2009 (11) TMI 58 - HC - Income Tax

High Court upholds reassessment under Income Tax Act, disallows deduction claim

The High Court upheld the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, finding that the Assessing Officer had the ... Reassessment – full and true disclosure – section 147 – held that - because a pure finding of fact has been recorded to the effect that the re-assessment proceedings have rightly been initiated after framing the opinion that some income chargeable to tax has escaped assessment. Under Section 147 of the Act, after its amendment with effect from 1.4.1989, wide power has been given to the Assessing Officer even to cover the cases where the assessee had fully disclosed the material facts. The only condition for action is that the Assessing Officer should have reason to believe that the income chargeable to tax had escaped assessment. Such belief can be reached in any manner, and is not qualified by a precondition of faith and true disclosure of material facts by the assessee as contemplated in the pre amended Section 147 (a) of the Act - as far as merits of the case is concerned, with regard to the permissible deduction under Section 80-IB of the Act, it is clear position that the assessee was not entitled to claim deduction on account of Duty Draw Back and DEPB incentives, as these incentive profits do not fall within expression “profits derived from industrial undertaking” in Section 80-IB of the Act. Therefore, Duty Draw Back and DEPB do not form part of net profits of the industrial undertaking for the purposes of Section 80-IB of the Act. – Decided against the assessee Issues:1. Interpretation of Section 147 Proviso for initiation and conclusion of proceedings without discharging department's onus.Analysis:The appellant-assessee filed an appeal under Section 260-A of the Income Tax Act, 1961 against the ITAT's order for the assessment year 2001-02. The case involved the deduction claimed by the assessee on account of export incentives and interest received under Section 80-IB of the Act. The initial assessment granted the deduction, but a notice under Section 148 was issued for reassessment on the grounds of escaped income. The reassessment disallowed the deduction claimed by the assessee on account of export incentives and interest received under Section 80-IB of the Act. The appellant argued that the reassessment proceedings were not justified as all material facts were fully disclosed during the initial assessment. However, the court held that under Section 147 of the Act, the Assessing Officer has wide powers to initiate proceedings even if the assessee had fully disclosed material facts, as long as there is a reason to believe that income has escaped assessment. The court found that the appellant was not entitled to claim the deduction on account of Duty Draw Back and DEPB incentives under Section 80-IB of the Act as they do not fall within the expression 'profits derived from industrial undertaking.'The court concluded that no substantial question of law arose from the ITAT's order, as it was found that the reassessment proceedings were rightly initiated based on the belief that income had escaped assessment. The court upheld the decision that the appellant was not entitled to claim the deduction on account of Duty Draw Back and DEPB incentives under Section 80-IB of the Act. Therefore, the court dismissed the appeal, finding no illegality in the ITAT's order and no substantial question of law arising from it.