Court Invalidates Re-Assessment & Rectification, Upholds Original Assessment

THE COMMISSIONER OF INCOME TAX, COCHIN Versus M/s. HARRISONS MALAYALAM LTD.

THE COMMISSIONER OF INCOME TAX, COCHIN Versus M/s. HARRISONS MALAYALAM LTD. - [2019] 416 ITR 509 (Ker) Issues Involved:
1. Change of previous year due to amalgamation.
2. Claim under Section 80HHC of the Income Tax Act, 1961.
3. Rectification under Section 154 by the Assessing Officer (AO).
4. Re-assessment under Section 147 and issuance of notice under Section 148.

Detailed Analysis:

1. Change of Previous Year Due to Amalgamation:
The judgment addresses the amalgamation of two companies, HCL and MPL, effective from 01.01.1983, and the subsequent change in the previous year for income tax assessment purposes. MPL applied for and was granted a change of the previous year to 30.06.1984, resulting in a 27-month assessment period for the assessment year 1985-86. This change was documented and approved by the relevant authorities.

2. Claim Under Section 80HHC of the Income Tax Act, 1961:
A claim was made under Section 80HHC, which was initially allowed but later rectified by the AO under Section 154. The rectification was based on the premise that the new company, M/s. Harrisons Malayalam Limited, formed post-amalgamation, did not have a previous year to the relevant previous year, thus disqualifying it from claiming benefits under sub-Clause (b) of Section 80HHC(1). The court examined the figures and found that the export turnover of MPL, including the business of HCL treated as its trading division, was correctly computed for the deduction under Section 80HHC(1)(a) and (b).

3. Rectification Under Section 154 by the Assessing Officer (AO):
The rectification under Section 154 was challenged and found to be based on a misconception that a new company was formed post-amalgamation. The court clarified that MPL continued to exist post-amalgamation, and the business of HCL was integrated into MPL. The court referred to the Supreme Court decision in Saraswati Industrial Syndicate Ltd., which established that the transferee company continues to exist post-amalgamation. Consequently, the rectification was deemed unsustainable as it was based on incorrect premises.

4. Re-assessment Under Section 147 and Issuance of Notice Under Section 148:
The AO issued a notice under Section 148 for re-assessment, arguing that HCL did not have assessments for the years 1983-84 and 1984-85, and the income for these years should be assessed in the hands of M/s. Harrisons Malayalam Limited. The first appellate authority and the Tribunal found that re-assessment under Section 147 was not permissible as the facts were already known to the AO when the original assessment was made. The court upheld this view, stating that re-assessment based on a mere change of opinion is not allowed, referencing the cases of Andhra Bank Ltd. and Kelvinator of India Limited.

Conclusion:
The court concluded that the re-assessment under Section 147 was not permissible and the rectification under Section 154 was based on incorrect premises. The original assessment, including the claim under Section 80HHC, was found to be correctly computed. The appeals by the Revenue were rejected, and the decisions of the first appellate authority and the Tribunal were upheld.