TMI Blog2007 (10) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits whereof were eligible for deduction under section 10-A of the Act. The petitioner had also a 100% Export Oriented Unit situated at Mumbai whose profits were eligible for a deduction under Section 10-B of the Act. They also had units at other locations whose profits were not eligible for any deduction either in terms of Chapter III of the Act or in terms Chapter VI-A of the Act. The petitioner had filed its return of income for the assessment year 2001-02 on 31 st October, 2001 in which return it had claimed a deduction under section 10-A in respect of the profits derived from the various undertakings set up in Software Technology Park as also deduction under section 10-B. The petitioner computed its income chargeable under the head of "profits and gains of business or profession" before claiming such deductions at Rs.41,62,40,653/- and in accordance with the methodology prescribed in the form of the return of income deduction under section 10-A and 10-B and claimed Rs.51,12,99,843/- and the loss that was suffered by the petitioner in respect of the operations of its other units aggregating Rs.9,50,59,190/- was sought to be carried forward to a subsequent years. 5. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e units which were not eligible for deduction under sections 10-A and 10-B of the Act have to be first set off the profits of the units which were eligible for a deduction and only the balance profits would be eligible for a deduction under section 10-A. 7. Considering the view taken for the assessment year 2003-2004 the respondent No.1 issued the notice on 13 th March, 2006 and in accordance with the requirement of section 148 of the Act, recorded the reasons on the basis of which he had formed the belief that the petitioner's income chargeable to tax had escaped assessment for the assessment year 2001-2002. These reasons were furnished to the petitioner under the cover of a letter dated 31 st May, 2006. It is contended that on a perusal of the reasons given the substance of the reasoning reveals that the belief that the income has escaped assessment has been formed on the basis of the view taken in the assessment year 2003-04 and further on the basis of a decision of the Bombay Bench of the Tribunal in Navin Bharat Industries v. Deputy CIT [2004] 270 ITR (AT) 1 ; [2004] 90 ITD 1. 8. The petitioner filed its objections to the validity of the reassessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business. The petitioner, in this manner, has set off losses to the extent of Rs.63 crores in assessment years 2004-05 and 2005-06. The reopening, it is set out, was done within the parameters of law and there was valid reason to believe that income has escaped assessment and that the notice is not based on mere change of opinion but as there exists a valid reason. In regular assessment if the income has escaped assessment that does not mean that it cannot be rectified. It is pointed out that this section speaks about total income of the assessee, but the assessee is also speaking about profits and not about the losses of other non 10A units. It is contended that the principles of Navin Bharat Industries Ltd. v. Deputy CIT [2004] 270 ITR (AT) 1 (Bom) ; [2004] 90 ITD 1 is clearly and squarely applicable to the facts of the present case. For all the aforesaid reasons, it is set out that the petition has to be dismissed. 11. The contention urged on behalf of the petitioner is that the notice dated March13, 2006 issued under section 148 of the Act for the assessment year 2001-02 is without jurisdiction of law inasmuch as, no income has escaped assessment and mere change of op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of the profits derived from the concerned units. What the assessing officer is seeking to do is to set off the losses incurred in the units that are not eligible for a deduction against the profits that are eligible for a deduction and thereby reduce the deduction that section 10A and 10B mandates to be allowed. The contention of the petitioner however is that the deduction of the profits must be allowed in its enterity without any such set off and the same is in accordance with the clear wording of the section and in accordance with the method prescribed in the form. The form postulates that the deduction is to be allowed in computing the income of each source chargeable under the head "profits and gains of business or profession". The provision for set off of losses in respect of different sources under the same head and different heads which are contained in sections 70 and 71 come into play only after such computation under the respective heads are made. In support of that reliance is placed on the Judgment in the case of CIT v. Canara Workshops P. Ltd. reported in [1986] 161 320 I.T.R. 320. The Supreme Court in that case held that the losses of an undertaking that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. Quoting the Judgment in Calcutta Discount Co. v. ITO [1961] 41 ITR 191, 201 (S.C.), the Court observed that once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inference of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else - far less the assessee to tell the assessing authority what inferences, whether on facts on law, should be drawn. 17. In CIT v. Kelvinator of India Ltd. reported in [2002] 256 ITR1, the Full Bench of the Delhi High Court was considering section 147 of the Income-tax. Act as amended. The question for consideration was whether on a mere change of opinion by the Income Tax Officer, action under section 147 of the Income-tax. Act can be brought into operation. The Court noted the section as it stood before the amendment. The requirement of the old provision that the Income Tax Officer should have reasons to believe or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asst. CIT reported in Delhi) [2006] 281 ITR 394 (Delhi) ; [2006] 151 Taxman 41 (Delhi). In KLM Royal Dutch Airlines [2007] 292 ITR 49 the Delhi High Court considering the view taken by the Full Bench in Kelvinator of India Ltd. [2002] 256 ITR 1, held that it does not lay down the correct law. In Consolidated Photo and Finvest Ltd. [2006] 281 ITR 394 (SC) the Delhi High Court had held that the principle that a mere change of opinion cannot be the basis for re-opening the completed assessment would have no application where order of assessment does not address itself to aspect which is basis for reopening of assessment. 18. When a challenge is made to a notice under section 148 of the Act, what the Court is required to examine is whether material exists on record for the assessing officer to form the requisite belief. Mere change of opinion cannot form the basis of reopening a completed assessment. 19. In Zuari Estate Development and Investment Co. Pvt. Ltd. [2004] 271 ITR 269, this Court held that the belief entertained by the Income-tax Officer must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or opinion then his predecessor as to how the income should be assessed on the interpretation of the provisions on similar material which was disclosed earlier and on the same set of facts, could have 'reason to believe' to issue a notice for reassessment. As we have noted the various Judgments, it is open to the assessing officer to issue a notice for reassessment provided there are "reason to believe". In the instant case, the reason to believe as pointed out were firstly based on the purported finding that losses incurred in the units which were not eligible for deduction under section 10A and 10B had to be first set off against the profits of the units which are eligible for deduction and only the balance profits would be eligible for deduction under section 10A. In so far as this reason is concerned, it clearly establishes that the second assessing officer has disagreed with the approach of the assessing officer who had made the assessment for the assessment year 2001-02 and had accepted the petitioner's method of accounting. It is not the case of the respondents that any material had been suppressed and / or not disclosed and / or new material had come to the attention and / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd upheld the order of the revisional authority. The ratio of the said Judgment has no application whatsoever to the question that arise for determination in the present proceedings. 24. In the instant case the second assessing officer for the assessment year 2003-2004 on the same set of facts has taken a view which is different from the view taken by the previous assessing officer for assessment year 2001-2002, on the interpretation of the same provisions of law. It is possible in the absence of finality to a question of law, that an assessing officer on the same set of facts could take a different view. Would that attract the provisions of section 148 of the Income-tax. Act because the second assessing officer holds a different view on the interpretation of the provisions. The accounting system is the same. The returns have been filed in the manner prescribed by the form. On these facts because the second assessing officer differs with the opinion of the earlier assessing officer on the interpretation of the provision without any other additional material, is he entitled to assume jurisdiction to issue a notice under section 148. In our opinion, such a belief would amount to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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