2015 (1) TMI 99 - AT - Income Tax

Appeal allowed, reassessment quashed under Section 147.

The Tribunal allowed the assessee's appeal, quashing the reassessment proceedings initiated under Section 147 and cancelling the reassessment order. The ... Validity of notice for reopening of assessment u/s 147/148 - Change of opinion – Allowability of exemption u/s 10B - Held that:- The assessee company is a 100% Export Oriented Unit engaged in manufacturing of steel forging for export - the reasons recorded by the AO for issuing the notice u/s. 148 are verbatim as in the case of the present assessee – Following the decision in Magna Casting and Machine Works Pvt. Ltd., Pune Vs. Assistant Commissioner of Income Tax, Circle- 11(2), Pune [2015 (1) TMI 64 - ITAT PUNE] - the AO has allowed the deduction claimed by the assessee u/s. 10B - assessee had made a disclosure in the notes forming part of the accounts of the nature of payments required to be made to the foreign principal on account of CDC - a reference was made to the fact that as a result of a circular issued by the RBI, the assessee was not permitted to remit a certain proportion equivalent to US $ 1.5 for each container - the statutory auditors had also included a note in the report. During the course of assessment proceedings, the assessee addressed a comprehensive letter dt. 18th Nov., 2009 making a full disclosure of facts - AO specifically discussed in the course of the assessment order the matters in respect of which he has made a disallowance either fully or in part - Since the AO did not find any justification to reject the claim of the assessee in respect of the issue of CDC, there was no specific discussion in the course of order. Merely because subsequently another decision of the Coordinate Bench of the ITAT is noticed by the AO, that will not vests the jurisdiction in the AO to exercise his powers u/s. 147 of the Act - the AO was not justified at all on the facts of this case to initiate the proceedings u/s. 147 and issued the notice u/s. 148 of the Act – thus, the proceedings initiated by the AO u/s 147 is set aside – Decided in favour of assessee. Issues Involved:1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act based on a change of opinion.2. Legitimacy of the deduction claimed under Section 10B of the Income Tax Act.Issue-Wise Detailed Analysis:1. Validity of Reassessment Proceedings Initiated Under Section 147 Based on a Change of Opinion:The primary issue in this case revolves around whether the reassessment proceedings initiated by the Assessing Officer (A.O.) under Section 147 of the Income Tax Act were valid, given that they were based on a change of opinion. The original assessment was completed under Section 143(3), where the A.O. had allowed the deduction under Section 10B after considering all relevant facts and applying his mind.The Tribunal noted that the A.O. had initially relied on the ITAT Ahmedabad Bench decision in the case of Anita Synthetic Pvt. Ltd. and the provisions of Chapter 8 of the Foreign Trade Policy to allow the deduction. However, the reassessment was initiated based on a contrary decision by the ITAT Bangalore in the case of Tata Elxi Ltd., which was not considered during the original assessment.The Tribunal emphasized that the concept of 'reason to believe' under Section 147 does not permit reopening of assessments merely due to a change of opinion. This principle was supported by multiple judgments, including the Supreme Court's decision in CIT Vs. Kelvinator of India Ltd., which held that a mere change of opinion cannot justify the reopening of a completed assessment.The Tribunal found that the A.O. had already applied his mind to the issue of deduction under Section 10B during the original assessment. The reassessment proceedings were initiated within four years, but there was no new tangible material to justify the reopening. The Tribunal concluded that the reassessment proceedings were invalid as they were based solely on a change of opinion.2. Legitimacy of the Deduction Claimed Under Section 10B:The assessee, a 100% Export Oriented Unit (EOU), claimed a deduction under Section 10B for its export turnover. The original assessment allowed this deduction, considering both direct exports and deemed exports to another EOU. The reassessment sought to withdraw this deduction based on the ITAT Bangalore's decision in Tata Elxi Ltd., which held that deemed exports within India do not qualify for the deduction under Section 10B.The Tribunal referred to its decision in the case of Magna Casting and Machine Works Pvt. Ltd., which had similar facts and where the reassessment was also based on the Tata Elxi Ltd. decision. The Tribunal reiterated that the original assessment had considered the deduction under Section 10B in light of the prevailing ITAT Ahmedabad decision, and the reassessment could not be justified merely because of a subsequent contrary decision.The Tribunal concluded that the A.O. had no jurisdiction to initiate reassessment proceedings under Section 147 solely based on a different judicial opinion that emerged later. As the reassessment proceedings were quashed, the Tribunal did not find it necessary to decide on the merits of the deduction under Section 10B.Conclusion:The Tribunal allowed the assessee's appeal, quashing the reassessment proceedings initiated under Section 147 and cancelling the reassessment order. The proceedings were deemed invalid as they were based on a mere change of opinion, with no new tangible material to justify the reopening of the assessment. The Tribunal did not address the merits of the deduction under Section 10B, as the assessee succeeded on the issue of the legality of the reassessment proceedings.