2023 (2) TMI 356 - HC - Income Tax

Reopening of assessment u/s 147 - Deduction available under Section 115 JA - HELD THAT - The appellant was entitled for the reduction of the amount of loss brought forward or unabsorbed depreciation, which ever was less as per the books of account. As per the above Explanation to Section 115JA of the Income Tax Act, 1961, the appellant could reduce the income only from the loss brought forward. However, in the returns filed by the appellant, the appellant had reduced both the amount namely the loss brought forward and the unabsorbed depreciation. The appellant had mislead the Department regarding the deduction available under Section 115 JA of the Income Tax Act, 1961 which was sought to be rectified by invoking under Section 148 for the purpose of Section 147 r/w 143(3) of the Income Tax Act, 1961. In case, Assessing Officer found a cause or justification to believe that income had escaped assessment. The Assessing Officer was not required to base his belief on any final adjudication of the matter. Commissioner of Income Tax (Appeals) vide has stated that the directions of the CIT (A)-1, Coimbatore in his order was only consequential in nature to alter the Calculation of 115 JA while giving effect to his orders in the original calculation of regular profits. The return that was filed was not a proper return. The returns that was filed, had incorrect entries and contrary to the mandate of Section 115JA of the Income Tax Act, 1961. While in taxing matters assessment are intended to bring a finality, they are not to be continued, if the returns filed were inspired within a view to cheat the Government. Therefore, the decision cited in the case of Commissioner of Income Tax vs. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT and other decisions cannot be applied to the facts of the present case. As invocation of power under Section 147 r/w 143 of the Income Tax Act, 1961 was not motivated any kind of change of opinion. The impugned order of the Appellate Tribunal correctly holds that the power to make assessment or reassessment, where the initiation has been made within four years of the end of the relevant assessment year, would be attracted even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based in the first instance and whether it is an error of fact of law that has been discovered or found out justifying the belief required to initiate the proceedings. In this case, the appellant has resorted to deception and hoodwinking the revenue to evade tax. The words reason to believe appearing in Section 147 cannot mean that the A.O should have finally ascertained the facts. Assessing Officer merely forms a belief from the examination he makes and if escaped assessment, it would amount to saying that he has reason to believe that such income has escaped assessment . The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. This issue was never dealt with at the time of original assessment or at the appellate stage. It cannot be said that there was any change of opinion and therefore the proceeding initiated under Section 147 of the Act, 1961, by issuing of notice under Section 148 on 30.04.2004 was invalid to nullify the assessment order dated 08.02.2006 passed under Section 143(3) r/w Section 147 of the Act dated for the Assessment Year 2000-2001. We are therefore of the view that the substantial questions of law is to be answered against the appellant. The order passed by the Assessing Officer does not suffer from any infirmity.

Issues Involved:
1. Validity of reopening the assessment under Section 147 based on material already considered.
2. Disallowance of unabsorbed depreciation of the amalgamating company as per Section 115JA.
3. Entitlement of the Income Tax Department to reopen the assessment in the absence of any formation of opinion regarding business loss and unabsorbed depreciation in the original assessment order.

Detailed Analysis:

1. Validity of reopening the assessment under Section 147 based on material already considered:

The court examined whether the reopening of the assessment under Section 147 based on material already available on record, which was considered during the assessment proceedings under Section 143(3) and Section 154, amounted to a mere change of opinion and was therefore invalid. The court held that the reopening was valid, as the issue of deduction claimed on unabsorbed loss was not dealt with at the time of original assessment or at the appellate stage. The court emphasized that the Assessing Officer had reason to believe that income had escaped assessment, which justified the initiation of proceedings under Section 147.

2. Disallowance of unabsorbed depreciation of the amalgamating company as per Section 115JA:

The court analyzed whether the Tribunal was correct in disallowing the unabsorbed depreciation of the amalgamating company by applying the provisions of clause (iii) of Explanation to Section 115JA. The court upheld the Tribunal's decision, stating that the appellant could only reduce the book profit by the amount of loss brought forward or unabsorbed depreciation, whichever was less, as per the books of account. The appellant incorrectly claimed both the loss brought forward and unabsorbed depreciation, which was contrary to the mandate of Section 115JA. The court referred to the ruling in the case of Rashtriya Ispat Nigam Ltd., which supported the Tribunal's interpretation.

3. Entitlement of the Income Tax Department to reopen the assessment in the absence of any formation of opinion regarding business loss and unabsorbed depreciation in the original assessment order:

The court addressed whether the absence of any formation of opinion regarding business loss and unabsorbed depreciation in the original assessment order under Section 143(1) entitled the Income Tax Department to reopen the assessment under Section 148 r/w 147. The court held that the reopening was justified as the original assessment did not deal with the specific issue of deduction claimed on unabsorbed loss, and the appellant had misled the Department regarding the deduction available under Section 115JA. The court emphasized that the Assessing Officer had reason to believe that income had escaped assessment, which was sufficient to initiate proceedings under Section 147.

Conclusion:

The court dismissed the appeal, affirming the orders of the Appellate Tribunal and the Appellate Commissioner. The court concluded that the reopening of the assessment under Section 147 was valid, the disallowance of unabsorbed depreciation was correct, and the Income Tax Department was entitled to reopen the assessment in the absence of any formation of opinion regarding business loss and unabsorbed depreciation in the original assessment order. The appeal was dismissed with no costs.

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