2013 (11) TMI 1494 - HC - Income Tax

Court invalidates notice under Section 148 of Income Tax Act, citing lack of jurisdiction and disclosure of material facts

The Court held that the notice under Section 148 of the Income Tax Act lacked jurisdiction as it was based on a change of opinion rather than new tangible ... Validity of reassessment - Held that:- The assessee has claimed deduction u/s 80IB for its Sivasa Unit - As the assessment sought to be reopened is beyond the expiry of four years from the end of the relevant assessment year i.e. 200607, two conditions precedent have to be satisfied - The material which forms the basis of reason to believe is the allocation of expenditure between the two units leading to higher deduction under Section 80IB of the Act in respect of the petitioner’s Silvasa Unit - The Assessing Officer at that point of time appears to have been satisfied that the allocation of expenditure made by the petitioner between the two units and did not reduce the claim by increasing the expenditure attributable - While examining the quantum of deduction to be allowed under Section 80IB of the Act the issue of allocation of expenditure for that purposes would necessarily have been examined - There is no tangible material to lead to a reason to believe that income has escaped assessment but only change of opinion on the part of the Assessing Officer on the material available, thus cannot be a subject matter of reassessment. The petitioner had in its profit and loss accounts allocated various common expenses between the non 80IB unit and 80IB unit. This was also subject to examination in determining the deduction available under Section 80IB of the Act to the Silvasa Unit - There has been disclosure of material facts truly and fully for the purposes of assessment on the part of the petitioner - The notice issued u/s 148 is quashed - Decided in favour of assessee. Issues Involved:1. Jurisdiction of the notice under Section 148 of the Income Tax Act, 1961.2. Validity of reopening the assessment beyond four years.3. Alleged failure to disclose material facts fully and truly.Detailed Analysis:1. Jurisdiction of the Notice under Section 148:The petitioner challenges the notice dated 28 March 2013 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2006-07. The petitioner contends that the notice lacks jurisdiction as it does not indicate any tangible material to support the belief that income chargeable to tax has escaped assessment. The Court emphasizes that the power of reassessment under the Act is not a power to review. The Assessing Officer must have a 'reason to believe' based on tangible material, not merely change of opinion. The Court finds that the reasons for reopening rely on the same material that was or should have been examined during the original assessment, thus constituting a change of opinion rather than a new tangible material.2. Validity of Reopening the Assessment Beyond Four Years:The petitioner argues that the reopening is beyond the period of four years from the end of the relevant Assessment Year, making the notice without jurisdiction. The Court notes that for reopening beyond four years, two preconditions must be satisfied: (a) the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment based on tangible material, and (b) there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Court finds that the material forming the basis for the reason to believe was already available and examined during the original assessment. Therefore, there is no new tangible material, and the reopening is merely a change of opinion.3. Alleged Failure to Disclose Material Facts Fully and Truly:The revenue contends that the petitioner failed to disclose fully and truly all material facts necessary for assessment, particularly regarding the allocation of expenses between the 80IB unit (Silvasa) and the non-80IB unit (Tarapur). The Court finds that the petitioner had disclosed the allocation of expenses in its profit and loss accounts, which was subject to examination during the original assessment. The Court rejects the revenue's argument that the petitioner was obliged to disclose alternative methods of expense allocation. The Court concludes that the petitioner had disclosed all material facts necessary for assessment, and any alleged inappropriate allocation of expenses was accepted by the Assessing Officer during the original assessment.Conclusion:The Court holds that the notice dated 28 March 2013 under Section 148 and the order dated 1 August 2013 rejecting the petitioner's objections are bad in law. The reopening of the assessment is based on a change of opinion and not on new tangible material. The petitioner had disclosed all material facts fully and truly during the original assessment. Therefore, the impugned notice and order are quashed and set aside. The petition is allowed, and the rule is made absolute with no order as to costs.