Madras High Court Upholds Re-assessment Proceedings Against Jasmine Towels Pvt. Ltd.

The court validates the jurisdiction under Section 147 of the Income Tax Act, citing lack of application of mind in original assessment.

In a significant judgment, the Madras High Court has upheld the re-assessment proceedings initiated by the Income Tax Department against Jasmine Towels Pvt. Ltd. for the assessment year 2004-05. The case centered around the company's claim for deduction under Section 80HHC of the Income Tax Act, which was initially approved without proper scrutiny by the Assessing Officer.

The bench, comprising Dr. Anita Sumanth and Mummineni Sudheer Kumar JJ., dismissed the appeal filed by Jasmine Towels Pvt. Ltd., affirming the decision of the Income Tax Appellate Tribunal. The appellant had challenged the assumption of jurisdiction under Section 147, arguing that the re-assessment was based on a change of opinion, which is legally untenable.

The court noted that the original assessment order, dated December 29, 2006, was silent on the deduction claimed under Section 80HHC, and there was no evidence of any discussion or correspondence regarding the claim. This lack of tangible material indicating the application of mind by the Assessing Officer justified the re-assessment proceedings initiated under Explanation (2) to Section 147.

The Income Tax Department had issued a notice under Section 148 on March 31, 2009, proposing to re-assess the income for the relevant assessment year. The Department argued that the excessive relief granted under Section 80HHC constituted a valid ground for re-assessment, according to the provisions of Section 147.

The court's decision was influenced by precedents such as CIT v. Kelvinator of India Limited, which emphasizes the presumption of regularity in judicial and official acts only when supported by evidence of discussion. In this case, the absence of any pre-assessment discussion negated such presumption.

Jasmine Towels Pvt. Ltd. had contended that the re-assessment was unwarranted as the original return included the computation of deduction under Section 80HHC. However, the court found no error in the re-assessment order or the first and second appeals, concluding that the assumption of jurisdiction was justified.

This judgment reinforces the authority of the Income Tax Department to initiate re-assessment proceedings when there is an indication of excessive relief granted, even if the original assessment order was silent on the matter. The court's decision is a reminder of the importance of thorough scrutiny in tax assessments and the need for Assessing Officers to document their considerations clearly.

Bottom Line:

Income Tax Act, 1961 - Re-assessment under Section 147 based on excessive relief granted under Section 80HHC - Assumption of jurisdiction for re-assessment upheld due to absence of application of mind by Assessing Officer in the original assessment order.

Statutory provision(s): Section 147, Section 80HHC, Section 143(3), Section 148, Section 114(e) of the Indian Evidence Act, 1872.

Jasmine Towels (P) Ltd v. Asst. Commissioner Of Income Tax Circle-I, Madurai, (Madras)(DB) : Law Finder Doc Id # 2823030