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

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TAXAP/1153/2014HC GujaratGJHC24022715201410 November 2014Bench: HONOURABLE MR. JUSTICE KS JHAVERI,HONOURABLE MR. JUSTICE K.J.THAKER6 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal decided that the reopening of assessment under Section 147 was invalid. The reasoning was that during the original assessment, a detailed inquiry was made regarding the assessee's claim under Section 80HHC, and the AO allowed the claim after verifying the assessee's contentions, which were found to be correct. The Tribunal held 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. The Tribunal relied on the Supreme Court's decision in Commissioner of Income Tax vs. Kelvinator of India Ltd. [2010] 320 ITR 561, which held that 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 a check against the abuse of power. Therefore, the Tribunal concluded that the appeals lacked merit. The operative direction was to dismiss the appeals.

What were the facts?

The Commissioner of Income Tax-II, Baroda (the Revenue) has appealed against a common order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, dated April 24, 2014. The ITAT's order pertained to two appeals: I.T.A. No. 1506/Ahd/2010 for Assessment Year (AY) 1995-96 and I.T.A. 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 Commissioner of Income Tax (Appeals) partly allowed the assessee's appeals. Dissatisfied, the assessee appealed to the ITAT, which passed the impugned order.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether, on the facts and in the circumstances of the case and in law, 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 stated that scrutiny of one parameter of a Section 80HHC deduction claim does not necessarily mean the entire claim was verified and accepted? 2. Whether, on the facts and in the circumstances of the case and in law, the ITAT was justified in not appreciating that the AO had a bona fide belief that income was under-assessed by working out a specific amount of excess allowance, which is the sole requirement for valid reopening? 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 should have adopted the judgment in its entirety. The assessee's arguments are not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 147,Section 271(1)(c),Section 80HHC

AI-generated summary — verify with the full judgment below

O/TAXAP/1152/2014 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1152 of 2014 With TAX APPEAL NO. 1153 of 2014

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX II....Appellant(s) Versus PANASONIC ENERGY INDIA CO. LTD....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 10/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Commissioner of Income Tax-II, Baroda, Page 1 of 6

O/TAXAP/1152/2014 JUDGMENT has felt aggrieved by the common order passed by the ITAT, Ahmedabad Bench ‘D’, Ahmedabad, Dated : 24.04.2014, in I.T.A. No. 1506/Ahd/2010 for A.Y.- 1995-96 and in I.T.A. No. 1507/Ahd/2010 for A.Y.- 1997-98. 2. The brief facts of the case are that the respondent-assessee filed its return of income for the A.Y.-1995-96 on 23.11.1995 and for A.Y.- 1997-98 on 11.11.1997. Pursuant thereto, the case of the respondent-assessee came to be selected for scrutiny and certain additions came to be made by the AO to the income of the respondent- assessee for the relevant assessment years and the proceedings under Section 271(1)(c) of the Income Tax Act (‘the Act’ for short) were ordered to be initiated. Being aggrieved thereby, the respondent-assessee preferred appeal before the CIT(A), who partly allowed the appeals. Since, the respondent-assessee was no satisfied with the order passed by the CIT(A), it carried the matter before the ITAT. The ITAT, after hearing the learned Counsels for the parties, passed the impugned order. Hence, the present appeals. 3. Mr. Parikh, learned Advocate for the appellant, took us through the entire record and submitted that the common questions of law framed in this appeal, which read as under, arise for Page 2 of 6

O/TAXAP/1152/2014 JUDGMENT the consideration of this Court; “(1) Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding the reopening of assessment u/s 147 as invalid and quashing the same by relying on the decision of the Hon’ble Gujarat High Court in the case of Gujarat Power Corporation Ltd. Reported in 350 ITR 266 (Guj.), without taking cognizance of para 48 of the judgment, wherein, it has been held that a claim of deduction u/s 80HHC of the Act would have various parameters and if one of the parameters is scrutinized or accepted either with or without reasons, that by itself may not mean that the entire claim of deduction u/s 80HHC of the Act stood verified and accepted by the Assessing Officer? (2) Whether on the facts and circumstances of the case and in law, the ITAT was justified in not appreciating that A.O. Had come to a bona fide belief that the income was under assessed by working out specific amount of excess allowance, which is the only requirement under the law to see whether reopening is valid or not and if the reason to opine that there is under assessment, is bona fide then reopening has to be held valid? ” 4. Mr. Parikh submitted that the finding of facts recorded by the Tribunal are contrary to the well-settled position of law and principles. He submitted that the Tribunal quashed the reassessment order merely on the defence taken by Page 3 of 6

O/TAXAP/1152/2014 JUDGMENT the assessee that the issue was discussed at the time of original assessment. He, further, submitted that the Tribunal, while passing the impugned order, relied on a decision of this Court in the case of “GUJARAT POWER CORPORATION LTD. VS. ACIT”, (2002) 26 taxmann.com 51 (Guj.), more particularly, Paras-51 and 52 thereof, but, completely ignored the observations made by this Court in Para-48 of the very same judgment. He, therefore, submitted that the Tribunal ought to have adopted the judgment of this Court in its entirety and prayed that the appeals be allowed. 5. Heard learned Counsels for the parties and perused the material on record, including the orders passed by the CIT(A) and ITAT. While passing the impugned order, the ITAT apart from the decision of this Court in the case of “GUJARAT POWER CORPORATION LTD.” (Supra) also placed reliance on a subsequent decision of the Hon’ble Apex Court in the case of “COMMISSIONER OF INCOME TAX VS. KELVINATOR OF INDIA LTD.”, [2010] 320 ITR 561, wherein, the Apex Court observed that the concept of ‘Change of Opinion’ on the part of AO to reopen the assessment does not stand obliterated after the substitution of Section 147 of the Income Tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989 and that after the amendment, the AO has to have reason to believe that income has escaped assessment, but, this does not imply that the AO Page 4 of 6

O/TAXAP/1152/2014 JUDGMENT can reopen an assessment on mere change of opinion. The concept of ‘Change of Opinion’ must be treated as an in-built test to check the abuse of power. 6. In the case on hand, it is borne out from the record that while allowing the claim of the respondent-assessee under Section 80HHC, detailed inquiry was made and only after verifying the respondent-assessee’s contention, which was found to be correct, the AO had allowed the claim of the assessee. It goes without saying that once a query was raised and it was answered satisfactorily by the respondent-assessee at the time of original assessment and when the same attained finality, after the AO gave his clear finding in favour of the respondent-assessee, it was not open to the AO to reopen the assessment. Under the circumstances, the decisions relied on by Mr. Parikh in support of his case would not apply to the facts of the case on hand and all the questions raised before us are answered against the revenue. The appeals sans merit and deserve to be dismissed. 7. In the result, the appeals fail and are DISMISSED, accordingly. No order as to costs. (K.S.JHAVERI, J.) Page 5 of 6

O/TAXAP/1152/2014 JUDGMENT (K.J.THAKER, J) UMESH Page 6 of 6

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