2010 (9) TMI 350 - HC - Income Tax

High Court upholds Tribunal's decision on reassessment proceedings, affirms investment allowance for toner

The High Court upheld the Tribunal's decision to quash the reassessment proceedings, citing lack of non-disclosure of material facts and impermissible ... Reassessment - Section 32A - Whether allowance under Section 32A of the Act is permissible - The AO completed the reassessment under Section 147 read with Section 143(3) of the Act on 12.03.1999 for all the assessment years under consideration whereby investment allowance claimed by the assessee for these assessment years was withdrawn on the ground that items manufactured by the assessee fell in the prohibited category mentioned at Sl. No.22 of Schedule XI of the Act – Based on the precedent judgement and the details provided by the assessee CIT (A) accepted the contention of the assessee and proceeded to examine whether there was any material in possession of the AO which constituted information justifying for reopening the assessment – the assessment was reopened because of the view taken by the CIT (Appeal) in respect of assessment year 1994-95. The very fact that this view is reversed by the Tribunal, is in itself sufficient to demonstrate that two views were possible and, therefore, it would be a case of change of opinion only - revenue's appeal dismissed. Issues Involved:1. Permissibility of allowance under Section 32A of the Income Tax Act.2. Validity of reassessment proceedings initiated under Section 148 of the Income Tax Act.3. Whether there was full and complete disclosure of particulars/information by the assessee.4. Whether reassessment proceedings were initiated based on a mere change of opinion.Detailed Analysis:1. Permissibility of Allowance under Section 32A of the Income Tax Act:The assessee, engaged in manufacturing xerographic machines, toner, developer, and photoreceptor, initially did not claim investment allowance in the return for the assessment year 1986-87, stating that only trial production had occurred, and commercial production began from 01.05.1985. The Assessing Officer (AO) allowed the investment allowance for the assessment year 1986-87, treating the trial production as commercial production. However, during reassessment, the AO withdrew the investment allowance, asserting that the items manufactured fell under the prohibited category in Schedule XI of the Act. The Tribunal, relying on earlier ITAT decisions, held that xerographic machines fell under Schedule XI, disqualifying them from investment allowance, while toner, developer, and photoreceptors did not, thus qualifying for the allowance.2. Validity of Reassessment Proceedings Initiated under Section 148 of the Income Tax Act:The reassessment was initiated based on an order from CIT (A) for the assessment year 1994-95, which held that the assessee's products fell under Schedule XI. The Tribunal found that the reassessment proceedings were initiated beyond four years from the original assessment without any allegation of failure to disclose material facts by the assessee. The Tribunal quashed the reassessment proceedings, citing the proviso to Section 147, which limits reopening beyond four years to cases where there was non-disclosure of full and complete material facts.3. Whether There Was Full and Complete Disclosure of Particulars/Information by the Assessee:The Tribunal observed that the assessee had disclosed all material facts necessary for the assessment, and the AO had examined these details during the original assessment under Section 143(3). The Tribunal noted that the CIT (A) also found no failure on the part of the assessee to disclose material facts. The Tribunal emphasized that the reasons recorded for reassessment did not allege any non-disclosure by the assessee, thereby failing to meet the mandatory requirement for reopening the assessment beyond four years.4. Whether Reassessment Proceedings Were Initiated Based on a Mere Change of Opinion:The Tribunal held that the AO had considered the issue of investment allowance in detail during the original assessment, and the reassessment proceedings were initiated merely on a change of opinion, which is not permissible under law. The Tribunal cited several judgments, including Jindal Photo Films Ltd. vs. CIT and CIT vs. Kelvinator of India Ltd., to support its conclusion that reassessment based on a change of opinion is invalid.Conclusion:The Tribunal quashed the reassessment proceedings on the grounds of lack of failure to disclose material facts and initiation based on a mere change of opinion. The Tribunal upheld the original assessment allowing investment allowance for toner, developer, and photoreceptors but disallowed it for xerographic machines, consistent with the ITAT's earlier decisions. The High Court dismissed the Revenue's appeals, affirming the Tribunal's findings and conclusions.