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May 25, 2022

Reopening of the assessment is conditioned on the availability of tangible material.

by CA Shivam Jaiswal in Income Tax

Reopening of the assessment is conditioned on the availability of tangible material.

Facts and Issue of the Case

This appeal is preferred by  the assessee against the order dated    31.08.2021   of    Learned   Commissioner   of    Income    Tax ( Appeals)- 3 , Gurgaon [ in short  the  ‘ Ld.CIT( A)’],  passed  u/s 250( 6) of the Income Tax Act, 1961 ( in short ‘the Act’) for the assessment year 2012-13. The  assessee is the manufacturer  of   Aluminum  Extrusion  having  its  unit- II at Baddi, Himachal Pradesh. The return declaring total income of Rs.4 , 83, 83 ,620 /- was originally filed on  28 . 09. 2012 after claiming deduction of Rs. 5 ,75 ,64 , 789 /- u/s 80 IC of the  Act. The  assessment  was   completed   u/s   143( 3 )   of   the   Act   on 27 . 03 . 2015 at an income  of  Rs. 8 ,07 , 03 , 620 /-  after  making an addition of Rs. 3 ,23 ,20 ,000 /- on account of share of assessee company in industrial property by making the calculation of the share of the assessee company at 20 %.

Subsequently,   notice    u/s    148    of    the    Act dated 10 . 03 . 2017 was issued. In  response to  the  notice issued u/s  148  of  the  Act, the assessee   intimated   the    Assessing   Officer   ( AO)   that the return  already  filed  u/s  139 ( 1 )  of   the   Act  may   be treated  as return  in  response   to   notice   u/s   148   of   the Act   and   also requested  the  AO  to  supply  the  copy  of reasons recorded for reopening   of  the   case.      Thereafter, the  assessee   f iled objections against the  issuance of  notice u/s 148 of the Act which  were  disposed  off  by  the  AO rejecting the assessee’ s objection against the  issuance  of notice u/s 148 of the Act. Thereafter, the assessment was f inalized  in  terms  of  section 147   r.w.s.  143 ( 3)   of   the   Act after making a  disallowance  of Rs. 4, 09 ,45 ,317 /- being alleged  excess  claim  of  deduction u/s 80IC of  the Act. Another  addition  of  Rs. 48, 43,000 /-  was made   on    account of  difference  in  share  of   the   assessee company   in industrial property.   The   assessment   was completed at Rs.12, 64, 93 ,000 /-.

Aggrieved,  the   assessee  carried  the   matter  before the Learned First Appellate Authority challenging the invocation of jurisdiction  u/s  147  of  the  Act  on  legal grounds. The assessee also challenged the disallowances/additions on merits. The Ld.CIT( A) dismissed the  assessee’ s legal challenge to  the  invocation  of  jurisdiction  u/s  148  of  the Act. On merits,  the Ld. CIT( A) upheld  the  addition  on account of difference in the share percentage in industrial property. The Ld. CIT( A)  also  upheld  the  disallowance  made u/s 80IC of the Act. Aggrieved,    the    assessee    has    now    approached this Tribunal and has challenged the  action of  the  Learned First Appellate Authority.  by raising following grounds of appeal:

  • That the Ld. Commissioner of Income Tax (Appeals) has erred in law in upholding the reopening of the already completed assessment by issuance of notice u/s 148 of the Act without complying  with the mandatory statutory requirements and as such the order passed is illegal, arbitrary and unjustified.
  • That there was no reason to believe that the income already assessed under section 143(3) had escaped assessment   and   as   such   the assessment   framed and    upheld        by the Commissioner of Income Tax(Appeals) based on a mere change of opinion is illegal, arbitrary and unjustified.
  • That the Ld. .Commissioner of Income Tax (Appeals) has erred in holding that the notice issued on the basis of an audit objection is a valid one which is contrary to the  settled legal position and as such the order passed is illegal, arbitrary and unjustified.
  • That the mechanical approval given by the Ld. Principal Commissioner of Income Tax does not tantamount to application of mind and  as such the reopening based on such a mechanical approval is illegal, arbitrary and unjustified.
  • Without prejudice to the above, the Ld. Commissioner of Income tax (Appeals) has erred in upholding the addition of Rs.48,43,000/- taking share in the property at 23% as against 20% which is arbitrary and unjustified.
  • That the Ld. Commissioner of Income Tax (Appeals) has further erred in law as well as on facts in upholding the addition  of Rs.4,09,46,317/- made by restricting  the  deduction claimed under section 80IC to 30% as against 1 00% claimed by the assessee which is arbitrary and unjustified.
  • That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.
  • That the order of the Ld.CIT(A) is erroneous, arbitrary, opposed to the facts of the case and thus untenable.”

At     the    outset    the    Ld.    Authorized Representative submitted that  ground   Nos.3, 4 and 5 were not being pressed.  Accordingly, these  three  grounds are dismissed as not pressed. The     Ld.    Authorized    Representative    submitted that ground Nos. 1 and  2  challenge  the  reopening of  the already completed  assessment  by  issuance  of   notice   u/s 148 of the Act,  whereas  ground  No. 6 challenges  the upholding of addition on merits. The Learned Authorized Representative submitted that the assessee company had commenced   its operations   in    Baddi   plant   during   f inancial year 2004 – 05 relevant  to assessment year 2005 – 06 and had availed 100 % deduction u/s 80 IC of the Act for assessment years 2005 – 06 , 2006- 07 and  2007 – 08 . Thereafter, due to substantial expansion in the financial year  2008 – 09 ,  the  assessee  had also claimed 100 % deduction in assessment year 2009 – 10 onwards. It was submitted that the addition to plant & machinery had started in financial year 2006 – 07 and further additions and deployment of additional working capital required to use the enhanced capacity was done during financial year  2008 – 09  which  resulted  in  enhancement  of the production/output from assessment year 2008 – 09 onwards. It was submitted that even the Department of Industries,   Himachal    Pradesh     vide     certificate     dated 17 . 12 . 2008 had certified the addition /expansion during financial year 2008 – 09 which supports the assessee’ s contention of substantial expansion during that year. It was submitted that, therefore, in view  of the  substantial expansion carried out in assessment year 2009 – 10 , the assessee was eligible for claim of  deduction u/s  80 IC  of  the Act @ 100 % in the captioned assessment year  also  ( i.e.  the year under appeal). The Learned Authorized  Representative also drew our attention to the order of the ITAT Chandigarh Bench in assessee’ s own case for assessment years  2010 – 11 and 2013- 14 wherein the  ITAT  had  held  that  the  assessee was  entitled to  claim  deduction @  100 %  of  its  eligible  profits in view  of the  substantial expansion undertaken   by following the law laid down in Civil Appeal No. 1784 of 2019 dated 20 .02 .2019 in the case of Pr. CIT, Shimla  Vs.  M/s Aarham Softronics by the Hon’ ble Apex Court. It was submitted that since the  ITAT  had  upheld  the  assessee’ s claim for deduction in subsequent assessment year i.e. assessment year 2013 – 14 , the assessee’ s claim could not be negated in assessment year 2012-13 .

Observation of the court

Court has heard the rival submissions and have  also perused the material available on record. We have also gone through the copy of reasons recorded for reopening of the case and have also  gone  through  the  objections raised  by the assessee in this regard as well as the order of the AO rejecting the objections. The basic question for us to consider is whether the assessee’ s allowance of claim of deduction u/s 80 IC of the Act can  be  revisited  by  issuing notice u/s 148 of the Act especially when there has been no change in facts and circumstances of the  case.  The  primary facts are not in dispute. The assessee company started its production in assessment year 2005 – 06 ,  and thus, assessment year 2005- 06  was the initial assessment year for the purpose of  claim  of  deduction  u/s  80 IC  of  the  Act  and the assessee was eligible for such deduction @ 100 % up to assessment  year 2009 – 10.  Thereafter, the  assessee undertook substantial expansion and it  is the  assessee’ s claim that the substantial expansion  took place  in assessment year 2009 – 10 and, therefore, the assessee was eligible for claim of deduction u/ s  80 IC  of  the  Act  again  @ 100 % from assessment year 2009 – 10 to  assessment  year 2013 – 14. The assessee’ s claim, both  in   assessment  years 2010 – 11 and 2012- 13 ( i. e.  the  year  under  consideration), was initially allowed by the AO by accepting the  assessee’ s claim u/s 143 ( 3 ) of the Act. However, later  on,  the  AO reached a conclusion that the initial assessment year with respect to  substantial expansion was  assessment year 2007 – 08 . The  assessments for  assessment  years  2010 – 11  and 2012 – 13 were subsequently reopened and the appeal of the assessee for assessment year 2010 – 11 was allowed on merits by following the judgment of the Hon’ ble Apex  Court  in  the case of Pr.CIT, Shimla Vs. M/s Aarham Softronics in Civil Appeal No.1784 of 2019 dated 20 . 02. 2019 . Similarly,, the assessee’ s appeal for assessment year 2013 – 14 was also allowed by Coordinate Bench of the ITAT Chandigarh. Both these appeals were decided in favour of the assessee vide order dated 14 . 06. 2019 in ITA  Nos. 122  & 123 / Chd/2019 . The Department has not gone  into  further  appeal  against the orders of the Tribunal in assessee’ s own case in assessment years 2010 – 11 and  2013 – 14  as  aforesaid.  Thus for all practical purposes, the Department has accepted the assessee’ s claim that  it  was  eligible  for  deduction  u/s  80 IC of  the  Act  @  100 %  both  in  assessment  year  2010- 11  as  well as in assessment year 2013 – 14 .

In  the  year  under appeal i.e.  assessment year 2012 – 13 , although the  reasons  for  reopening  were  recorded  in March, 2017  and  the  assessment  order  u/s  147  r.w.s.  143 ( 3) of the Act was passed on 27. 11 .2017, a perusal of  the reasons would  show  that  the  AO  had  no  fresh  material before him to establish   that  there   was   any   tangible material  in  his possession or that there  was   any suppression  of  any material   information  on   the   part   of the assessee  which would  justify  the  invocation  of jurisdiction u/s 147 of the Act especially when the AO had already examined the claim of the assessee regarding  deduction  u/s  80 IC  of  the  Act  in the original assessment order passed u/s 143 ( 3) of the Act However,  inspite  of  assessee’ s challenge  to  the  assumption of jurisdiction u/s 148 of the Act, the  Ld. CIT( A)  chose  to ignore its submissions and went ahead with  upholding  the same totally ignoring the fact that when he had passed the impugned order on 31. 08 .2021, the order  of  the  Tribunal dated 14 .06 . 2019 for assessment  years  2010 – 11  and  2013 – 14 had already  been  pronounced  wherein  the  assessee’ s claim for deduction u/s 80 IC of the Act @ 100 % had been accepted by the Tribunal and also by the  Department  in  as much as there was no further  appeal  by  the  Department against this order of the Tribunal. If the assessee’ s claim for deduction is held to  be  allowable  in  assessment  year  2013 – 14 , there is no reason why the assessee’ s claim  is  not allowable in assessment year 2012 – 13 ( i. e. the year under appeal) when the Statute specifically provides allowance of claim of deduction @  100 %  for  the  initial  f ive  assessment years. As far as the  issue  of having  multiple  initial assessment years for the purpose of claim of deduction is concerned, the same stands having attained f inality by  the order of the Hon’ ble Apex Court  in the case  of   Pr.CIT, Shimla Vs. M/s Aarham Softronics ( supra) and there is no dispute about that. It is also to be mentioned again, even at the cost of repetition, that the AO himself had accepted the assessee’ s claim for deduction @ 100 % on substantial expansion in the original assessment proceedings and, therefore, without recording any cogent reason, which would justify the reopening, without pointing out  any  difference in the facts and circumstances of the case and  without establishing that there has been some fraud or misrepresentation on part of the assessee, the claim once allowed cannot be revisited.

Section 147 of  the  Act  authorizes the re- opening of any assessment of  a  previous year.  Section 148 ,  which contains the  conditions  for  re- opening  assessments, including the limitation period within which notices can be issuedAs  to  what can  be  the  valid  grounds for  re- opening  an assessment    has    been    the    subject    matter of     several decisions.   In    Income    Tax    Officer,   Calcutta &    Ors.  vs. Lakhmani   Mewal   Das   reported   in    1976 ( 3 ) SCR    956 ,     the Hon’ ble  Apex  Court  held  that  the  “ reasons to believe” must be based on objective materials, and on a reasonable view. It   is  therefore,  clear  that   the   basis   for   a   valid re- opening  of  assessment  should   be   availability   of tangible material, which can lead the AO to scrutinize the returns for the previous assessment year in question, to determine, whether a notice under Section 147 is called for. Accordingly, in  view of  the  settled judicial precedents as noted above, we  cannot  endorse  the reopening  of  the assessment  in  the present   case. Moreover,  it   is   our considered  view  that  reopening  for the captioned year at this juncture which also now runs against the order passed by the Tribunal cannot be  upheld. We uphold the entire re- assessment  proceedings to  be  bad in  law.  Accordingly,  Court allowed  ground  Nos.1  and  2  raised by   the  assessee  and  hold that    the    reopening    vis- à- vis the assessee’ s claim for deduction u/s 80 IC of the  Act  was  bad  in  law  and  deserves to be set aside.


The court partly allowed the appeal of the assesse.


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