2018 (1) TMI 19 - AT - Income Tax

Tribunal invalidates assessment reopening, upholds deduction eligibility under Income Tax Act

The Asst. Commissioner of Income Tax 5 (2) (1), Mumbai Versus Jabs International Pvt. Ltd.

The Tribunal dismissed the Revenue's appeals, confirming the invalidity of the assessment reopening based on a change of opinion. It upheld the assessee's ... Reopening of assessment u/s 147 read with section 148 of the Act - disallowance of the claim of deduction under section 10B of the Act - manufacturing activity or not? - Held that: - the AO has formed an opinion during the course of original assessment proceedings and this reopening is merely on change of opinion, which is not permissible under section 147 of the Act - From the very reasons recorded by AO for reopening of assessment, it is clear that the AO was of the view that the AO was wrongly allowed on the ground that process of making power from whole Spices do not constitute manufacture within the meaning of section 10B of the Act - this is merely change of opinion and nothing else - appeal dismissed. Issues Involved:1. Validity of reopening the assessment under section 147 read with section 148 of the Income Tax Act, 1961.2. Eligibility of the assessee's claim for deduction under section 10B of the Income Tax Act.Issue-wise Detailed Analysis:1. Validity of Reopening the Assessment:The primary issue in these appeals is the validity of the reopening of the assessment under section 147 read with section 148 of the Income Tax Act, 1961. The Revenue contended that the reopening was justified as the assessee made a patently wrong claim for exemption under section 10B, which was initially allowed by the Assessing Officer (AO). The AO issued a notice under section 148 and recorded reasons for reopening the assessment, stating that the process of making powder from whole spices does not constitute manufacturing within the meaning of section 10B. The CIT(A) quashed the reassessment proceedings, observing that the issue of eligibility under section 10B was already discussed in the original assessment order dated 20-01-2006. The CIT(A) noted that the reassessment was beyond four years from the end of the assessment year and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal upheld the CIT(A)'s order, stating that the reopening was merely a change of opinion, which is not permissible under section 147, as per the Supreme Court's decision in CIT Vs. Kelvinator of India Limited.2. Eligibility of the Assessee's Claim for Deduction under Section 10B:The second issue pertains to the eligibility of the assessee's claim for deduction under section 10B of the Income Tax Act. The Revenue argued that the assessee's activities did not fit into the definition of manufacturing, and thus, the exemption under section 10B was wrongly allowed. The AO, in the reassessment order, held that the assessee's process of making powder from whole spices does not constitute manufacturing and disallowed the exemption. The CIT(A), however, observed that the assessee was engaged in cleaning, grading, and powdering spices, which constituted manufacturing activities. The CIT(A) also noted that the assessee was registered as a manufacturing unit under the SEZ Act and had furnished all required details during the reassessment proceedings. The Tribunal found that the assessee had provided complete details of the manufacturing process during the original assessment proceedings and had fulfilled the conditions for exemption under section 10B. The Tribunal concluded that the AO's reopening was based on a change of opinion and upheld the CIT(A)'s order quashing the reassessment.Conclusion:In conclusion, the Tribunal dismissed the Revenue's appeals, confirming that the reopening of the assessment was invalid as it was based on a change of opinion, and upheld the assessee's eligibility for deduction under section 10B of the Income Tax Act. The Tribunal's decision emphasized the importance of adhering to the principles laid down by the Supreme Court in CIT Vs. Kelvinator of India Limited, which restricts reopening assessments based on mere changes of opinion.