Revenue cannot reassess Section 10B deduction claims already decided by appellate authorities using survey evidence

The Bombay HC ruled in favor of the assessee in a case involving reopening of assessment for Section 10B deduction claims. The revenue authority attempted to reassess the petitioner's income to disallow Section 10B deductions for export-oriented undertakings at three units, relying on additional evidence from a survey. The HC held that the revenue acted without jurisdiction in seeking to reassess the same claim that had already been adjudicated by appellate authorities in original assessment proceedings. The court found this action violated the third proviso to Section 147, preventing such reassessment based on survey evidence.

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Issues Involved:
1. Jurisdiction under Article 226 of the Constitution of India.
2. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
3. Eligibility for deduction under Section 10B of the Income Tax Act.
4. Allegations of under-invoicing and illegal mining.
5. Reopening of assessment based on new material facts.
6. Application of the third proviso to Section 147 of the Income Tax Act.
7. Compliance with jurisdictional preconditions for reassessment.

Issue-wise Detailed Analysis:

1. Jurisdiction under Article 226 of the Constitution of India:
The petitioner invoked the jurisdiction of the High Court under Article 226 of the Constitution of India to challenge the notice dated 16.07.2014 issued by the Assistant Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, for reopening the assessment for the Assessment Year 2009-10.

2. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the validity of the notice issued under Section 148 on the grounds that the Assessing Officer acted without jurisdiction and that the reasons for reopening were not justified. The Court noted that the Assessing Officer must have a reason to believe that the income had escaped assessment and that the reopening should not be based on a change of opinion. The Court found that the reasons recorded for reopening were not sustainable in law, particularly concerning the allegations of under-invoicing and illegal mining, which had already been addressed in previous judgments.

3. Eligibility for Deduction under Section 10B of the Income Tax Act:
The petitioner claimed a deduction under Section 10B for its units situated at Amona, Chitradurga, and Codli. The Court observed that the Tribunal had upheld the petitioner's claim for deduction under Section 10B, and this decision was also upheld by the High Court in its judgment dated 07.05.2021. The Court noted that the Tribunal had conducted a detailed analysis and found that the petitioner was engaged in the business of manufacture and production of iron ore, thus eligible for the deduction.

4. Allegations of Under-invoicing and Illegal Mining:
The Court found that the allegations of under-invoicing and illegal mining had been previously addressed. The CIT(A) had revised the assessment and found no basis for the allegation of under-invoicing. The High Court had also held that the observations made in the third report of Justice M.B. Shah Commission and the Supreme Court's declaration in Goa Foundation v. Union of India did not justify the reopening of the assessment.

5. Reopening of Assessment Based on New Material Facts:
The Court examined whether the new material facts found during the survey conducted on 20.03.2014 justified the reopening of the assessment. The Court noted that the new materials were not considered by the Assessing Officer or the appellate authorities, and the third proviso to Section 147 precluded the reopening of assessment on matters that were the subject of any appeal, reference, or revision.

6. Application of the Third Proviso to Section 147 of the Income Tax Act:
The Court emphasized the application of the third proviso to Section 147, which states that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference, or revision. The Court found that the reassessment proceedings initiated based on new materials would result in an anomalous situation where conflicting decisions could arise, thus violating the third proviso to Section 147.

7. Compliance with Jurisdictional Preconditions for Reassessment:
The Court reiterated that the Assessing Officer must comply with jurisdictional preconditions, including having a reason to believe that the income had escaped assessment, ensuring that the reopening is not based on a change of opinion, obtaining valid sanction, and issuing and serving the notice validly. The Court found that these conditions were not met in the present case, particularly concerning the new materials found during the survey which were not part of the original assessment proceedings.

Conclusion:
The petition was allowed, and the impugned notice dated 16.07.2014 issued under Section 148 of the Income Tax Act, 1961, together with the order dated 06.02.2015 dealing with the petitioner's objections, was quashed and set aside. The Court held that the Assessing Officer acted wholly without jurisdiction in seeking to reassess the petitioner's income to disallow the claim for deduction under Section 10B.

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