1982 (12) TMI 65 - AT - Income Tax

Tribunal favors assessee, rejects revenue's sections 147(b) proceedings, upholds previous decisions

The Tribunal ruled in favor of the assessee, overturning the AAC's decision and allowing both appeals. It found that the revenue's initiation of sections ... - Issues:Challenging the validity of proceedings under sections 147(b)/148 initiated by the revenue, Change of opinion by the ITO in reducing development rebate from 25% to 15%, Interpretation of law based on audit objection, Comparison between sections 147(b) and 154 proceedings.Analysis:The issues raised by the assessee in the appeals for the assessment years 1973-74 and 1974-75 revolve around the contention that the proceedings initiated by the revenue under sections 147(b)/148 are legally flawed and not supported by the facts on record. The ITO initially granted a development rebate of 25% during the original assessment proceedings, but later, due to an audit objection, reduced it to 15% under sections 147(b)/148. The audit objection highlighted that the machinery installed by the assessee did not align with the items listed in the Fifth Schedule of the Income-tax Act, 1961.The assessee challenged the legality of the sections 147(b) proceedings before the AAC, who upheld the revenue's actions, stating that the ITO had a reasonable belief that taxable income had escaped assessment based on the audit report. The assessee contended that the revenue's decision was merely a change of opinion and cited precedents to support their argument. The departmental representative defended the revenue's actions, emphasizing the distinction between sections 147(b) and 154 proceedings and the ITO's tentative belief in reopening proceedings.Upon thorough consideration of the submissions, the Tribunal found that the ITO did form an opinion during the original assessment, as evidenced by the adjustment made to the development rebate percentage. The Tribunal disagreed with the departmental representative's arguments and concluded that the audit objection, involving the interpretation of law, was a valid basis for initiating sections 147(b) proceedings. The Tribunal also highlighted a previous decision in the assessee's case, where a similar issue was resolved in favor of the assessee, further supporting their stance.In light of the above analysis, the Tribunal ruled in favor of the assessee, allowing both appeals and overturning the findings of the AAC. The Tribunal emphasized that the revenue's actions in initiating sections 147(b) proceedings were unwarranted and contrary to the law. The Tribunal also clarified the distinction between sections 147(b) and 154 proceedings, affirming that the audit objection based on the interpretation of law could not serve as a valid ground for reopening the assessment.