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2021 (4) TMI 1115 - AT - Income TaxReopening of assessment u/s 147- Deduction of section 80-IC - validity of the jurisdiction assumed by the Assessing Officer for reopening the assessee's case under section 147 - assessee argued no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the year in question - HELD THAT - Admittedly, as provided in the first proviso to section 147, where any assessment under sub-section (3) of section 143 or section 147 had been made for the relevant assessment year, then, inter alia, unless any income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all facts necessary for his assessment, its case cannot be reopened after the expiry of four years from the end of the relevant assessment year. Undisputedly, the return of income of the assessee for the year in question was earlier neither subjected to an assessment under section 143(3) nor under section 147 of the Act. Accordingly, we are of the considered view that in the absence of any assessment having earlier been framed in the case of the assessee under sub-section (3) of section 143 or section 147, the contention of the learned authorised representative challenging the validity of the jurisdiction assumed by the Assessing Officer in the backdrop of the first proviso to section 147 does not merit acceptance, and is accordingly rejected. Mere change of opinion on the part of a successor Assessing Officer as against that arrived at by his predecessor, on the same set of facts - As the return of income of the assessee for the year in question was earlier processed under section 143(1) of the Act and was not subjected to any regular assessment under section 143(3) or section 147 of the Act, thus, there was no occasion for the Assessing Officer to have formed any opinion on the issue pertaining to quantification of the assessee's claim for deduction under section 80-IC. In sum and substance, in the absence of any formation of opinion by the Assessing Officer on any earlier occasion, the claim of the assessee that the assessee's case was reopened on the basis of a change of opinion is beyond comprehension. We, thus, being of the considered view that as on no earlier occasion there had been formation of any opinion by the Assessing Officer as regards the quantification of the assessee's claim for deduction under section 80-IC of the Act, thus, its contention that the subsequent reopening of its case was backed by a mere change of opinion , being devoid of any logic cannot be accepted, and is accordingly rejected. In the absence of any fresh tangible material coming to the notice of the Assessing Officer after issuing of the intimation under section 143(1), the reopening of the assessee's case could not have been validly done - On a perusal of the aforesaid reasons to believe , we find, that there is no whisper of any fresh tangible material that had came to the possession of the Assessing Officer subsequent to the issuance of the intimation under section 143(1) of the Act. In fact, the Assessing Officer holding a conviction that the quantification of deduction under section 80-IC being fallacious had resulted to allowing of excess claim of deduction therein raised by the assessee, had thus, for withdrawing such excess part of deduction so allowed taken recourse to proceedings under section 147 of the Act. At this stage, we may herein observe that though an intimation issued under section 143(1) cannot be equated with an assessment , the same, however, cannot lead to a conclusion that the requirements of section 147 can be dispensed with when the finality of an intimation under section 143(1) is sought to be disturbed. Thus in the backdrop of the facts involved in the case before us, the assumption of jurisdiction by the Assessing Officer under section 147 in the absence of any tangible material coming to her possession subsequent to the accepting of the return of income under section 143(1) of the Act, is nothing short of an arbitrary exercise of powers conferred under section 147 - See ORIENT CRAFT LTD. 2013 (1) TMI 177 - DELHI HIGH COURT Entitlement for deduction under section 80-IC(7) read with section 80-IA(5) - As the assessment year 2007-08, as rightly observed by the Assessing Officer, is the initial assessment year within the meaning of section 80-IC of the Act, we shall now deal with the observations of the lower authorities that on a conjoint perusal of section 80-IC(7) read with section 80-IA(5) of the Act, the losses suffered by the eligible unit of the assessee in the assessment year 2007-08 were liable to be set-off against the profits of the said eligible unit for the year in question, i. e., the assessment year 2008-09, as a result whereof the assessee's entitlement for deduction under section 80-IC was to be restricted to an amount of ₹ 10,85,588. On a perusal of sub-section (7) to section 80-IC, we find that the same as an enabling section imports the provisions of sub-section (5) of section 80-IA, which, thus, are to be read for the purpose of quantifying the assessee's entitlement for deduction under section 80-IC On a conjoint reading of section 80-IC(7) read with section 80-IA(5), it can safely be gathered that for the purpose of determining the quantum of deduction under section 80-IC the profits and gains of the eligible business shall be treated as the only stream of income of the assessee during the previous year relevant to the initial assessment year and also for every subsequent assessment year. Accordingly, in the backdrop of our aforesaid deliberations, we find no infirmity in the view taken by the Assessing Officer who had rightly observed that the losses suffered by the eligible unit in the assessment year 2007-08, i. e., the initial assessment year could only have been set off against the profit of the said eligible unit for the year in question, i. e., the assessment year 2008-09, as a result whereof the assessee's entitlement towards deduction under the aforesaid statutory provision, i. e., section 80-IC was to be restricted to an amount of ₹ 10,85,588.
Issues Involved:
1. Validity of the jurisdiction assumed by the Assessing Officer for reopening the case under section 147 of the Income-tax Act. 2. Correctness of the quantification of the assessee's entitlement for deduction under section 80-IC. Analysis of Judgment: 1. Validity of Jurisdiction for Reopening under Section 147: The assessee challenged the reopening of the case under section 147 on three grounds: (i) there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, thus reopening after four years was not justified; (ii) the reopening was based on a "change of opinion" by the successor Assessing Officer; and (iii) absence of fresh tangible material justifying the reopening. The Tribunal held that since the original return of income was processed under section 143(1) and not under section 143(3) or section 147, the "first proviso" to section 147, which restricts reopening after four years, was not applicable. Therefore, the challenge on this ground was rejected. Regarding the "change of opinion," the Tribunal noted that since the return was processed under section 143(1), there was no formation of any "opinion" by the Assessing Officer earlier. Thus, the claim of reopening based on a "change of opinion" was also rejected. However, the Tribunal found merit in the argument that the reopening was not backed by any fresh tangible material. The reasons recorded for reopening were based on details already available on record and not on any new information. Citing judicial precedents, the Tribunal held that reopening in the absence of fresh tangible material was not justified and constituted an arbitrary exercise of power. Consequently, the Tribunal quashed the assessment framed under section 143(3) read with section 147 for want of jurisdiction. 2. Correctness of Quantification of Deduction under Section 80-IC: Despite quashing the reopening, the Tribunal addressed the merits of the case to avoid multiplicity of litigation. The core issue was whether the initial assessment year for the purpose of section 80-IC should be the year in which the business commenced (assessment year 2007-08) or the year in which the deduction was first claimed (assessment year 2008-09). The Tribunal referred to the definition of "initial assessment year" in section 80-IC(8)(v), which specifies it as the year in which the undertaking begins to manufacture or produce articles or things or commences operations. Thus, the initial assessment year for the assessee's eligible unit was correctly identified as assessment year 2007-08. Furthermore, the Tribunal examined section 80-IC(7) read with section 80-IA(5), which mandates that for the purpose of determining the quantum of deduction, the eligible business should be treated as the only source of income from the initial assessment year and for every subsequent year. Consequently, the losses incurred in the initial assessment year (2007-08) had to be set off against the profits of the eligible unit for the year in question (2008-09), thereby restricting the deduction to ?10,85,588. Conclusion: The Tribunal upheld the Assessing Officer's restriction of the deduction under section 80-IC to ?10,85,588 but quashed the assessment for lack of jurisdiction due to the invalid reopening under section 147.
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