2018 (5) TMI 853 - HC - Income Tax

Reopening of assessment - deduction u/s 10A - Held that - AO can reassess but not review. See CIT v. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA The higher total income of ₹ 2,49,52,270/- found by the AO was assessed on the basis of reduced profit resulting from sales return. Sales return was the cause, as per the assessee, the effect of which was reduction in the profit figure qualifying for deduction under the provisions of section 10A of the Act. The exercise that resulted in the intimation, done on the basis of material and evidence then available, cannot be said to have been done in a manner which allowed some income of the assessee to have escaped assessment to tax. As such there is nothing wrong with the directions given by the said appellate authority. No substantial question of law is involved.

Summary

Issues:
Assessment under section 147 - Claim for deduction under section 10A - Reassessment of total income - Acceptance of supplementary auditor's report - Jurisdiction of AO in reassessment proceedings - Review of concluded item - Relationship between sales return and profit computation - Application of Sun Engineering case - Distinction between power to review and power to reassess - Intimation under section 143(1) not equivalent to assessment order - Effect of sales return on profit figure qualifying for deduction under section 10A.

Analysis:
The judgment by the High Court of Calcutta involved a case where the assessee, a corporate body engaged in computer training and software development, made project exports during the relevant year. The profit from these exports was entitled to exemption under section 10A of the Income Tax Act, 1961. The assessee claimed a deduction of &8377; 3,52,52,076 under section 10A, which was accepted initially. However, based on a statement by the auditor regarding unrealized amounts against project exports, the Assessing Officer (AO) initiated proceedings under section 147 and reduced the exemption under section 10A. The assessee filed a supplementary auditor's report claiming reduced profit due to sales return against project exports.

The Court analyzed the jurisdiction of the AO in reassessment proceedings, considering the claim for reduced profit in relation to the escaped income. The Revenue contended that the AO's jurisdiction was limited to income that had escaped assessment, citing the Sun Engineering case. The assessee argued that the reduced profit was not a review but a part of the reassessment process. The Court examined the distinction between power to review and power to reassess, as highlighted in the Kelvinator case, emphasizing that reassessment must be based on specific preconditions.

The Court further discussed the nature of the intimation under section 143(1) and its distinction from an assessment order. The assessee claimed that the reduced net profit was not a review but a part of the first assessment under section 147. The Court considered the effect of sales return on the profit figure qualifying for deduction under section 10A, emphasizing that the assessment done based on available evidence did not allow any income to escape assessment.

Ultimately, the Court dismissed the appeal, stating that no substantial question of law was involved in the case. The judgment reaffirmed the principles outlined in the Sun Engineering and Kelvinator cases regarding the scope of reassessment and the limitations on seeking review in reassessment proceedings under section 147.