2016 (1) TMI 403 - AT - Income Tax

Tribunal Overturns Reassessment, Cites Kelvinator Case

The Tribunal allowed the appeal of the assessee, holding that the reassessment under section 147 was invalid as it was based on a mere change of opinion ... Reopening of assessment - disallowance of claim u/s 10B - Held that:- t is an undisputed fact that, assessee is a 100% EOU; eligible for deduction u/s 10B on the profits derived from such undertaking; it has commenced its production/manufacturing from the assessment year 1994-95; and the period of 10 years there from would be available up till assessment year 2003-04. However, the assessee as per then relevant provision of section 10B had chosen the initial assessment year AY 1997-98 and started its claim for deduction u/s 10B from AY 1997-98 onwards. In support of its claim, it has filed an Audit report as per the requirement of section 10B along with the return of income. The Ld. AO during the course of the original assessment proceedings has specifically embarked upon this issue and has noted the fact about the period of manufacturing; period of claim of deduction and also the overall components of profit of 10B as we have noted above. After examining the various issues relating to section 10B, he has computed the deduction u/s 10B. Thus, from the face of the assessment order it appears that, AO has applied his mind and has reached to a certain conclusion in respect of claim u/s 10B.From the perusal of the “reasons recorded”, it is evident that there is no whisper or reference about any tangible material coming on record having live-link-nexus with the income chargeable to tax escaping assessment. AO in the original assessment order has applied his mind and even noted down the entire facts and has computed the deduction u/s 10B. It is not a case where the assessment order is sub-silentio on the issue on which reasons have been recorded. Accordingly, on preliminary ground, we hold that the impugned assessment order passed u/s 143(3) r.w.s. 147 passed in pursuance of notice u/s 148 is void-ab-initio and deserves to be quashed. We order accordingly. - Decided in favour of assessee Issues Involved:1. Validity of the order passed under section 147 r.w. section 143(3).2. Entitlement to deduction under section 10B.3. Entitlement to deductions under sections 80IA and 80HHC.4. Levy of interest under sections 234A, 234B, and 234C.Issue-wise Analysis:1. Validity of the Order Passed Under Section 147 r.w. Section 143(3):The assessee challenged the reopening of the assessment under section 147, arguing that the original assessment had already considered and allowed the deduction under section 10B. The reopening was based on the same set of facts without any new tangible material, which the assessee contended amounted to a 'change of opinion.' The Tribunal noted that the original assessment order had specifically addressed the period of manufacturing and the period of claiming the deduction under section 10B. The Tribunal cited the Supreme Court ruling in CIT vs Kelvinator of India Ltd, emphasizing that reopening an assessment on the basis of a mere change of opinion is not permissible. The Tribunal held that the Assessing Officer (AO) had applied his mind during the original assessment and concluded that reopening the assessment without any new tangible material was invalid. Consequently, the Tribunal quashed the reassessment order as void-ab-initio.2. Entitlement to Deduction Under Section 10B:The AO disallowed the deduction under section 10B for the assessment year 2004-05, arguing that the 10-year period for claiming the deduction had expired in the assessment year 2003-04, as the assessee had started manufacturing in the assessment year 1994-95. The assessee argued that it had chosen the initial assessment year as 1997-98, which was permissible under the statute at the relevant time. The Tribunal noted that the issue had already been adjudicated in the assessee's favor in the original assessment proceedings, and without any new material, the reassessment could not be justified. The Tribunal did not delve into the merits of the section 10B claim, as it had already quashed the reassessment order on procedural grounds.3. Entitlement to Deductions Under Sections 80IA and 80HHC:The assessee raised alternative claims for deductions under sections 80IA and 80HHC during the appellate proceedings. The CIT(A) rejected these claims on the grounds that they were not raised during the original assessment and amounted to a review of the original order, which is not permissible. The Tribunal did not address these claims in detail, as the primary issue of the validity of the reassessment had already been decided in favor of the assessee.4. Levy of Interest Under Sections 234A, 234B, and 234C:The assessee also contested the levy of interest under sections 234A, 234B, and 234C. However, as the Tribunal quashed the reassessment order on the grounds of invalid reopening, the issue of interest became academic and was not specifically addressed.Conclusion:The Tribunal allowed the appeal of the assessee, primarily on the grounds that the reassessment was invalid due to the lack of new tangible material and amounted to a change of opinion. Consequently, the other grounds raised by the assessee became academic and were not adjudicated. The reassessment order was quashed as void-ab-initio.