2013 (2) TMI 533 - AT - Income Tax

High Court sets aside Tribunal decision, directs review of assessment validity under section 147

The High Court set aside the Tribunal's decision and directed the appeals to be decided on their merits regarding the validity of reopening the assessment ... Reopening of Assessment – As per AO calculation of deduction under section 80HHC, is not as per the definition of “indirect cost” given in Explanation (d) to sub-section (3) of section 80HHC - Assessee firm has claimed excess deduction which has resulted to that extent in escapement of income – As per assessee assessment/intimation passed under section 143(1)(a) has become final and therefore, the reopening is bad in law because it was done merely on the basis of a change of opinion – Held that:- Main provision of section 147 covers the case of the intimation for the purposes of reassessment. Thus if the AO has ‘reason to believe’ that income had escaped assessment, it confers jurisdiction to reopen the assessment. So long as ingredients are fulfilled, the officer is free to initiate proceedings under section 147 of the Act. In the case of Asst.CIT Vs. Rajesh Jhaveri Stock Brokers P.Ltd [2007 (5) TMI 197 - SUPREME COURT] it was pointed out that expression “reason to believe” in section 147 would mean cause or justification. If the AO has cause or justification to know or suppose that income had escaped assessment, it could be said to have reason to believe that income had escaped assessment - Further case of an intimation under section 143(1)(a) is also covered by the main provision of section 147 as substituted with effect from 1.4.1989 - Grant of relief u/s.80HHC of the Act in deducting the indirect cost was contrary to the provisions therein, under Explanation (b) to sub-section (3), the AO took steps to reopen the assessment u/s.147 of the Act – Case was referred back to CIT(A) to decide after considering the above mentioned decision - Appeals partly allowed for statistical purposes. Issues:1. Validity of reopening of assessment under section 147 read with section 148 of the Act.2. Mode of calculation of deduction under section 80-HHC.Analysis:Issue 1: Validity of Reopening of AssessmentThe appeals were filed against the Commissioner of Income Tax(Appeals) order for assessment years 1995-96 and 1997-98. The Tribunal had initially held that the assessment could not have been reopened under section 147 but should have been rectified under section 154 due to a computative error. However, the High Court set aside the Tribunal's order, directing the appeals to be decided on their merits. Despite due notice, no representation was made on behalf of the assessee during the appeals. The original assessments were completed under section 143(1)(a) for both years. The Assessing Officer found errors in the claim under section 80HHC, leading to an escapement of income. The Commissioner of Income Tax(Appeals) upheld the reopening of the assessment and certain additions but deleted others. The Tribunal considered the High Court's decision, emphasizing that the grant of relief under section 80HHC was contrary to the provisions, justifying the reopening under section 147. The Tribunal set aside its previous order and restored the appeals to consider the case on merits and pass orders in accordance with the law.Issue 2: Mode of Calculation of Deduction under Section 80-HHCThe main issue for consideration was the mode of calculation of deduction under section 80-HHC. The Assessing Officer found errors in the indirect cost considered for the deduction under section 80HHC, leading to excess deduction claimed by the assessee. The Commissioner of Income Tax(Appeals) upheld the addition made by the Assessing Officer but deleted another addition. The Tribunal noted that the Commissioner of Income Tax(Appeals) did not consider relevant decisions and circulars while deciding on the validity of the assumption of jurisdiction under section 147/148 and the reworking of the eligible deduction under section 80HHC. Therefore, the Tribunal set aside both appeals and directed the Commissioner of Income Tax(Appeals) to provide a complete finding considering all relevant decisions and submissions of the assessee regarding the computation of eligible deduction. The issue regarding the addition under the head 'estimated profits under local turnover' was already decided and not under consideration.In conclusion, the Tribunal partly allowed both appeals for statistical purposes, emphasizing the need for a comprehensive review of the issues related to the validity of reopening the assessment and the calculation of deduction under section 80-HHC.