2017 (5) TMI 1049 - AT - Income Tax

Tribunal quashes reassessment for lack of fresh material, upholds deduction under Section 10A

The Tribunal invalidated reassessment proceedings under Section 147 of the Income Tax Act, ruling that the Assessing Officer lacked fresh tangible ... Reopening of assessment - Deduction u/s 10A without setting off the brought forward unabsorbed depreciation and brought forward business loss - Held that:- In the present case, it is noticed that the case of the assessee is that there was no fresh tangible material in the possession of AO at the time of recording of reasons for initiating proceedings u/s.147 of the Act. A perusal of the ‘Reasons’ recorded by the AO in this case reveals that at the time of recording of these ‘Reasons’ the AO had examined original assessment records only and no fresh material had come in the possession of the AO. In response to our specific query also, Ld DR could not point out any fresh material available with the AO at the time of reopening of the case of the assessee. Thus, assertion of the assessee that there was no fresh material with AO for reopening of this case, remained uncontroverted. In the case of CIT vs. Orient Craft Ltd. [2013 (1) TMI 177 - DELHI HIGH COURT] it was held reasons for reassessment disclosed that AO reached belief that there was escapement of income 'on going through the return of income' filed by assessee after he accepted return u/s. 143(1) without scrutiny, and nothing more. In these facts, it was held by the Hon’ble High Court that it was nothing but review of earlier proceedings and abuse of power by AO. It was further held that since there was no whisper in reasons recorded, of any tangible material which came to possession of AO subsequent to issue of intimation, therefore, it was an arbitrary exercise of power conferred u/s 147. Thus, reopening was held to be invalid on this ground itself. - Decided in favour of assessee. Issues Involved:1. Validity of initiation of reassessment proceedings under Section 147 of the Income Tax Act, 1961.2. Deduction under Section 10A of the Income Tax Act, 1961, without setting off brought forward unabsorbed depreciation and business loss.Detailed Analysis:1. Validity of Initiation of Reassessment Proceedings under Section 147 of the Income Tax Act, 1961:The assessee challenged the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961, arguing that the AO had no fresh tangible material to justify the reopening of the assessment. It was contended that the reassessment was based purely on a change of opinion, which is not permissible under the law. The CIT(A) rejected this plea, stating that the AO had not explicitly expressed any opinion in the original assessment order and thus, there was no change of opinion.However, upon further appeal, the Tribunal found that the AO had indeed initiated the reassessment proceedings without any fresh tangible material. The Tribunal referred to the Supreme Court's decision in CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC), which mandates that the AO should have 'tangible material' to reopen an assessment. The Tribunal also cited the Delhi High Court's rulings in Pr. CIT vs Tupperware India Pvt. Ltd. and CIT vs. Orient Craft Ltd., which reinforced the necessity of fresh tangible material for valid reassessment. Consequently, the Tribunal held that the reassessment proceedings were invalid and quashed the reassessment order.2. Deduction under Section 10A of the Income Tax Act, 1961, without Setting Off Brought Forward Unabsorbed Depreciation and Business Loss:The revenue appealed against the CIT(A)'s decision to allow the deduction under Section 10A of the Income Tax Act, 1961, without setting off the brought forward unabsorbed depreciation and business loss. The AO had initially denied the deduction under Section 10A, arguing that it should be considered a deduction provision rather than an exemption provision, and thus, the brought forward losses should be set off first.The CIT(A), however, agreed with the assessee's contention that Section 10A is an exemption provision. The CIT(A) relied on the judgments of the Bombay High Court in CIT Vs Black & Veatch Consulting (Pvt Ltd) and the Karnataka High Court in CIT Vs Yokogawa India Ltd, which held that the deduction under Section 10A should be computed before applying the provisions of Section 72 for set-off of losses.The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in CIT vs Yokogawa India Ltd. (2017) 77 Taxman.com 41 (SC). The Supreme Court clarified that the deduction under Section 10A is to be made independently and immediately after determining the profits and gains of the eligible undertaking. The deduction is to be given before the application of the provisions for set-off and carry forward under Sections 70, 72, and 74, thus treating Section 10A as an exemption provision.Conclusion:The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s order, allowing the deduction under Section 10A without setting off the brought forward unabsorbed depreciation and business loss. The cross-objection by the assessee challenging the validity of the reassessment proceedings was allowed, and the reassessment order was quashed.Order Pronouncement:The order was pronounced in the Court on 19.05.2017.