2015 (11) TMI 1380 - HC - Income Tax

Reopening of assessment - whether the issuance of notice under section 148 which was issued as per provisions available as per explanation 2(c)(iii) and 2 (c)(iv) given below section 147 of the Income Tax Act ? - Held that - The assessee remained an SSI Unit for the years under consideration. In the aforesaid premises, it is evident that the Assessing Officer has proceeded on an erroneous assumption that the respondent assessee does not meet with the requirement of an SSI unit when the record clearly points out to the contrary. Under the circumstances, it is manifest that based upon the material on record on the basis of which the Assessing Officer sought to reopen the assessment, he could not have formed the belief that the assessee did not meet with the requirements of an SSI unit and consequently could not have formed the requisite belief that income chargeable to tax has escaped assessment. In the absence of having any reason to believe that income chargeable to tax has escaped assessment for the assessment years under consideration, the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act by issuing notice under section 148 of the Act is clearly without any authority of law. In the light of the above discussion, while disagreeing with the reasons recorded by the Tribunal for holding that the reopening of assessment was bad in law, for the reasons recorded hereinabove, the court is in agreement with the final conclusion arrived at by the Tribunal. - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of the issuance of notice under section 148 of the Income Tax Act.
2. Eligibility of the assessee for deduction under section 80IB of the Income Tax Act.
3. Whether the reopening of assessment was based on a change of opinion.
4. Whether the Assessing Officer had new tangible material to justify reopening the assessment.

Issue-wise Detailed Analysis:

1. Validity of the Issuance of Notice under Section 148:
The appellant revenue challenged the common order by the Income Tax Appellate Tribunal, asserting that the issuance of notice under section 148 was valid as per the provisions under explanation 2(c)(iii) and 2(c)(iv) of section 147 of the Income Tax Act. The Tribunal, however, allowed the cross objections filed by the assessee, holding that the reopening of assessment by the Assessing Officer was without authority of law. The court noted that the Tribunal's reasoning was contrary to settled legal principles, which allow reopening based on tangible material within the record itself.

2. Eligibility for Deduction under Section 80IB:
The respondent assessee claimed deduction under section 80IB for the assessment years 2004-05 and 2005-06. The Assessing Officer initially allowed these deductions but later issued notices under section 148, asserting that the assessee's investment in plant and machinery exceeded the prescribed limit for a Small Scale Industrial (SSI) unit. The Commissioner (Appeals) found that the assessee was indeed an SSI unit and eligible for the deduction, but upheld the reopening of assessment. The Tribunal dismissed the revenue's appeals, finding that the reopening was not justified.

3. Reopening Based on Change of Opinion:
The Tribunal held that the reopening of assessment was bad in law as it was based on a mere change of opinion without any new tangible material. The court examined this reasoning and found it inconsistent with the legal position that allows reopening if there is tangible material, even if it is not external to the record. The court emphasized that the formation of belief by the Assessing Officer must be based on some tangible material, and the sufficiency of this material is not open to scrutiny at the initiation stage.

4. New Tangible Material for Reopening:
The court scrutinized whether the Assessing Officer had new tangible material to justify reopening. It was found that the Assessing Officer relied on the same material available during the original assessment. The court pointed out that the Assessing Officer's belief that the assessee was not an SSI unit was based on an erroneous assumption. The Commissioner (Appeals) and the Tribunal both found that the investment in plant and machinery was within the prescribed limit for an SSI unit, considering the relevant notifications and exempted assets. Therefore, the Assessing Officer could not have reasonably formed the belief that income chargeable to tax had escaped assessment.

Conclusion:
The court concluded that the reopening of assessment by the Assessing Officer was without any authority of law, as there was no valid reason to believe that income chargeable to tax had escaped assessment. The final conclusion of the Tribunal was upheld, and the appeals were dismissed, affirming that the impugned order did not suffer from any legal infirmity.