2008 (3) TMI 56 - HC - Income Tax

Court Allows Writ Appeal, Upholds Validity of Reassessment Notice under Income-tax Act

The court allowed the writ appeal, setting aside the previous order. It held that the reassessment notice issued under Section 148 of the Income-tax Act ... Amalgamation of hospital DHCL with Apollo hospital(assessee) on April 18, 2000 - unabsorbed depreciation of DHCL got vested with assessee after Amalgmation – assessee claim benefit of set off of that depreciation in AY 2000-01 u/s 72A – held that as per amendment to sec. 72A w.e.f. 1.4.2000, hospitals are not allowed to take benefit u/s 72A, is applicable to this case – set off availed by assessee was illegal – reassessment notice is within limitation of 4 years, so reassessment is allowed Issues Involved:1. Legality of the reassessment notice issued under Section 148 of the Income-tax Act.2. Applicability of Section 72A of the Income-tax Act to hospitals.3. Jurisdiction and time limitation for reassessment.4. Alleged change of opinion by the Assessing Officer.5. Responsibility of tax officers for allowing incorrect set-off claims.Detailed Analysis:1. Legality of the reassessment notice issued under Section 148 of the Income-tax Act:The Department issued a notice under Section 148 of the Income-tax Act on 30.3.2005, stating that they had reason to believe that the respondent's income for the assessment year 2000-01 had escaped assessment. The respondent challenged this, but the court found that the notice was validly issued by the Assistant Commissioner of Income-tax, who had jurisdiction. The court held that the reassessment was initiated not due to a mere change of opinion but because the initial set-off was claimed under a misapplication of law.2. Applicability of Section 72A of the Income-tax Act to hospitals:Section 72A deals with the carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, specifically for companies owning an 'industrial undertaking'. The court noted that both the respondent and DHCL are hospitals and not industrial undertakings. The definition of 'industrial undertaking' under Section 72A(7)(aa) includes activities like manufacturing, processing of goods, and generation of electricity, but not hospitals. Therefore, the court concluded that the respondent was not eligible for the set-off under Section 72A.3. Jurisdiction and time limitation for reassessment:The reassessment notice was issued within the prescribed time limit under Section 149 of the Act. The relevant assessment year was 2000-2001, and the notice was issued on 30.3.2005, within the six-year period allowed for cases where the escaped income amounts to one lakh rupees or more. The court affirmed that the Assistant Commissioner had jurisdiction to issue the notice and initiate reassessment.4. Alleged change of opinion by the Assessing Officer:The respondent argued that the reassessment was a result of a change of opinion, which is not permissible. However, the court clarified that the reassessment was necessitated because the respondent had claimed a set-off under a law that was not applicable to them. The initial assessment failed to discuss the set-off under Section 72A, and the reassessment was to correct this oversight, not a mere change of opinion.5. Responsibility of tax officers for allowing incorrect set-off claims:The court expressed concern over how a significant claim of Rs.11,60,29,077/- escaped the Department's assessment, leading to an illegal set-off. The court directed the appellants to initiate disciplinary proceedings against the officers responsible for this oversight and report compliance within twelve weeks.Conclusion:The court allowed the writ appeal, setting aside the order of the learned single Judge. It held that neither the respondent nor DHCL qualified as 'industrial undertakings' under Section 72A, making the set-off claimed for the assessment year 2000-2001 illegal. The reassessment was within the time limit and jurisdiction, and not merely a change of opinion. The court also directed disciplinary action against the responsible tax officers.