COMMISSIONER OF INCOME TAX II vs. PANASONIC ENERGY INDIA CO. LTD

Facts

The Commissioner of Income Tax-II, Baroda, has appealed against a common order of the ITAT, Ahmedabad Bench, dated April 24, 2014. The ITAT's order pertained to two appeals: ITA No. 1506/Ahd/2010 for Assessment Year (AY) 1995-96 and ITA No. 1507/Ahd/2010 for AY 1997-98. The assessee, Panasonic Energy India Co. Ltd., filed its returns for these AYs. The Assessing Officer (AO) selected the cases for scrutiny, made additions to the assessee's income, and initiated proceedings under Section 271(1)(c) of the Income Tax Act. The assessee appealed to the CIT(A), who partly allowed the appeals. Dissatisfied, the assessee further appealed to the ITAT, which passed the impugned order. The revenue is now challenging the ITAT's order.

Held

The Tribunal, in its impugned order, relied on the Gujarat High Court's decision in Gujarat Power Corporation Ltd. (Supra) and a subsequent Supreme Court decision in Commissioner of Income Tax vs. Kelvinator of India Ltd. [2010] 320 ITR 561. The Supreme Court in Kelvinator held that the concept of 'Change of Opinion' by the AO does not cease to exist after amendments to Section 147. While the AO needs a reason to believe that income has escaped assessment, this does not permit reopening based on a mere change of opinion, and the concept of 'Change of Opinion' acts as an in-built test against abuse of power. In the present case, the Tribunal found that a detailed inquiry was made while allowing the assessee's claim under Section 80HHC during the original assessment, and the AO had allowed the claim after verifying the assessee's contentions. The Tribunal concluded that once a query was raised, answered satisfactorily by the assessee, and the AO gave a clear finding in favor of the assessee, it was not open for the AO to reopen the assessment. Therefore, the questions raised by the revenue were answered against the revenue, and the appeals were found to be sans merit.

Key Issues

The Tribunal had to decide the following questions of law: 1. Whether, on the facts and in the circumstances of the case, the ITAT was justified in holding the reopening of assessment under Section 147 as invalid and quashing it, by relying on the Gujarat High Court's decision in Gujarat Power Corporation Ltd. (350 ITR 266), without considering paragraph 48 of that judgment which states that scrutinizing or accepting one parameter of a Section 80HHC deduction does not necessarily mean the entire claim was verified and accepted by the AO? 2. Whether, on the facts and in the circumstances of the case, the ITAT was justified in not appreciating that the AO had a bona fide belief of under-assessment by calculating a specific amount of excess allowance, which is the sole requirement for a valid reopening, and if the reason for believing in under-assessment is bona fide, the reopening should be held valid? The revenue argued that the ITAT's findings of fact were contrary to the law. It contended that the ITAT quashed the reassessment order solely based on the assessee's defense that the issue was discussed during the original assessment. The revenue further argued that the ITAT relied on Gujarat Power Corporation Ltd. (2002) 26 taxmann.com 51 (Guj.) but ignored paragraph 48 of that judgment, and that the ITAT should have adopted the judgment in its entirety. The assessee's arguments are not explicitly recorded in the provided text, but the revenue's contentions indicate the assessee likely argued that the reopening was based on a change of opinion and that the original assessment had already dealt with the issue.