to reopen the assessment was exercised. We, therefore, hold that the principle laid down by the Supreme Court in Max India (2007 (11) TMI 12 - Supreme Court of India) would be attracted to the present case. Consequently, it is evident that the order of the Assessing Officer with reference to the computation of book profits under section 115JB was at the least a probable view and as a matter of fact the correct view to take in view of the decision of the Supreme Court in HCL (2008 (9) TMI 18 - SUPREME COURT). Thus no warrant for reopening the assessment in exercise of the power conferred under Section 147 - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2003-04.
2. Entitlement to deduction under Section 80M of the Act.
3. Consideration of diminution in value of investments while computing book profits under Section 115JB of the Act.

Analysis:
1. The High Court was approached to challenge a notice issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2003-04. The petitioner had initially declared an income of Rs. 31.95 lakhs, but the Assessing Officer later computed the book profit at Rs. 1.51 Crores under Section 115JB of the Act, considering dividends and diminution in value of investments. The notice was challenged on various grounds.

2. The first ground for reopening the assessment was the petitioner's alleged non-entitlement to deduction under Section 80M of the Act concerning dividends received. However, the court found that this issue had already been settled in favor of the petitioner in a previous decision, rendering this ground unsustainable.

3. The second ground pertained to the non-consideration of diminution in the value of investments while computing book profits under Section 115JB of the Act. The Revenue argued that a retrospective amendment to the Act validated the notice, but the court disagreed. Citing precedent, the court held that the notice was invalid as the legislative amendment was not in force when the notice was issued, and the Assessing Officer's view was supported by legal interpretations at the time.

4. The court referred to a case involving similar issues where it was held that the Assessing Officer's interpretation was correct based on existing legal positions. The court ultimately quashed and set aside the impugned notice dated 27th December, 2006, ruling in favor of the petitioner. The petition was allowed with no order as to costs.