2021 (4) TMI 1115 - AT - Income Tax

Tribunal limits deduction but invalidates assessment due to reopening jurisdiction.

Samrat Plywood Ltd. Versus Assistant Commissioner of Income-Tax

Samrat Plywood Ltd. Versus Assistant Commissioner of Income-Tax - [2021] 87 ITR (Trib) 102 (ITAT [Chand]) Issues Involved:1. Validity of the jurisdiction assumed by the Assessing Officer for reopening the case under section 147 of the Income-tax Act.2. Correctness of the quantification of the assessee's entitlement for deduction under section 80-IC.Analysis of Judgment:1. Validity of Jurisdiction for Reopening under Section 147:The assessee challenged the reopening of the case under section 147 on three grounds: (i) there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, thus reopening after four years was not justified; (ii) the reopening was based on a 'change of opinion' by the successor Assessing Officer; and (iii) absence of fresh tangible material justifying the reopening.The Tribunal held that since the original return of income was processed under section 143(1) and not under section 143(3) or section 147, the 'first proviso' to section 147, which restricts reopening after four years, was not applicable. Therefore, the challenge on this ground was rejected.Regarding the 'change of opinion,' the Tribunal noted that since the return was processed under section 143(1), there was no formation of any 'opinion' by the Assessing Officer earlier. Thus, the claim of reopening based on a 'change of opinion' was also rejected.However, the Tribunal found merit in the argument that the reopening was not backed by any fresh tangible material. The reasons recorded for reopening were based on details already available on record and not on any new information. Citing judicial precedents, the Tribunal held that reopening in the absence of fresh tangible material was not justified and constituted an arbitrary exercise of power. Consequently, the Tribunal quashed the assessment framed under section 143(3) read with section 147 for want of jurisdiction.2. Correctness of Quantification of Deduction under Section 80-IC:Despite quashing the reopening, the Tribunal addressed the merits of the case to avoid multiplicity of litigation. The core issue was whether the initial assessment year for the purpose of section 80-IC should be the year in which the business commenced (assessment year 2007-08) or the year in which the deduction was first claimed (assessment year 2008-09).The Tribunal referred to the definition of 'initial assessment year' in section 80-IC(8)(v), which specifies it as the year in which the undertaking begins to manufacture or produce articles or things or commences operations. Thus, the initial assessment year for the assessee's eligible unit was correctly identified as assessment year 2007-08.Furthermore, the Tribunal examined section 80-IC(7) read with section 80-IA(5), which mandates that for the purpose of determining the quantum of deduction, the eligible business should be treated as the only source of income from the initial assessment year and for every subsequent year. Consequently, the losses incurred in the initial assessment year (2007-08) had to be set off against the profits of the eligible unit for the year in question (2008-09), thereby restricting the deduction to Rs. 10,85,588.Conclusion:The Tribunal upheld the Assessing Officer's restriction of the deduction under section 80-IC to Rs. 10,85,588 but quashed the assessment for lack of jurisdiction due to the invalid reopening under section 147.