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2015 Supreme(Bom) 577
HIGH COURT OF JUDICATURE AT BOMBAY
M.S. SANKLECHA & G.S. KULKARNI, JJ.
GKN Sinter Metals Ltd. – Appellant
Versus
Ramapriya Raghavan, Assistant Commissioner of Income-tax, Circle 2(1) – Respondent
Writ Petition No. 2639 of 2007
Decided On : 06-01-2015
For the Petitioner:F.V. Irani, Jitendra Jain, Advocates
For the Respondent:P.C. Chhotrary, Advocate
The main legal point established in the judgment is the requirement of 'reason to believe' for re-opening an assessment under Section 147/148 of the Income Tax Act, 1961, and the need for tangible material to form the basis of such re-opening.
Headnote:
Income Tax - Re-opening of Assessment - Section 148 - Section 80IA/80IB - [KEYWORD] - [SUBJECT] - [ACT SECTION LIST] - The judgment discusses the re-opening of assessment under Section 148 of the Income Tax Act, 1961, challenging the notice dated 14th March, 2007. The court analyzed the provisions of Section 147/148 of the Act and emphasized the requirement of 'reason to believe' for re-opening an assessment. The court highlighted the importance of full and true disclosure of material facts by the assessee and the finality attached to an assessment order. The judgment also emphasized the distinction between the power to review and the power to reassess, and the need for tangible material to form the basis of re-opening an assessment. The court held that the impugned notice was issued on a change of opinion, which did not satisfy the test of 'reason to believe' on the part of the Assessing Officer, and therefore, set aside the notice.
Fact of the Case:
The Petition challenges the notice dated 14th March, 2007 issued under Section 148 of the Income Tax Act, 1961, seeking to re-open the assessment for the Assessment Year 2002-03. The Petitioner had claimed deduction under Section 80IA/80IB of the Act for its manufacturing units situated in a backward region. The Assessing Officer had raised queries regarding the allocation of expenses, and the Petitioner had responded to the same during the regular assessment proceedings. Subsequently, the impugned notice was issued based on a dis-proportionate allocation of expenses, leading to the alleged escapement of income.
Finding of the Court:
The court found that the impugned notice was issued on a change of opinion, which did not satisfy the requirement of 'reason to believe' on the part of the Assessing Officer. The court emphasized the finality attached to an assessment order and the need for tangible material to form the basis of re-opening an assessment. It held that the Assessing Officer had formed an opinion during the regular assessment proceedings, and the impugned notice was without jurisdiction. Therefore, the court set aside the notice.
Issues: The issues revolved around the validity of the impugned notice issued under Section 148 of the Income Tax Act, 1961, and whether it was based on a change of opinion or tangible material, satisfying the requirement of 'reason to believe' on the part of the Assessing Officer.
Ratio Decidendi: The court emphasized the requirement of 'reason to believe' for re-opening an assessment under Section 147/148 of the Act, and the need for tangible material to form the basis of such re-opening. It held that the impugned notice was issued on a change of opinion, which did not satisfy the test of 'reason to believe' on the part of the Assessing Officer, and therefore, set aside the notice.
Final Decision: The court set aside the impugned notice dated 14th March, 2007 issued under Section 148 of the Income Tax Act, 1961, as it was issued on a change of opinion and did not satisfy the requirement of 'reason to believe' on the part of the Assessing Officer.
M.S. Sanklecha, J.
1. This Petition under Article 226 of the Constitution of India challenges the notice dated 14th March, 2007 issued under Section 148 of the Income Tax Act, 1961 (the Act) by the Assessing Officer, seeking to re-open the assessment for the Assessment Year 2002-03.
2. The Petition was admitted on 18th December, 2007. At the time of admission, the impugned notice dated 14th March, 2007 was stayed.
3. The brief undisputed facts leading to this Petition are as under:—
(a) The Petitioner has three manufacturing units - one located at Pimpri and two at Ahmednagar. At all times relevant to this Petition, two manufacturing units of the Petitioner were located at Ahmednagar were entitled to the benefit of tax under Section 80IA/80IB of the Act as they were situated in a backward region;
(b) On 30th October, 2002, the Petitioner filed its Return of Income for the Assessment Year 2002-03, declaring total income of Rs.6.89 Crores. In its Return of Income, the Petitioner claimed deduction under Section 80IA/80IB of the Act in respect of two manufacturing units situated at Ahmednagar aggregating to Rs.2.86 Crores;
(c) Along with its Return of Income, the Petitioner had filed two Auditor Certificates both dated 26th October, 2002 in respect of its two manufacturing units situated at Ahmednagar, claiming the benefit of Section 80IA/IB of the Act. The Auditor's certificate was given in terms of Section 80IA(8) of Act as then existing for claiming the deduction. Along with the Auditor's report, the Petitioner had also filed a note indicating the manner in which it had worked out its claim for deduction under Section 80IA of the Act. The note indicated that the expenses were allocated between the three manufacturing units on its turnover, actual basis and time spent depending upon the nature of expenses ;
(d) During the regular assessment proceedings, the Assessing Officer by a communication dated 27th December, 2004 inter alia sought the following information/clarification in respect of the working of its claim for deduction under Section 80IA/IB of the Act:
"13 From the working of deduction u/s. 80IA in respect of Ahmednagar unit, it is soon the profit of this unit includes interest of Rs.17.14 lakhs. As interest not derived from such business of the undertaking, please explain why same should not be excluded for the profit of Industrial Undertaking.
14. File the Profit and Loss Account of each unit giving the details of expenditure actually incurred and also the common expenditure allocated against and also give the basis for allocating the expenditure.
15. Details of Power and Fuel unit wise.
16. Please submit depreciation chart as per unit wise.
17. Details of inventories unit wise.
18. Details of stores consume unit wise.
19. Details of consumption of tools/materials etc. unit wise."
(e) The Petitioner by its letter dated 25th January, 2005 responded to the queries raised by the communication dated 27th December,2004. In its response dated 25th January, 2005 the Petitioner in particular gave details of the manner in which the expenses had been allocated amongst the three manufacturing units i.e. two in the backward region and one at Pimpri;
(f) On 9th March, 2005, the Assessing Officer passed an order for Assessment Year 2002-03 in regular assessment proceedings under Section 143(3) of the Act. The income was determined at Rs.7.13 Crores while accepting the Petitioner's claim for deduction under Section 80IA/IB of the Act of Rs.2.08 Crores in the order dated 9th March, 2005;
(g) On 14th March, 2007, the impugned notice under Section 148 of the Act was issued by the Assessing Officer, seeking to re-open the assessment for the Assessment Year 2002-03. The relevant portion of the letter dated 6th August, 2007 containing the reasons recorded in support of the impugned notice dated 14th March, 2007 reads as under:
"2 Assessment i
