2016 (11) TMI 73 - HC - Income Tax

Validity of reopening of assessment - Held that - It is evident from a plain reading of the reasons furnished by the revenue that there is no allusion to tangible material in the form of objective documents, information etc outside of the concluded assessment and the documents pertaining to it. According to the binding ruling of the Supreme Court in Commissioner of Income Tax vs. Kelvinator Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA , sans such documents, evidence or tangible material, there cannot be valid opinion leading to proper re-assessment proceedings. The rationale furnished by the revenue in its counter affidavit and reiterated in the court during the hearing was that a component of income which was otherwise inadmissible but escaped the notice of the AO, because of the ratio in Liberty India 2009 (8) TMI 63 - SUPREME COURT and Pandian (2003 (4) TMI 3 - SUPREME Court ) is unpersuasive. Besides, the lack of any reference to objective material, cannot in any way improve the case of the revenue much less its reference to otherwise binding judgments that could have been the basis of a valid revision by the revenue under Section 264. It goes without saying that statutory orders containing reasons are to be judged on the basis of what is apparent and not what is explained later, as the validity of those orders does not improve with time or on account of better explanations furnished in the course of legal proceedings - Decided in favour of assessee

Issues:
Challenge to reassessment notice under Section 147-148 for AY 97-98 based on deduction u/s 80IA on various incomes; Failure to provide break-up of income on commission and interest on fixed deposits; Lack of tangible material for re-opening assessment; Compliance with Supreme Court rulings in Pandian Chemicals Ltd. Vs. CIT and Liberty India vs. CIT; Validity of reassessment notice and subsequent proceedings.

Analysis:

1. Challenge to Reassessment Notice under Section 147-148:
The assessee challenged the reassessment notice issued by the revenue seeking to re-open the concluded assessment for AY 97-98. The reasons provided by the revenue for re-opening the assessment included the claim of deduction u/s 80IA on various incomes, such as income from services, sale commission, and interest on fixed deposits, which were not considered as profits 'derived from' the industrial undertaking. The petitioner argued that the reasons furnished did not indicate any objective material that impelled the AO to revisit the concluded issue. It was contended that full disclosure, including the break-up of income, was made during the assessment proceedings, and there was no tangible material outside the concluded assessment to support the re-assessment.

2. Failure to Provide Break-up of Income:
The revenue justified the reassessment notice by highlighting the failure of the petitioner to provide the break-up of income arising from commission and interest on fixed deposits, which led to the belief that income had escaped assessment. It was argued that the materials originally disclosed during the assessment did not give the appropriate break-up, and the AO did not make diligent inquiries in that regard. The revenue claimed that the two heads of income sought to be passed off as deductions were contrary to the Supreme Court rulings in Pandian Chemicals Ltd. Vs. CIT and Liberty India vs. CIT.

3. Lack of Tangible Material for Re-opening Assessment:
The court emphasized the necessity of tangible material or objective documents outside of the concluded assessment to support a valid opinion for re-assessment proceedings. The reasons furnished by the revenue lacked any reference to such material, as required by the Supreme Court ruling in Commissioner of Income Tax vs. Kelvinator Ltd. The court found the rationale provided by the revenue for re-opening the assessment unpersuasive, especially in the absence of objective material and reliance on binding judgments that could have been the basis for a valid revision under Section 264.

4. Compliance with Supreme Court Rulings:
The court reiterated the importance of compliance with Supreme Court rulings, particularly in cases like Liberty India and Pandian Chemicals Ltd., to ensure the validity of reassessment proceedings. The lack of reference to objective material and the inaccurate rationale for re-opening the assessment were deemed insufficient to support the revenue's case. The court emphasized that statutory orders containing reasons must be judged based on what is apparent and not on explanations provided later during legal proceedings.

5. Validity of Reassessment Notice and Subsequent Proceedings:
Considering the arguments presented, the court ruled in favor of the petitioner, quashing the reassessment notice dated 31.03.2004 and all further proceedings emanating from it. The court allowed the writ petition, concluding that the petition had to succeed based on the lack of tangible material, inaccurate rationale, and non-compliance with Supreme Court rulings, ultimately leading to the invalidation of the reassessment notice and subsequent proceedings.

In conclusion, the judgment by the Delhi High Court in this case highlights the importance of tangible material, compliance with legal precedents, and accurate reasoning in reassessment proceedings under Section 147-148 of the Income Tax Act. The court's detailed analysis and ruling provide clarity on the requirements for valid reassessment notices and emphasize the significance of objective material in supporting the belief that income has escaped assessment.

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