2016 (8) TMI 517 - HC - Income Tax

Reopening of assessment - Shri Nikunj Shah and Shri Jitendra Shah had issued bogus bills to various parties including the assessee and escaped income was stated to be only ₹ 1 lakh - deduction u/s 80HH of the Act on income not derived from industrial undertaking - Held that - Considering the assessee s revised return which was taken into account while completing the regular assessment as well as the reassessment, it is borne out that the assessee itself had disclosed income of ₹ 20 lakhs from the transactions carried on with said Shri Nikunj Shah and Shri Jitendra Shah in revised return which stood taxed and the Assessing Officer had not made any addition in the reassessment on this account. We are of the view that the Tribunal has rightly held that the Assessing Officer has travelled beyond the scope of Section 147 proceedings. The view taken by the Tribunal is just and proper and does not call for any interference by this Court. Even otherwise, the fact that no appeal has been preferred by the assessee against the order of CIT(A) nor any cross objection has been filed in one of the appeals will be covered by the decision of this Court in the case of Dahod Sahakari Kharid Vechan Sangh Ltd. (2005 (7) TMI 45 - GUJARAT High Court ). In that view of the matter, we are of the view that the Tribunal is justified in holding that the Assessing Officer had no jurisdiction to initiate proceedings against the CIT(A) s order upholding the jurisdiction of the Assessing Officer to initiate reopening proceedings. Accordingly, the said question is answered in favour of assessee. Deduction u/s 80HH on income not derived from industrial undertaking is not being decided in view of the fact that we have already answered the question with regard to section 147 proceedings in favour of the assessee. So far as questions with regard to penalty proceedings are concerned, we are of the opinion that the same shall not survive in view of the fact that the substantial question has already been decided in favour of the assessee.

Summary

Issues Involved:
- Jurisdiction of Assessing Officer to initiate reopening proceedings under Section 147 of the Income Tax Act
- Allowance of deduction under Section 80HH on income not derived from industrial undertaking
- Cancellation of penalty levied under Section 271(1)(c) of the Income Tax Act

Jurisdiction of Assessing Officer - Reopening Proceedings under Section 147:
The appeals before the Gujarat High Court involved challenges to the impugned judgment and order passed by the Income Tax Appellate Tribunal regarding the jurisdiction of the Assessing Officer to initiate reopening proceedings under Section 147 of the Income Tax Act. The Tribunal rejected the revenue's appeal and upheld the order passed by the CIT(A) regarding the reopening of assessments. The revenue contended that the reassessment was opened based on information received regarding bogus purchases, but no addition was made in the reassessment order. The revenue argued that the Tribunal erred in concluding that the initiation of proceedings was invalid due to the absence of additions in income. The Court noted that at the initiation stage, "reason to believe" is required, not the establishment of tax escapement, and the final outcome is irrelevant at that stage. The Court found that the Assessing Officer had exceeded the scope of Section 147 proceedings, and the Tribunal's decision was just and proper.

Allowance of Deduction under Section 80HH:
Regarding the allowance of deduction under Section 80HH on income not derived from industrial undertaking, the revenue challenged the decisions of the CIT(A) and the Tribunal. The revenue argued that the Assessing Officer had not accepted the CIT(A)'s decision for earlier years, and therefore, the deduction should not have been allowed. However, the Court, citing relevant case law, upheld the decisions of the CIT(A) and the Tribunal. The Court found that the deduction was rightly allowed, and the Assessing Officer had no jurisdiction to revisit the issue during proceedings under Section 147 of the Act.

Cancellation of Penalty under Section 271(1)(c):
The appeals also raised the issue of the cancellation of penalties levied under Section 271(1)(c) of the Income Tax Act. The Tribunal had confirmed the orders passed by the CIT(A) canceling the penalties. The Court, considering the previous decisions and the facts of the cases, found that the substantial questions had already been decided in favor of the assessee. Therefore, the Court dismissed the appeals, confirming the Tribunal's orders and ruling that no costs were to be awarded.

In conclusion, the Gujarat High Court upheld the decisions of the CIT(A) and the Tribunal regarding the jurisdiction of the Assessing Officer, allowance of deductions under Section 80HH, and cancellation of penalties under Section 271(1)(c) of the Income Tax Act. The Court found that the Assessing Officer had overstepped the scope of Section 147 proceedings and that the deductions were rightly allowed, leading to the dismissal of the appeals.