2015 (8) TMI 1036 - AT - Income Tax

Reopening of assessment under section 147 - disallowance of deduction under section 80-IA - Held that - A perusal of reasons for reopening reproduced hereinabove show that nowhere it is alleged by the Revenue, that the assessment proceedings are initiated as the assessee has failed to disclose fully and truly all material facts necessary for its assessment. The two preconditions laid down by the Hon ble Delhi High Court in the case of CIT vs. Kelvinator of India Ltd. (2002 (4) TMI 37 - DELHI High Court) for exercising jurisdiction under section 147, that have been subsequently affirmed by the Hon ble Supreme Court of India in the case of CIT vs. Kelvinator of India Ltd. reported as 2010 (1) TMI 11 - SUPREME COURT OF INDIA are absent in the present case. One of the submissions of Ld. DR is that in assessment year 2002-03 assessment was made under section 143(1), therefore the Assessing Officer had no occasion to apply his mind on the return of income. The Hon ble Delhi High Court in the case of CIT vs. Orient Craft Ltd. (2013 (1) TMI 177 - DELHI HIGH COURT) has erased the line of distinction between assessment made under section 143(1) and 143(3). Thus, the contention of the Ld. DR does not hold ground. A perusal of the original assessment orders passed under section 143(3) of the Act for the assessment years 2005-06 and 2006-07 shows that the Assessing Officer has clearly stated that the assessee has claimed deduction under Chapter VI-A of the Act. AO while drawing computation of total income has clearly mentioned, Income from windmill activity and has thereafter granted deduction under Chapter VI-A of the Act on windmill income. Once the Assessing Officer has applied his mind while passing the assessment order and has granted relief, there is no question of reviewing the same under the garb of reassessment proceedings. In the reasons for reopening nowhere it has been stated that the deduction claimed by the assessee under section 80-IA of the Act has come to the knowledge of the Assessing Officer after passing of assessment orders. In our considered view, it is clear case of change of opinion. Thus, AO has acted beyond his jurisdiction in initiating reassessment proceedings under section 147 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Disallowance of deduction under section 80-IA of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act, 1961:

The assessee challenged the reopening of assessments for the assessment years 2002-03 to 2006-07. The Tribunal had previously adjudicated the disallowance of deduction under section 80-IA, but the issue of reopening was considered academic and not adjudicated. The assessee filed a Miscellaneous Application, which was accepted, and the appeals were listed to address the validity of reopening under section 147.

The facts reveal that the assessee, a partnership firm engaged in manufacturing plastic moulded products, installed a windmill in AY 2000-01 and claimed deductions under section 80-IA from AY 2002-03 onwards. The returns for AY 2002-03 were processed under section 143(1), while those for AY 2003-04 to 2006-07 were subject to scrutiny under section 143(3). Notices under section 148 were issued on 20.03.2009 for all years, and reassessment orders were passed on 25.11.2009, disallowing the 80-IA deduction.

The assessee argued that the reassessment for AY 2002-03 and 2003-04 was beyond the four-year limit and lacked tangible material, constituting a mere change of opinion. The Department contended that the original assessments did not discuss the 80-IA deduction, so there was no change of opinion.

The Tribunal noted that for reassessment beyond four years, two conditions must be met: (i) reason to believe income escaped assessment, and (ii) escapement due to the assessee's failure to disclose material facts. The Tribunal cited several judgments, including CIT vs. Kelvinator of India Ltd. and CIT vs. Orient Craft Ltd., emphasizing that both conditions are cumulative and must be satisfied. The Tribunal found that the reasons for reopening did not allege the assessee's failure to disclose material facts, rendering the notices for AY 2002-03 and 2003-04 invalid.

For AY 2004-05 to 2006-07, the Tribunal held that reassessment requires tangible material not considered in the original assessment. The Tribunal found that the original assessments under section 143(3) had considered the 80-IA deduction, making the reassessment a case of change of opinion. Thus, the reassessment proceedings were beyond jurisdiction and set aside.

2. Disallowance of Deduction under Section 80-IA of the Income Tax Act, 1961:

The Tribunal previously adjudicated the disallowance of deduction under section 80-IA in favor of the assessee, based on the Hon'ble Madras High Court's judgment in Velayudhaswamy Spinning Mills (P) Ltd. vs. ACIT. The reassessment proceedings had disallowed the deduction, but the Tribunal's earlier order supported the assessee's claim.

In conclusion, the Tribunal allowed the assessee's appeals, setting aside the reassessment orders and upholding the validity of the 80-IA deduction claims. The order was pronounced on 29.05.2015.