2013 (12) TMI 15 - AT - Income Tax

Tribunal decision: Reopening assessment quashed for 2003-04, partial win for taxpayer on deductions

The tribunal quashed the reopening of the assessment for the year 2003-04 as it was based on a 'change of opinion.' For the year 2004-05, the tribunal ... Validity of assessment u/s 147 – Change of opinion – Held that:- The assessee has included labour charges receipts, while computing the profits of the eligible business under the head sales - Once, the Hon’ble Supreme Court interprets any law and lays down its decision on such interpretation of law then, such judicial decision applies retrospectively - The courts do not make any new law, they only discover and find the correct interpretation of the law, as if it is always the same and such a correct principle of law subsequently laid down by the Hon’ble Supreme Court applies retrospectively - Following the decision of the Hon’ble Supreme Court in the case of K.Ravindranathan Nair [2007 (11) TMI 10 - Supreme Court of India] - Such kind of charges i.e. labour charges have to be reduced by 90% while computing the profits of the business eligible for deduction under Section 80HHC and such a reduction is to be made from gross total income and would be included in the total turnover as per the formula given in Section 80HHC(3) - Such a law applies retrospectively overriding all the view taken earlier - There is no question of 'change of opinion' because the earlier opinion was not in accordance with the provisions of law and subsequent decision of the Hon’ble Supreme Court reversing the earlier interpretation of law does constitute fresh material coming in possession of the Assessing Officer, so as to clothe him with the jurisdiction to reopen the case u/s.147 – Decided against assessee. While reducing the 90% labour charges receipts only the net labour charges should be reduced after setting off the labour charges paid – Following Hon’ble Supreme Court in the case of ACG Associates Capsules Pvt. Limited [2012 (2) TMI 101 - SUPREME COURT OF INDIA] - Only the net labour charges should be reduced while computing the deduction under Section 80HHC – Decided in favour of assessee. Issues Involved:1. Validity of assessment under Section 147 and notice under Section 148.2. Deduction under Section 80HHC and the treatment of Excise Duty refund.3. Reopening of assessment based on 'change of opinion'.4. Inclusion of labor charges in eligible business profits for deduction under Section 80HHC.Issue-wise Detailed Analysis:1. Validity of assessment under Section 147 and notice under Section 148:The assessee challenged the validity of the assessment under Section 147 and the notice under Section 148 on the grounds that there was a 'change of opinion' and no valid reason to believe that income chargeable to tax had escaped assessment. The tribunal noted that the original assessment was completed under Section 143(3) after detailed scrutiny. The reopening was based on the same set of facts and materials that were already examined by the AO, thus constituting a 'change of opinion,' which is not permissible under the law. The tribunal referred to the Supreme Court's decision in CIT Vs. Kelvinator India Ltd., which emphasized that 'change of opinion' is an in-built test to check the abuse of power by the AO. Consequently, the reopening of the assessment was deemed void ab initio and the assessment order was quashed.2. Deduction under Section 80HHC and the treatment of Excise Duty refund:The assessee claimed a deduction under Section 80HHC, which was initially allowed by the AO after scrutiny. However, the assessment was reopened on the grounds that 90% of the Excise Duty refund should have been reduced from the business profits. The tribunal observed that the Excise Duty refund was set off against the Excise Duty paid and was not relevant for estimating the total income or business profit for the deduction under Section 80HHC. The tribunal held that reopening on this issue was invalid as it was based on a 'change of opinion.'3. Reopening of assessment based on 'change of opinion':The tribunal emphasized that reopening an assessment based on a 'change of opinion' is not permissible. The AO had already examined the details during the original assessment proceedings, and there was no new material or evidence to justify the reopening. The tribunal cited the Supreme Court's decision in CIT Vs. Kelvinator India Ltd., which clarified that reassessment must be based on tangible material and not merely on a different opinion formed on the same set of facts. Thus, the tribunal quashed the reopening of the assessment for the assessment year 2003-04.4. Inclusion of labor charges in eligible business profits for deduction under Section 80HHC:For the assessment year 2004-05, the assessee included labor charges receipts in the profits of the eligible business under the head 'sales' for the deduction under Section 80HHC. The AO reopened the assessment on the grounds that 90% of the labor charges should be reduced from the eligible profits, following the Supreme Court's decision in CIT Vs. K.Ravindranathan Nair. The tribunal held that the reopening was justified as the Supreme Court's decision constituted tangible material. However, the tribunal directed the AO to reduce only the net labor charges after setting off the labor charges paid, in accordance with the Supreme Court's decision in ACG Associates Capsules Pvt. Limited.Conclusion:The tribunal allowed the appeal for the assessment year 2003-04, quashing the reopening of the assessment as it was based on a 'change of opinion.' For the assessment year 2004-05, the tribunal partly allowed the appeal, upholding the reopening but directing the AO to reduce only the net labor charges while computing the deduction under Section 80HHC.