IMPORTANT POINT
Section 147 does not allow reopening of assessment merely because Assessing officer has a different interpretation of law on facts that were initially well within his knowledge.

JUDGMENT :

R.K. Agrawal, J.

1. The present appeal has been preferred against the impugned final judgment and order dated 24.02.2006 passed by the High Court of Delhi in W.P.(C) No 14376 of 2005 whereby a Division Bench of the High Court, while allowing the petition filed by the Respondent herein, quashed the notice dated 10.02.2005 issued under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’) and the order dated 17.08.2005 passed by the Income Tax Officer.

2. Brief facts:-

(a) M/s TechSpan India Private Ltd.-the Respondent is a private limited company incorporated under the Companies Act, 1956 and is engaged in the business of development and export of computer softwares and human resource services. It is also relevant to mention here that the Respondent-Company is also eligible for deduction under Section 10A of the IT Act.

(b) On 25.10.2001, the Respondent filed its return of income for the Assessment Year (AY) 2001-02 declaring a loss of Rs. 3,31,301/-. The Respondent, while filing the return for the aforementioned period, has declared its income from two sources, namely, software development and human resource development but claimed expenses commonly for both. It also claimed deduction under Section 10 A of the IT Act for the income from the software development. The said return was accepted and accordingly intimated to the Respondent.

(c) The return was selected for regular assessment under Section 143(3) of the IT Act and a show cause notice dated 09.03.2004 was issued to the Respondent to show cause as to why the expenses claimed with regard to the allocation of common expenses between the two heads, viz., software development and human resource development do not reveal any basis for such allocation. The issue was duly contested and decided vide order dated 29.11.2004 and the proceedings ended with a rectification of the Assessment Order under Section 154 of the IT Act while arriving at an income of Rs. 31,63,570/- which was fully set-off against the loss brought forward and the income was assessed as ‘Nil’ for the AY 2001-2002.

(d) Further, on 10.02.2005, a Notice was served upon the Respondent by the Revenue for re-opening the assessment under Section 148 on the ground that the deduction under Section 10A of the IT Act has been allowed in excess and the income escaped assessment works out to Rs. 57,36,811/- in the original assessment. The Respondent filed a detailed reply objecting to the re-assessment. However, by order dated 17.08.2005, the objections were rejected and reassessment was approved by the Revenue.

(e) Being aggrieved, the Respondent challenged the above said show cause notice dated 10.02.2005 as well as the order dated 17.08.2005 before the High Court by filing a Writ Petition (C) No. 14376 of 2005. Vide judgment and order dated 24.02.2006, the High Court set aside the show cause notice dated 10.02.2005 as well as the re-assessment order dated 17.08.2005.

(f) Being aggrieved, the Revenue has filed this appeal before this Court.

3. Heard Mr. Rajesh Ranjan, learned counsel for the Appellant and Mr. C.S. Agarwal, learned counsel for the Respondents and perused the records.

Point(s) for consideration:-

4. The only point for consideration before this Court is whether the re-opening of the completed assessment is justified in the present facts and circumstances of the case?

Rival contentions:-

5. Learned counsel for the Appellant contended that the Assessing Officer (AO) was well within his powers to issue the show cause notice under Section 148 as the deduction that was allowed under Section 10A was in excess and had escaped assessment for which re-assessment proceedings can be issued under Section 147. He further contended that the High Court has erroneously held that the re-assessment proceedings initiated under Section 147 of the Act are illegal and not sustainable in the eyes of law. Learned counsel finally contended that the impugned judgment of the High Court is erroneous in the ey