Case Note & Summary
The petitioner, Hindustan Unilever Limited, filed its return of income for assessment year 2004-2005 on 29 October 2004, showing net profit before tax of Rs.1815.59 crores after considering losses of Rs.10.84 crores from its Plantation division and Rs.98.28 lakhs from its Crab Stick Unit at Chorwad. The assessment was selected for scrutiny and concluded by an order dated 27 December 2006 under Section 143(3) of the Income Tax Act, 1961, wherein the loss from the Plantation division was allowed as a deduction under Rule 8 of the Income Tax Rules, 1962. On 7 April 2008, the Assessing Officer issued a notice under Sections 147 and 148 seeking to reopen the assessment, furnishing four reasons on 17 September 2008. The primary reason was that the assessee's claim of set-off of 40% of the plantation loss against normal business profits was not allowable under Rule 8, as the rule is a deeming provision applicable only to income and not to loss. The petitioner challenged the reopening, arguing that it was based on a mere change of opinion. The court examined the reasons and found that the original assessment had consciously allowed the loss after due application of mind. The court held that Rule 8 applies to both income and loss, and the loss from the plantation division is a business loss. Since the reopening was based on the same material already considered, it amounted to a change of opinion, which is not permissible under Section 147. The court quashed the notice for reopening and allowed the writ petition.
Headnote
A) Income Tax - Reopening of Assessment - Sections 147, 148 Income Tax Act, 1961 - Change of Opinion - The Assessing Officer reopened assessment on the ground that loss from plantation division under Rule 8 was not allowable as set-off against business income. The court held that the original assessment had consciously allowed the loss after scrutiny, and reopening based on the same material constituted a change of opinion, which is impermissible. (Paras 1-10) B) Income Tax - Rule 8 of Income Tax Rules, 1962 - Treatment of Loss - Rule 8 deems 40% of income from sale of tea grown and manufactured in India as taxable income. The court held that the rule applies to both income and loss, and loss from plantation division is a business loss allowable under Rule 8. (Paras 5-8)
Issue of Consideration
Whether the reopening of assessment under Sections 147 and 148 of the Income Tax Act, 1961, on the ground that loss from plantation division under Rule 8 was wrongly allowed, is valid or based on a change of opinion.
Final Decision
Writ petition allowed. Notice dated 7 April 2008 under Sections 147 and 148 of the Income Tax Act, 1961 quashed. Rule made absolute.
Law Points
- Reopening of assessment under Section 147/148 must be based on tangible material
- not change of opinion
- Rule 8 of Income Tax Rules
- 1962 applies to both income and loss
- Loss from plantation division is business loss allowable under Rule 8.
