2013 (9) TMI 484 - AT - Income Tax

Invalidation of Income Tax proceedings under Section 147 due to failure to assess triggering income. Disallowance of set-off claim unsustainable.

The Tribunal invalidated the proceedings initiated under Section 147 of the Income Tax Act due to the failure to assess the income that was the basis for ... Reassessment u/s 147 - Assessment of any other income other than income on which assessment was reopened - Held that:- while completing the assessments for the previous years u/s 143(3) read with section 147 of the Act, the Assessing Officer has not disturbed the exemption claimed u/s 10B of the Act which was allowed in the original assessment - Assessing Officer disallowed the claim of set off of unabsorbed depreciation relating to assessment years 1995-96 and 1996-97 against the business income declared for the aforesaid assessment years. Thus, it is very much clear in the reassessment proceedings the Assessing Officer has made assessment of income other than the income which was subject matter for reopening as per the reasons recorded while initiating proceedings u/s 147 of the Act - reasons recorded for reopening the assessment has no nexus with the income ultimately assessed u/s 147 of the Act. The Assessing Officer without assessing the escaped income as per the reasons recorded has considered some other income which was never the subject matter of reopening as per the reasons recorded - Following decision of M/s Swarnadhara IJMII Integrated Township Development Company Versus DCIT, Hyderabad [2013 (6) TMI 624 - ITAT HYDERABAD] - Decided against Revenue. Assessing Officer is empowered to assess any other escaped income which comes to his notice in course of the reassessment proceedings along with escaped income which was the subject matter of reopening as per the reasons recorded therein. Without assessing the income as per the reasons recorded, the Assessing Officer cannot assess any other income which was not the subject matter of reopening. Therefore, in the facts of the present case, the Assessing Officer could not have independently assessed such other income without assessing the income which escaped assessment as per the reasons recorded and on the basis of which the proceedings u/s 147 were initiated. Issues Involved:1. Validity of proceedings initiated under Section 147 of the Income Tax Act.2. Legality of disallowing the claim of set-off of unabsorbed depreciation.3. Assessment of income other than the income which was the subject matter of reopening.Issue-wise Detailed Analysis:1. Validity of Proceedings Initiated under Section 147 of the Income Tax Act:The assessee challenged the reopening of assessments under Section 147, arguing that it amounted to a change of opinion since the original assessments were completed after considering the same set of facts. The Tribunal noted that the reopening was based on the Assessing Officer's belief that the exemption under Section 10B was wrongly allowed. However, during the reassessment, the Assessing Officer allowed the exemption but disallowed the set-off of unabsorbed depreciation. The Tribunal referred to judicial precedents, including CIT vs. Jet Airways (I) Ltd. and Ranbaxy Laboratories Ltd. vs. CIT, which held that the Assessing Officer must assess the income which was the basis for reopening and any other income that comes to notice subsequently. Since the income that was the basis for reopening was not assessed, the Tribunal concluded that the proceedings under Section 147 were invalid.2. Legality of Disallowing the Claim of Set-off of Unabsorbed Depreciation:The Assessing Officer disallowed the claim of set-off of unabsorbed depreciation from the assessment years 1995-96 and 1996-97 against the business income for the assessment years 2003-04, 2004-05, and 2005-06. The CIT (A) allowed the assessee's claim, but the department appealed. The Tribunal held that the disallowance of the set-off was not the subject matter of the reopening and, therefore, could not be independently assessed without assessing the income that was the reason for reopening. Thus, the disallowance was deemed legally unsustainable.3. Assessment of Income Other than the Income Which Was the Subject Matter of Reopening:The Tribunal emphasized that the Assessing Officer could not assess any other income without first assessing the income which was the reason for reopening. The Tribunal cited the Bombay High Court's decision in Jet Airways (I) Ltd., which clarified that the words 'and also' in Section 147 mean that the Assessing Officer must assess the income which he had reason to believe had escaped assessment and any other income that comes to notice during the proceedings. Since the Assessing Officer did not assess the income that was the basis for the reopening, the assessment of other income was invalid. Consequently, the Tribunal annulled the assessment orders for the years 2003-04, 2004-05, and 2005-06.Conclusion:The Tribunal allowed the Cross Objections raised by the assessee, annulled the assessment orders under Section 143(3) read with Section 147 for the relevant years, and dismissed the departmental appeals as infructuous. The judgment underscores the necessity for the Assessing Officer to assess the income that was the basis for reopening before assessing any other income that comes to notice during the reassessment proceedings.