Advocate Akhilesh Kumar Sah
Re–Appreciation / Reappraisal Of The Material Available On Record During The Original Assessment Proceedings: Reopening Of Assessment By Forming Of Opinion That Income Has Escaped Assessment By AO, Not Allowable:
Mahindra Lifespace Developers Appeals
Very recently in Mahindra Lifespace Developers Ltd. vs. ACIT [ITA no.1167/Mum/2013 A.Y.2007-08 and ITA no.1171/Mum/2013 A.Y. 2006-07, decided on 31.05.2018], appeals by the assessee were against orders dated 27.11.2012, passed by the CIT(A) for the A.Y.s 2006–07 and 2007–08.
The first common ground in both the appeals related to the validity of re–opening of assessment under section 147 of the Income Tax Act, 1961 (for short “the Act”).
Facts relating to above issue which were more or less common in both the appeals were in brief, the assessee being a company was engaged in the business of real estate development and allied activities. For the A.Y. 2006–07, the assessee filed its return of income on 29.11.2006, declaring nil income under the normal provisions after set–off of losses. The assessee also declared book profit of Rs. 17,16,89,516 under section 115JB of the Act. Similarly, for the A.Y. 2007–08, the assessee filed its return of income on 15.11.2007, declaring nil income under the normal provisions after set–off of losses and book profit of Rs. 15,30,44,724 under section 115JB of the Act. The assessments for the aforesaid assessment years were originally completed under section 143(3) of the Act vide order dated 26.12.2008 and 03.12.2009, respectively. Subsequently, the Assessing Officer(AO) having reason to believe that the assessee was not eligible to avail deduction under section 80IAB of the Act re–opened the assessment for both the assessment years under section 147 of the Act. For that purpose the AO issued a notice under section 148 of the Act for the A.Y. 2006–07 on 15.01.2010 and for the A.Y.2007–08 on 24.01.2011. During the re–assessment proceedings, the AO noted that sanction for establishment of Special Economic Zone (SEZ) at Chennai, Tamil Nadu, was accorded to Mahindra Industrial Park Ltd. by the Ministry of Commerce and Industry, Government of India, on 08.09.2004. He observed, vide letter dated 19.04.2006 permission was granted to the assessee as a co–developer. Referring to the provisions of section 80IAB of the Act the AO observed that deduction under the said provision is allowable to a SEZ notified on/or after 01.04.2005.Whereas, in case of assessee, the SEZ was established prior to 01.04.2005. Thus, he was of the view that assessee’s claim of deduction under section 80IAB of the Act is not allowable. Accordingly, he called upon the assessee to justify its claim. In response, it was submitted, since permission to the assessee in the status of co–developer was granted on 19.04.2006, it is eligible to avail deduction under section 80IAB of the Act. The AO, however, did not accept the claim of the assessee and held that, since, the SEZ was notified / established prior to 01.04.2005, assessee was not eligible to claim deduction under section 80IAB of the Act. Accordingly, he disallowed the deduction claimed under section 80IAB of the Act in both the assessment years. The assessee challenged the disallowance of deduction claimed under section 80IAB of the Act for both the assessment years by preferring appeals before the first appellate authority both on the validity of re–opening of assessment under section 147 of the Act as well as on the merits of the disallowance made under section 80IAB of the Act.
As regards validity of re–opening of assessment, the CIT(A) after considering the submissions of the assessee in the context of facts and material on record, upheld the exercise of power under section 147 of the Act by holding that there is no change of opinion while re–opening the assessment. He observed, assessee’s claim of deduction under section 80IAB of the Act was allowed in the original assessment without examining the issue whether the claim of deduction is allowable or not. Therefore, no opinion with regard to the issue on which assessment was reopened was formed in original assessment. He observed, while re–opening the assessment, the AO has recorded reason to believe that income chargeable to tax has escaped assessment year. Therefore, the re–opening of assessment after such recording of reason cannot be held to be invalid.
The AR submitted, during the original assessment proceedings the AO has examined the issue relating to assessee’s claim of deduction under section 80IAB of the Act, hence, formed an opinion which cannot be reviewed in the proceedings under section 147 of the Act. He submitted, though, the re–opening of assessment was before expiry of four years from the relevant assessment years, however, it cannot be allowed on a mere change of opinion in the absence of any tangible material. The AR submitted that during the original assessment proceedings, the assessee had furnished audit report in form no.10CCB in support of its claim of deduction under section 80IAB of the Act which was verified by the AO. Drawing attention to the copy of reasons recorded which was placed in the paper book the AR submitted in the reasons recorded, nowhere the AO has referred to any fresh tangible material coming to his possession after completion of original assessment. That being the case, re–opening of assessment on a mere change of opinion is invalid. In support of his contention, AR relied upon the following decisions:–
