2020 (6) TMI 301 - HC - Income Tax

Reopening of assessment u/s 147 - merger proceedings - whether assessee was not entitled to adjust the loss of the transferor company as the said company was not engaged in the manufacturing activity within the meaning of Section 72A(1)(a)? - HELD THAT - Whether the petitioner was entitled to adjust the loss of the brought forward from the books of accounts of the transferor company was subject matter of discussion before the assessment orders were passed for the respective Assessment Years. Reopening of the assessment to deny the adjustments made under is therefore without jurisdiction. Therefore the proviso to Section 147 puts an embargo on the respondent from proceeding further as no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. If in the course of such proceedings the respondent comes to a conclusion that there were other grounds on which assessment can be reopened the respondent can assess or reassess such income in the light of Explanation 3 to Section 147 of the Income Tax Act 1961. In the light of the above discussion direct the petitioner to participate in the proceedings before the respondent. The respondent is however precluded from disturbing the adjustments made by the petitioner and allowed in their respective assessment orders under Section 72A(1)(a). The respondent may however look for such other aspects which may come within the purview of Explanation 3 to Section 147 of the Income Tax Act 1961 for them to demand while passing orders.

Summary

Issues:
Challenging impugned notices under Section 148 of the Income Tax Act, 1961 for reopening assessments for the Assessment Years 2010-2011 & 2011-2012 and consequential communications overruling objections.

Analysis:
1. The petitioner, engaged in various businesses, challenged notices seeking to reopen assessments. The petitioner merged with another company, adjusting losses for book profit determination under Section 115JB of the Act.

2. The assessments were scrutinized, and orders were passed for the respective years. The respondent sought to reopen the returns, rejecting the petitioner's objections, citing ineligibility to adjust losses from the merged company due to lack of manufacturing activity.

3. The petitioner relied on legal precedents to challenge the reopening. The respondent argued that mere document production does not fulfill disclosure requirements under Section 147 of the Act, invoking Explanation 2 to Section 147.

4. The core reason for reopening was the alleged ineligibility to adjust losses from the transferor company due to lack of manufacturing activity, as per Section 72A(1)(a) of the Act, supported by judicial decisions.

5. The Court noted that the petitioner disclosed the merger details in the returns, and there was no suppression of facts, rendering the reopening under Section 148 without jurisdiction.

6. The Court highlighted that the proposed adjustments were based on disclosed information, violating the principle against change of opinion post-disclosure, as per legal precedents.

7. The Court directed the petitioner to participate in proceedings, preventing disturbance of adjustments made under Section 72A(1)(a) of the Act, while allowing the respondent to explore other grounds for reassessment under Explanation 3 to Section 147.

8. The Court ordered the respondent to conclude the proceedings within three months, emphasizing the need for closure on the matter related to the Assessment Years 2010-2011 & 2011-2012.

9. The Writ Petitions were disposed of with the above directives, with no costs incurred, and connected Miscellaneous Petitions were closed accordingly.