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PRINCIPAL COMMISSIONER OF INCOME TAX 2 Versus LINCOLN PHARMACEUTICALS LTD

2015 (11) TMI 1380 - GUJARAT HIGH COURT

Reopening of assessment - whether the issuance of notice under section 148 which was issued as per provisions available as per explanation 2(c)(iii) and 2 (c)(iv) given below section 147 of the Income Tax Act ? - Held that:- The assessee remained an SSI Unit for the years under consideration. In the aforesaid premises, it is evident that the Assessing Officer has proceeded on an erroneous assumption that the respondent assessee does not meet with the requirement of an SSI unit when the record cl .....

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essment for the assessment years under consideration, the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act by issuing notice under section 148 of the Act is clearly without any authority of law.

In the light of the above discussion, while disagreeing with the reasons recorded by the Tribunal for holding that the reopening of assessment was bad in law, for the reasons recorded hereinabove, the court is in agreement with the final conclusion a .....

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me Tax Act, 1961 (hereinafter referred to as the Act ) has challenged the common order dated 5.9.2014 made by the Income Tax Appellate Tribunal, C Bench, Ahmedabad (hereinafter referred to as the Tribunal ) by proposing the following question, stated to be a substantial question of law:- Whether the Appellate Tribunal has erred in law and on facts by not upholding that the issuance of notice under section 148 which was issued as per provisions available as per explanation 2(c)(iii) and 2(c)(iv) .....

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2. In the tax appeals arising out of the cross objections, the following question of law has been proposed: Whether the Appellate Tribunal has erred in law and on facts in holding that the issuance of notice under section 148 which was issued as per provisions available as per explanation 2(c)(iii) and 2 (c)(iv) given below section 147 of the Income Tax Act ? 3. The assessment years are 2004-05 and 2005-06 and the relevant accounting periods are the financial years 2003-04 and 2004-05. The resp .....

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see. Subsequently, the Assessing Officer issued notice under section 148 of the Act for assessment year 2003-04 on 12.06.2009, for assessment year 2004-05 on 17.3.2009 and for assessment year 2005-06 also on 17.3.2009 by recording the following reasons :- An industrial undertaking commencing operation on or after 01.04.1995 can claim deduction under section 80IB only if it is a small scale industrial undertaking. The assessee company commenced operation after 15.09.1997 i.e. after 31.03.1995. As .....

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003-04, ₹ 4,80,33,282/- as on 01.04.2003 i.e. at the beginning of the Financial Year 2003-04 relevant to AY 2004-05, and ₹ 4,97,88,775/- as on 01.04.2004 i.e. at the beginning of the Financial Year 2004-05 relevant to AY 2005-06 which exceeded the limit fixed for investment in Plant and Machinery and thereby the assessee ceased to be an SSI unit and thus not eligible for deduction under section 80IB of the Act. However, the assessee claimed and was allowed deduction under section 80I .....

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essee went in appeal before the Commissioner of Income Tax (Appeals) mainly on two grounds; firstly on the ground that the Assessing Officer had reopened the assessment and thereby withdrawn the deduction as granted under section 80IB of the Act on the ground that the assessee was not a small scale industrial undertaking, whereas the assessee, in fact, was a small scale industrial undertaking and, therefore, the deduction under section 80IB was rightly allowed, and secondly, on the ground that t .....

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it by the Commissioner (Appeals). The Tribunal by the impugned order allowed the cross objections filed by the assessee by holding that the reopening of assessment by the Assessing Officer was without authority of law. In view of the decision taken on the jurisdictional ground, the Tribunal dismissed the appeals filed by the revenue for all the three years. 5. Insofar as assessment year 2003-04 is concerned, against the impugned order, the revenue had preferred appeal which came to be dismissed .....

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ions filed by the assessee before the Tribunal. 7. Mr. M. R. Bhatt, Senior Advocate, learned counsel for the appellant submitted that in relation to the assessment years in question, the only embargo is that reopening of assessment cannot be based upon change of opinion. Referring to the impugned order, it was pointed out that the sole reason assigned by the Tribunal for setting aside the reopening of assessment is that the Assessing Officer had failed to bring on record any new tangible materia .....

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erein the court had expressed the opinion that as long as there is some tangible material on the basis of which the Assessing Officer can form a belief that income chargeable to tax has escaped assessment, it would be permissible to reopen the assessment in exercise of the powers under section 147 of the Act, particularly after the amendments made with effect from April 1, 1989. Such tangible material need not be alien to the record. Mr. Bhatt submitted that, therefore, the Tribunal is not alive .....

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ted the attention of the court to the reasons recorded by the Assessing Officer for reopening the assessment. It was submitted that the sole reason for reopening the assessment is that the respondent assessee did not satisfy the requirements for availing of the benefit of a small scale industrial unit. It was submitted that the record of the case before the Assessing Officer clearly shows that being a pharmaceutical industry, the limit of expenditure incurred on plant and machinery was ₹ 5 .....

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uisite belief that income chargeable to tax has escaped assessment. It was pointed out that allowability of deduction under section 80IB of the Act had been gone into at the time of the original assessment to submit that the reopening is, therefore, based on a mere change of opinion. It was submitted that in these circumstances, the Tribunal rightly held that the reopening of assessment itself was bad in law. It was, accordingly, urged that the impugned order being just, legal and proper does no .....

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e ground that the same was not based upon any material external to the record and that in the absence of any new tangible material coming to his notice, the Assessing Officer was not justified in reopening the assessment. Insofar as the reasoning given by the Tribunal that the Assessing Officer was not justified in reopening the assessment as there was no new tangible material on record which had come to his notice subsequent to the completion of assessment is concerned, the same is clearly cont .....

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circumstances, the reasoning assigned by the Tribunal for setting aside the reopening of assessment is clearly not in consonance with the principles propounded in the above decision rendered by this court. 10. In the aforesaid premises, this court would be required to independently examine as to whether on the reasons recorded, the Assessing Officer was justified in reopening the assessment for the assessment years under consideration. 11. In this regard, a perusal of the reasons recorded for r .....

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and machinery and thereby the assessee ceased to be an SSI Unit and was thus not eligible for deduction under section 80IB of the Act. However, the assessee had claimed deduction under section 80IB of the Act of ₹ 37,13,631/- and ₹ 44,22,737/- for assessment year 2004-05 and 2005-06 respectively and thus income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. 12. While it is true that the satisfaction of the Assessing Officer for the purpose of r .....

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e under section 148 of the Act. 13. In Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers (P.) Ltd., (2007) 291 ITR 500, the relevant tests for examination as to whether the reasons recorded indicate whether the authority was in possession of any material which would permit him to hold a belief so as to form an opinion or have reason to believe that any income has escaped assessment have been stated thus :- The word reason in the phrase reason to believe would mean cause or jus .....

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of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the material would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] and Raymond Woollen Mills Ltd. v. ITO [1999 (236) ITR 34 (SC)] 14. Looked in th .....

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him from reopening the assessment, if such material is sufficient for him to hold the requisite belief that income chargeable to tax has escaped assessment. It is however always open to the assessee to question the existence of such belief. If the assessee can demonstrate that in fact the Assessing Officer did not have any reason to believe, the exercise of authority conferred on him would be ultra vires the provisions of law and would be an abuse of such authority. It is true that while record .....

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. 15. As is manifest on a perusal of the reasons recorded, the formation of belief by the Assessing Officer that income chargeable to tax has escaped assessment is based on the material on record. The ground for reopening is that the assessee though not an SSI unit had claimed benefit under section 80IB of the Act. It would, therefore, be necessary to examine as to whether on the material available on record, the Assessing Officer could have formed the belief that the assessee was not a small sc .....

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by the assessee at all times was within the limit for plant and machinery for the assessment years under consideration. A perusal of the table showing the calculation of plant and machinery as on the 31st March of each year which has been reproduced in the order of the Commissioner (Appeals) as well as the impugned order passed by the Tribunal, clearly shows that the investment made in plant and machinery was within the limit prescribed for an SSI unit. As pointed out by the learned counsel for .....

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