2025 (8) TMI 1492 - AT - Income Tax

Reassessment under sections 147 and 144B quashed for lack of jurisdiction; section 148 notice and assessment set aside

The Shipping Corporation of India Limited Versus Additional/Joint/Deputy/Assistant Commissioner of Income Tax, National Faceless Assessment Centre, Delhi And (Vice-Versa)

The Shipping Corporation of India Limited Versus Additional/Joint/Deputy/Assistant Commissioner of Income Tax, National Faceless Assessment Centre, Delhi ... 1. ISSUES PRESENTED AND CONSIDERED - Whether reassessment proceedings initiated under section 148 read with section 147 (and completed by an assessment under section 147 r.w.s. 144B) are valid where the Assessing Officer framed the reassessment order without first disposing of the assessee's objections to the reasons recorded for reopening. - Whether the reopening in the absence of fresh/tangible material (as opposed to mere change of opinion or re-appreciation of existing material) satisfies the 'reasons to believe' threshold under section 147. - Whether (reserved but not adjudicated due to jurisdictional outcome) reimbursement of overheads for managed vessels constitutes income from core activities or incidental activities under the tonnage tax provisions (section 115V-1 and Rule 11R), and whether mark-up on such reimbursements or foreign exchange gains should be taxed on merits. 2. ISSUE-WISE DETAILED ANALYSIS - Issue: Jurisdictional validity of reassessment where objections to reasons for reopening were not disposed before framing assessment. Legal framework: Sections 147/148 (reopening), procedural requirement to communicate reasons and allow objections; judicial pronouncements requiring disposal of objections by a speaking order before completing reassessment (principles of natural justice). Precedent treatment: The Court applied and followed the Supreme Court principle in GKN Driveshafts (India) Ltd. that reassessment cannot be based on mere change of opinion and that reasons must disclose tangible material and a live link to formation of belief; it also followed Division Bench decisions holding that an AO must dispose of objections by a speaking order before proceeding (citing decisions of the High Court applying GKN, including Bayer Material Science, KSS Petron, and Fomento Resorts & Hotels). Interpretation and reasoning: The Tribunal examined the record and found that (a) reasons for reopening were furnished on 17/11/2021, (b) the assessee lodged specific objections, and (c) despite repeated reminders the AO framed the reassessment order dated 30/03/2022 without disposing of those objections or passing a speaking order on them. The draft assessment did not show any disposal of objections; the AO's subsequent assertion that the draft order constituted disposal was rejected on the facts. The Tribunal held that assuming jurisdiction to proceed with reassessment before disposing the objections was an exercise in excess of jurisdiction and contrary to the procedural mandate deriving from GKN and subsequent High Court decisions. The Tribunal noted the policy and statutory safeguards (including limitation provisions under section 153) that counsel against permitting piecemeal compliance that would enable harassment. Ratio vs. Obiter: Ratio - The decisive legal conclusion is that an assessing officer must dispose of objections to the reasons recorded for reopening by passing a speaking order before proceeding to reassessment; failure to do so renders the reassessment order without jurisdiction and liable to be set aside. This is applied as the operative holding quashing the notice and assessment order. Conclusions: The reassessment proceedings and the assessment order framed under section 147 r.w.s. 144B were quashed as without jurisdiction for failure to comply with the mandatory procedural requirement of disposing objections to the reasons for reopening. The additional ground raised by the assessee (non-disposal of objections) was allowed and the impugned notice and assessment were set aside. Consequently, appeals on the merits were not adjudicated. - Issue: Whether the reopening was supported by new/tangible material and not a mere change of opinion. Legal framework: Post-amendment section 147 jurisprudence requires 'tangible material' or information leading to a reason to believe escapement of income; mere change of opinion is not sufficient (principles reiterated in GKN). Precedent treatment: The Tribunal referenced Supreme Court and High Court authorities (Kelvinator, Sabh Infrastructure and others) reiterating the limit on reopening powers and the distinction between review and reassessment. Interpretation and reasoning: On the record, the stated reasons reproduced an alleged omission in assessment (non-taxation of foreign exchange gain and treatment of reimbursements), but the Tribunal's dispositive finding rested on the procedural defect. Because jurisdiction was quashed for procedural non-compliance, the Tribunal found it unnecessary to examine whether the reasons themselves constituted fresh/tangible material or merely a re-appreciation of existing material. Ratio vs. Obiter: Obiter with respect to merits - the question whether the stated reasons amounted to fresh/tangible material was not decided on substance and remains open for fresh consideration if validly reopened after compliance. Conclusions: No adjudication on whether the materials justified reopening; the procedural failure precluded merits examination. - Issue: Characterisation of reimbursement of overheads for managed vessels, mark-up addition at 2.50%, and taxation of foreign exchange gain (reserved issues). Legal framework: Tonnage tax provisions (section 115V-1 definitions and Rule 11R), general principles of income characterisation, and prior Tribunal decisions on foreign exchange gains in shipping business. Precedent treatment: The assessee relied on Tribunal precedent treating foreign exchange gain arising in course of shipping business as deriving character from that business; Rule 11R lists specified incidental activities. Interpretation and reasoning: The Tribunal summarized the assessee's submissions that reimbursements of overheads are costs incurred in core shipping operations and that only specified activities in Rule 11R qualify as incidental; however, because the reassessment notice and order were quashed for want of jurisdiction, the Tribunal expressly did not decide these issues on merits. Ratio vs. Obiter: Obiter - the treatment of reimbursements, mark-up and foreign exchange gain were not adjudicated and therefore any discussion is non-decisional. Conclusions: Merits issues (characterisation of reimbursements, mark-up addition, foreign exchange gain) were left undecided because the reassessment was quashed on jurisdictional grounds; revenue's appeal on those merits was dismissed as consequence of the jurisdictional outcome.