2010 (9) TMI 405 - HC - Income Tax

Court upholds validity of reassessment notice under Income-tax Act, 1961

The court upheld the validity of the reassessment notice under Section 148 of the Income-tax Act, 1961, finding tangible material supporting the ... Reassessment – Notice – Income escaping assessment – One must treat the concept of `change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, afterApril 1, 1989, the Assessing Officer has power to reopen, provided there is `tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words `reason to believe' but also inserted the word `opinion' in section 147 of the Act. However, on receipt of representations from the companies against omission of the words `reason to believe', Parliament reintroduced the said expression and deleted the word `opinion' on the ground that it would vest arbitrary powers in the Assessing Officer.The petitioner-company has also made wrong claim under section 80HHC treating the interest receipt as export incentive. Therefore the second respondent has reason to believe that the income chargeable to tax has escaped assessment in view of the failure on the part of the assessee-company to disclose true and full material facts as required by the proviso to section 147 – Reassessment proceedings cannot be quashed – Writ petition not maintainable Issues Involved:1. Validity of the reassessment notice under Section 148 of the Income-tax Act, 1961.2. Overruling of objections to the reassessment notice.3. Alleged non-disclosure of full and true material facts by the petitioner.4. Claim of deductions under sections 80HHC and 80-IA of the Income-tax Act, 1961.5. Maintainability of the writ petitions.Detailed Analysis:1. Validity of the Reassessment Notice under Section 148 of the Income-tax Act, 1961:The petitioner challenged the reassessment notice dated August 3, 2007, which called for returns for reassessment of income for the assessment year 2001-02. The notice was issued under Section 148 of the Income-tax Act, 1961, on the grounds that the petitioner had claimed a sum of Rs. 8,56,47,000 as revenue expenditure instead of treating it as capital expenditure. The court noted that the reassessment notice was issued after finding out escaped assessment and was based on tangible material, specifically the compensation of Rs. 63.02 crores paid by M/s. CIBA India Pvt. Ltd. for the termination of a supply agreement. The court referenced the Supreme Court decisions in CIT v. Rai Bahadur Jairam Valji and Miss Dhun Dadabhoy Kapadia v. CIT, which held that compensation for cancellation of a supply agreement is business income.2. Overruling of Objections to the Reassessment Notice:The petitioner filed objections to the reassessment notice, contending that there was no new material or reason for reopening the assessment as all materials were disclosed in the original returns. The objections were overruled by the second respondent on November 19, 2008, who stated that the reassessment notice was issued after obtaining prior approval from the appropriate authority. The respondent found that the petitioner had misrepresented facts and claimed excessive deductions under Section 80HHC by wrongly including interest receipts as business receipts and treating compensation as a capital receipt without basis.3. Alleged Non-disclosure of Full and True Material Facts by the Petitioner:The respondents argued that the petitioner had misrepresented facts in the original returns by showing the compensation received from M/s. CIBA India Pvt. Ltd. under 'Contingent liabilities' and not disclosing the true nature of the receipt. The court noted that the petitioner had failed to disclose fully and truly all material facts necessary for the assessment, justifying the reassessment proceedings.4. Claim of Deductions under Sections 80HHC and 80-IA of the Income-tax Act, 1961:The petitioner claimed deductions under Section 80HHC for export activities and under Section 80-IA for one power generation unit. The reassessment disallowed the provision for bad and doubtful debts, recomputed the deductions under Section 80HHC, and denied deductions under Section 80-IA. The court found that the petitioner had wrongly claimed deductions under Section 80HHC by including interest receipts as export incentives and had made incorrect claims under Section 80-IA without reducing the 80HHC profits as required by law.5. Maintainability of the Writ Petitions:The court held that W.P. No. 28457 of 2008 challenging the notice dated August 3, 2007, became infructuous after the objections were overruled by the order dated November 19, 2008. The court also noted that the petitioner had an alternate remedy by way of filing an appeal as prescribed under the Income-tax Act, 1961, if aggrieved by the final order after reassessment proceedings. The court referenced the Supreme Court decision in Raj Kumar Shivhare v. Asst. Directorate of Enforcement, which emphasized the availability of alternate remedies.Conclusion:Both writ petitions were dismissed. The court clarified that no finding was rendered regarding the petitioner's liability for additional income-tax, leaving it to the Assessing Officer to decide on the merits and in accordance with the law. The petitioner was advised to pursue alternate remedies if aggrieved by the final reassessment order.