Court allows appeal on Section 32AB deduction, favoring assessee's profit calculation.

The court allowed the appeal, ruling in favor of the assessee regarding the deduction under Section 32AB. It held that the deduction should be based on the profits of Patel Detergents (Manufacturing Division) for the assessment year 1988-89. The court set aside the ITAT's decision and restored the original assessment order without costs.

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Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Limitation and jurisdiction of reassessment proceedings.
3. Change of opinion in reassessment.
4. Deduction under Section 32AB of the Income Tax Act with reference to profits of the business as a whole or a particular unit.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act:
The assessee challenged the reopening of the assessment under Section 147, arguing it was barred by limitation and without jurisdiction. The initial assessment was completed under Section 143(3), and the reassessment notice was issued within four years from the end of the assessment year. The court noted that the reassessment was based on the belief that income chargeable to tax had escaped assessment due to incorrect computation of deduction under Section 32AB.

2. Limitation and Jurisdiction of Reassessment Proceedings:
The court examined whether the reassessment proceedings were barred by limitation. The assessee contended that the reassessment was initiated after the expiry of four years from the end of the assessment year. However, the court found that the notice under Section 148 was issued within the permissible period, thus the reassessment proceedings were within the jurisdiction and not barred by limitation.

3. Change of Opinion in Reassessment:
The assessee argued that the reassessment was a result of a mere change of opinion by the Assessing Officer, which is not permissible. The original assessment had allowed the deduction under Section 32AB after due consideration. The court, however, focused on the merits of the deduction under Section 32AB and did not delve deeply into the change of opinion argument, as the assessee did not press this issue if the court ruled in their favor on the merits of the deduction.

4. Deduction under Section 32AB of the Income Tax Act:
The primary issue was whether the deduction under Section 32AB should be calculated based on the profits of the business as a whole or the profits of a particular unit. The assessee claimed the deduction based on the profits of Patel Detergents (Manufacturing Division), while the department argued it should be based on the profits of the business as a whole. The court referred to the provisions of Section 32AB as they stood at the relevant time, which allowed deduction based on the profits of the "eligible business or profession." The court noted that the term "eligible" was deleted from Section 32AB by the Finance Act, 1989, effective from April 1, 1991. For the assessment year 1988-89, the court held that the deduction should be based on the profits of the eligible business, i.e., Patel Detergents (Manufacturing Division).

The court supported its decision with precedents from the Delhi High Court and Bombay High Court, which had held that for assessment years prior to the amendment, only the profits of the eligible business should be considered for computing the deduction under Section 32AB. Consequently, the court quashed the ITAT's decision and held that the assessee was entitled to the deduction based on the profits of Patel Detergents (Manufacturing Division).

Conclusion:
The appeal was allowed, and the court ruled in favor of the assessee, holding that the deduction under Section 32AB should be calculated based on the profits of Patel Detergents (Manufacturing Division) for the assessment year 1988-89. The ITAT's judgment was set aside, and the original assessment order allowing the deduction was restored. No costs were ordered.

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