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.