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TMI Blog2005 (10) TMI 497X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the Assessing Officer is not justified in reopening the assessment merely because of the change of opinion on the part of the Assessing Officer ignoring the fact that section 147 of the Income-tax Act, 1961 had been amended by the Direct Tax Laws (Amendment) Act, 1989 with effect from April 1, 1989 and the assessee's case falls under sub-clause (iv) of clause (c) below the Explanation 2 of section 147." The facts of the case are that the Assessing Officer passed the assessment order for the assessment year 1990-91 on September 16, 1991, and determined the income of the assessee under section 115J at Rs. 41,45,574. The computation of income made by the Assessing Officer is as under : Rs. Rs. Net profit as per profit and loss account 18,92,592 Add: investment allowance 52,58,321 71,51,913 Add: (1) Depreciation disallowed on account of capital subsidy 1,44,306 (2) Entertainment expenses disallowed under section 37(2A) 35,000 (3) Miscellaneous expenses 12,000 1,91,306 Less : Investment allowance current 52,59,321 B/f assessment year 1988-89 6,37,236 Assessment year 1989-90 29,06,558 88,03,115 Restricted to 51,97,645 21,45,574 Investment allowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) cancelled the reopening of the assessment by observing as under : "6. Having considered carefully counsel's submissions, I am afraid the Assessing Officer is not justified in reopening the assessment in view of the case law relied upon by the appellant. I find that it was nothing but change of opinion, on the part of the Assessing Officer regarding the treatment book profit under section 115J for the purpose of determining the amount of investment allowance to be carried forward that had caused the reopening of the assessment. As stated earlier, the ultimate effect of the reassessment order is that the book profit under section 115J was adjusted against the brought forward investment allowance with the result that the investment allowance allowed to be carried forward in the original assessment was reduced by the amount of the book profit under section 115J. In the case of CIT v. Khetani Textile Industries P. Ltd. [1992] 197 ITR 593 (Bom) relied upon by the appellant, the hon'ble Bombay High Court held that the reassessment made on the basis of change of opinion on the part of the Income-tax Officer on the same set of facts was invalid. In the case of CIT v. Bhanji Lavji ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, 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 subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation 1.-Production before the Assessing Officer of account books or other evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is a case of escapement of income and hence, the provisions of section 147 would be applicable. The learned Departmental Representative also submitted that the decision of the hon'ble Gauhati High Court in Lallacherra Tea Co. P. Ltd. v. CIT [1999] 239 ITR 611, on which the Commissioner of Income-tax (Appeals) relied, has been reversed by the hon'ble Supreme Court in Karnataka Small Scale Industries Development Corporation Ltd. v. CIT [2002] 258 ITR 770 ("KSSIDC" for short). Against this, learned counsel for the assessee submitted that there is no escapement of income because originally assessed income was Rs. 21,45,574 and the reassessed income is also Rs. 21,45,574. There is no change in the income assessed in the regular assessment as well as in the reassessment. There is no escapement of income. Hence, reopening is bad. Secondly, as per the provision of section 152(2), if by making any variation or addition, originally assessed income does not change, then Assessing Officer is duty bound, by the mandatory provisions therein, to drop the proceedings for reassessment. Thirdly, as per sub-clause (iv) of clause (C) of Explanation 2 to section 147, what is to be found by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (1A), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor ; or (b) the amounts carried to any reserves other than the reserves specified in section 80HHD or sub-section (1) of section 33AC, by whatever name called ; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities ; or (d) the amount by way of provision for losses of subsidiary companies ; or (e) the amount or amounts of dividends paid or proposed ; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies ; or (g) the amount withdrawn from the reserve account under section 80HHD, where it has been utilised for any purpose other than those referred to in sub-section (4) of that section ; or (h) the amount credited to the reserve account under section 80HHD, to the extent that amount has not been utilised within the period specified in sub-section (4) of that section ; (ha) the amount deemed to be the profits under sub-section (3) of section 33A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious year relevant to the assessment year commencing on or after April 1, 1988 and before April 1, 1991 and the second is computation of 30 percent of book profit. If 30 percent of the book profit is equal to or more than the income computed under the provisions of the Act, then 30 percent of the book profit will be deemed to be the total income of the assessee chargeable to tax for the relevant previous year. The first stage envisages computation of income under the Act, i.e., after taking into account the deductions allowable under the Act. It is only after the deductions are given effect to and if the resultant income is less than 30 percent of the book profit that, the assessee's total income would be deemed to be a notional income fixed at 30 percent of its book profit. The deductions are actually allowed while computing the income under the provisions of the Act. There is no notional or fictional income. In the above case, i.e., Karnataka Small Scale Industries Development Corporation Ltd. v. CIT [2002] 258 ITR 770, the following observations of the hon'ble Supreme Court are relevant and to the point page 775 : "The first stage referred to above envisages computation of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have been carried forward, to be carried forward. This construction of sub-sections (1) and (2), section 115J is in keeping with the avowed purpose for which Chapter XII-B was introduced in the Act by the Finance Act, 1987. This was stated by the Finance Minister in his Budget Speech* in the following manner. 'It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so called "zero-tax" highly profitable companies deserves attention. In 1983, a new section 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. I now propose to introduce a provision whereby every company will have to pay a "minimum corporate tax" on the profits declared by it in its own accounts. Under this new provision, a company will pay tax on at least 30 percent of its book profit. . . . This measure will yield a revenue gain of approximately Rs. 75 crores'." The relevance of section 115J(2) was also considered by the hon'ble Supreme Court in the above case. It observed as under (page 776) : "In addition, a contemporaneous exposition of the purport of section 115J is contained in Circul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be set-off against income so computed and only balance of unabsorbed allowances are allowed to be carried forward. Without there being an assessment, and there being an assessed income under the normal provisions of the Act, no unabsorbed depreciation, loss or investment allowance could be allowed to be carried forward to the next year. Section 32A(3) provides for the carry forward of investment allowance, reads as under : "(3) Where the total income of the assessee assessable for the assessment year relevant to the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, or, as the case may be, the immediately succeeding previous year [the total income for this purpose being computed after deduction of the allowances under section 33 and section 33A, but without making any deduction under sub-section (1) of this section or any deduction under Chapter VI-A] is nil or is less than the full amount of the investment allowance,- (i) the sum to be allowed by way of investment allowance for that assessment year under sub-section (1) shall be only such amount as is sufficient to reduce the said total income to nil ; and (ii) the amount of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried forward to the subsequent years for being set-off against those year's income in such a manner that income of that year is nil. Thus, computation of income has to be carried out in accordance with the provisions of the Act for the purposes of setting-off investment allowance. In such a computation deduction under section 33 and section 33A is allowed but no deduction under Chapter VI-A will be considered before setting-off investment allowance. If any income is left in the current year then it will be available for adjusting deductions under Chapter VI-A. If a loss is arrived on computation before allowing any set-off of investment allowance, then such loss has to be intimated to the assessee as per section 157, which reads as under : "157. Intimation of loss.-When, in the course of the assessment of the total income of any assessee, it is established that a loss has taken place which the assessee is entitled to have carried forward and setoff under the provisions of sub-section (1) of section 72, sub-section (2) of section 73, sub-section (1) or sub-section (3) of section 74 or ub-section (3) of section 74A, the Assessing Officer shall notify to the assessee by an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eopening may snowball into larger escapement of income than envisaged, due to further investigation and gathering more material and thus, the finally reassessed income may be more than what was originally thought at the time of reopening, and even come out to be more than 30 percent of the book profit computed as per section 115J. Therefore, merely because, after reassessment, the 30 percent of the book profit was still higher than the income computed as per normal provisions of the Act, it will not invalidate the reopening of the assessment. The validity of reopening does not depend upon the quantum of finally assessed income. Thus, we hold that there are two computations of income, before invoking the preference of higher of the two. One is under the normal provisions of the Act and the other is book profit as provided under section 115J. To us, the figure of book profit, is constant. It is worked as provided in subsection (1A) of section 115J. There is no authority to the Assessing Officer to disturb this figure except as provided in the section. This is as per profit and loss account prepared as per books of account maintained. Thus, where there is material to show escapement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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