AROMA ORGANICS LIMITED,MUMBAI vs. ACIT - 14(1)(1), MUMBAI

In the instant case, the assessee company has claimed a deduction u/s 80IA amounting to Rs.15,52,080/. against the profit from a windmill in the state of Tamil Nadu during the previous year and same was allowed in the scrutiny assessment. It was observed that the assessee commenced this windmill in F.Y. 2004-05 with the installed cost of Rs.2.86 crore. The assessee claimed depreciation @ 80% and shown average energy sales of Rs.20 lakhs per annum from wind mill. With this pace of annual receipts, the wind mill as an undertaking will be having unabsorbed depreciation of Rs.1.86 crore (approx.) at the end the previous year. Thus unit had no profit to claim any deduction u/s So IA. The assessee had also stated in Directors Report that no benefit u/s 8olA was claimed as the wind mill had loss. However, in the computation of income the 4 deduction of Rs.15,52,080/- was claimed and the same was allowed. This has resulted into underassessment of income by same amount, involving tax effect of Rs.5,27,552/-.

Accordingly, the AO completed the assessment under section 143(3) of the Act read with section 147 of the Act vide order dated 19.01.2015, whereby the AO has made disallowance of deduction under section 80IA of the Act amounting to Rs. 15,52,080/-. Aggrieved, assessee preferred the appeal before CIT(A) and before CIT(A) assessee challenged the reopening of assessment but according to CIT(A) the reopening is as per law by observing in Para 6.2 as under: - “6.2 I have considered the matter. On the issue of full disclosure of facts, I find that the assessment has been re-opened within a period of four years from the end of the relevant assessment year. The bar on re-opening of assessment by the proviso to section 147 of the Act is, therefore, not applicable in the instant case. On the issue of change of opinion. I find from a perusal of the original assessment u/s 143(3) of the Act that the assessment was completed summarily by accepting the appellant's 5 income as returned. The merits of the allowability of deduction claimed u/s 80IA has not been discussed at all. On the issue of change of opinion, the Hon'ble Delhi High Court in the case of Consolidated Photo & Finvest Ltd Vs ACIT (2006) 151 taxman 41 (Delhi) held as follows:

We have heard the rival contentions and gone through the facts and circumstances of the case. We have gone through the reasons and noted that the main challenge for reopening was that the assessee claim deduction under section 80IA of the Act for an amount of Rs. 15,52,080/- against the profit from wind mill in the state of Tamil Nadu during the previous year. The assessee during the course of assessment proceedings filed complete details and AO also observed in Para 4 as under: - “4. The assessee company is carrying on the business of bulk import and trading in chemicals and power generation by wind energy generator.”

It was claimed that during the assessment proceedings, the assessee has filed complete details of computation of deduction under section 80IA of the Act in regard to wind mill division and the details are enclosed in assessee’s paper book at page 12 which read as under: - Rs. Rs. Net loss as per profit & Loss account of 8,36,538 windmill division Less Depreciation as per books: Building 44,706 Plant & Machinery 24,94,355 25,39,061 17,02,523 Less Depreciation as per Income Tax Act: Building 42,482 Plant & Machinery 1,07,961 1,50,443 15,52,018 7. Now, before us, the learned Counsel for the assessee drew our attention to letter filed during the original proceedings on 20-10-2011, whereby the assessee has enclosed the copies of wind mill purchase bills, ledger and copy of profit and loss account and audit report and even the depreciation working was also submitted along with copy of audit report during the original assessment proceedings. In view of the above, 8 the learned Counsel for the assessee before us stated that the issue is squarely covered by the decision of Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd (2010) 320 ITR 561 (SC), wherein it is held as under: - “4. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987 , re- opening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1-4-1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post 1-4-1989 , power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the 9 assessment, review would take place. One must treat the concept of "change of opinion" as an in- built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989 , Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987 , Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 , dated 31-10-1989, which reads as follows :

In view of the above facts of the case and decision of Hon’ble Supreme Court in the case of Kelvinator of India Ltd. (supra), we are of the view that this is merely the change in opinion and reopening is bad and hence, assessment framed is quashed. The appeal of assessee is allowed.

In the result, the appeal of assessee is allowed.