2015 (1) TMI 778 - AT - Income Tax

Tribunal nullifies assessment reopening, upholds deduction, dismisses department appeal

M/s. GTL Limited Versus Asst. Commissioner of Income Tax (OSD) -2 (1)

The Tribunal declared the reopening of assessment under Section 147 as null and void due to exceeding the permissible time limit and being based on a ... Reopening of assessment - computation of exemption u/s 10B based on apportionment of expenses between eligible and non eligible units - Held that:- We certainly cannot accept the argument of the CIT(A) that initial initiation of reassessment proceedings was to examine the acceptability of claim of exemption u/s 10B and the current one is to restrict the exemption. This is because, the AO had the occasion to examine the details filed by the assessee, which were considered not only by the AO but also by the CIT(A), who in the initial proceedings directed the AO to allow the deduction as per law. In the current proceedings also, the revenue authorities examined those vary details to come to a different conclusion. Another major discrepancy noticed during the course of arguments is that there is no mention of authorization of a higher authority to initiate the current reassessment proceedings. Approval of CIT is mandatory. Since there is no mention of the approval sought from the CIT on the reasons, as recorded by the AO to initiate reassessment proceedings, the entire initiation has been vitiated and become bad in law. - Decided in favour of assessee. Issues Involved:1. Reopening of assessment under Section 147 of the Income Tax Act.2. Computation of exemption under Section 10B based on apportionment of expenses between eligible and non-eligible units.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 147:The assessee challenged the reopening of the assessment under Section 147 of the Income Tax Act, arguing that the notice was issued after six years from the end of the relevant assessment year, which is beyond the permissible time limit. The timeline of events is as follows:- Return filed on 31.10.2002.- Initial assessment under Section 143(1) on 03.03.2003.- Notice under Section 148 issued on 03.11.2005.- Reassessment under Section 143(3)/148 completed on 29.12.2006.- CIT(A) order on 13.12.2007.- Notice under Section 148 issued again on 31.03.2009.- Reassessment under Section 143(3)/148 completed on 22.12.2009.The assessee raised objections based on the time limit for issuing notice under Section 148, as per Section 149(1), which stipulates a maximum period of six years for reopening assessments. The assessee also argued that the reopening was based on a change of opinion, which is not permissible under the law.The Tribunal, after considering the arguments and relevant case laws, concluded that the reopening was indeed beyond the permissible time limit and was based on a change of opinion. The Tribunal emphasized the necessity of having a 'reason to believe' for reopening the assessment, which was not evident in this case. Furthermore, the Tribunal noted the absence of authorization from a higher authority for the reassessment proceedings, which is mandatory as per the ruling in DSJ Communications vs DCIT. Consequently, the Tribunal declared the reopening of the assessment as null and void, annulling all consequential proceedings.2. Computation of Exemption under Section 10B:The department's appeal focused on the computation of exemption under Section 10B, specifically the apportionment of corporate expenses between eligible and non-eligible units. The AO had reduced the qualifying amount for exemption by allocating a portion of the corporate expenses to the Export Oriented Unit (EOU). The assessee argued that the corporate expenses were incurred at various locations across India and had no connection with the EOU units located at Mahape, Navi Mumbai. The CIT(A) agreed with the assessee, noting that the expenses incurred at various branches had no connection with the EOU units and that the AO's allocation based on turnover percentage was incorrect. The CIT(A) allowed the full deduction under Section 10B.The Tribunal upheld the CIT(A)'s decision, noting that the facts were duly examined by the revenue authorities and there was no reason to deviate from the decision. The Tribunal dismissed the department's appeal, affirming the full allowance of deduction under Section 10B for the unit claimed by the assessee.Conclusion:The Tribunal dismissed the department's appeals (ITA No. 6971/Mum/2010 and ITA No. 1246/Mum/2012) and allowed the assessee's appeal (ITA No. 6416/Mum/2010), declaring the reopening of assessment as null and void and affirming the full deduction under Section 10B. The order was pronounced in the open court on 2nd January 2015.