2007 (7) TMI 259 - HC - Income Tax

High Court upholds reassessment under Income-tax Act for 1987-88, rejecting change of opinion plea.

The High Court upheld the validity of reassessment under section 147(b) of the Income-tax Act, 1961 for the assessment year 1987-88. The court ruled in ... Clause (c) of Explanation 1 to section 147 provides that an Assessing Officer can resort to reassessment proceedings in a case where income has been made the subject of excessive relief under the Act. The assessee at the regular assessment had been allowed a deduction more than actually allowable u/s 80HHC - Accordingly, reassessment under section 147(b) cannot be held to be invalid Issues:1. Interpretation of section 147(b) of the Income-tax Act, 1961 regarding reassessment proceedings.2. Validity of reassessment under section 147(b) based on excessive relief allowed under section 80HHC.3. Whether initiation of reassessment proceedings was justified without new information.Analysis:1. The case involved a reference from the Income-tax Appellate Tribunal regarding the applicability of section 147(b) of the Income-tax Act, 1961 for the assessment year 1987-88. The central question was whether the Assessing Officer could reassess income chargeable to tax that had escaped assessment based on information already available at the time of the original assessment. The Tribunal had quashed the initiation of proceedings under section 147(b) based on the premise that there was no new information to warrant reassessment.2. The facts revealed that the original assessment was completed with a deduction under section 80HHC of the Act, which was later found to be incorrectly allowed. The deduction was subsequently reduced, leading to an appeal by the assessee against the validity of the reassessment under section 147(b). The Commissioner of Income-tax (Appeals) rejected the appeal, but the Tribunal accepted the assessee's plea, emphasizing that there was no additional material available to the Assessing Officer to invoke section 147(b).3. The Revenue contended that the Tribunal erred in assuming that the reassessment was solely based on a change of opinion triggered by an auditor's objection, contrary to the actual reasons recorded by the Income-tax Officer. It was argued that under Explanation 1 to section 147, excessive relief granted to an assessee could justify reassessment under section 147(b), even without a specific omission or failure on the part of the assessee. The absence of the assessee during the proceedings further weakened the opposition to the reference made by the Tribunal.4. Upon review, the High Court found merit in the Revenue's arguments, emphasizing that the Tribunal's conclusion regarding the reopening of assessment being a result of a change of opinion was unfounded. The court highlighted clause (c) of Explanation 1 to section 147, which allows reassessment if income has been the subject of excessive relief under the Act. In this case, the assessee had been granted a deduction higher than what was actually allowable under section 80HHC, falling within the purview of clause (c) of the Explanation.5. Consequently, the High Court ruled in favor of the Revenue, upholding the validity of the reassessment under section 147(b) and rejecting the assessee's plea. The judgment clarified that the action taken by the Assessing Officer was justified under the relevant provisions of the Income-tax Act, and the question referred to the court was answered in the negative, supporting the Revenue's position over the assessee's objections.