Facts of the Case

The petitioner, Matrix Clothing Private Limited, filed two writ petitions challenging notices dated 31.03.2019 issued under Section 148 of the Income-tax Act for Assessment Years 2014-15 and 2015-16 and the orders dated 20.11.2019 disposing of objections. The petitioner is engaged in garment manufacturing and wind power generation. For both assessment years, returns were filed, scrutiny assessments were completed under Section 143(3), and deductions under Section 80JJAA along with manufacturing expenses were examined and accepted by the Assessing Officer after detailed inquiries.

Subsequently, a survey under Section 133A was conducted on 27.03.2019, during which a trial balance for FY 2018-19 (unaudited and incomplete) was found. Relying on this trial balance and alleging non-electronic filing of Form 10DA, the Assessing Officer initiated reassessment proceedings for earlier assessment years.

Issues Involved

Whether reassessment proceedings could be initiated on the basis of unaudited trial balance of a subsequent assessment year, whether reopening amounted to a mere change of opinion where issues were already examined under Section 143(3), and whether non-electronic filing of Form 10DA could justify reassessment.

Petitioner’s Arguments

The petitioner argued that all primary facts relating to manufacturing expenses and deduction under Section 80JJAA were fully disclosed and examined during original scrutiny assessments. It was contended that reliance on unaudited trial balance of FY 2018-19 to reopen assessments of earlier years was impermissible and did not constitute tangible material. It was further argued that non-electronic filing of Form 10DA, when the form was furnished and verified during assessment, could not justify reopening and amounted to a change of opinion. The petitioner relied on settled law including Kelvinator of India Ltd. and Usha International Ltd. to submit that reassessment based on reappraisal of existing material is invalid.

Respondent’s Arguments

The Revenue contended that the survey revealed fresh material indicating excessive manufacturing expenses and that Form 10DA was not filed electronically as mandated, rendering the deduction under Section 80JJAA inadmissible. It was argued that the trial balance found during the survey constituted new material and justified formation of belief that income had escaped assessment.

Court Order / Findings

The Delhi High Court held that reliance on unaudited trial balance of a subsequent assessment year to reopen completed assessments was legally untenable and did not constitute tangible material relating to the relevant assessment years. The Court found that manufacturing expenses and deduction under Section 80JJAA were specifically examined during original assessments and accepted after application of mind. The Court held that reopening on these grounds amounted to a mere change of opinion. It was further held that non-electronic filing of Form 10DA, when the form was furnished and verified during assessment, could not justify reassessment. The Court reiterated that where no fresh material relating to the relevant assessment year exists, reassessment proceedings are without jurisdiction.

Important Clarification

The Court clarified that material pertaining to a subsequent assessment year cannot be used to reopen concluded assessments of earlier years and that reassessment cannot be used as a tool to review or correct perceived errors in completed scrutiny assessments. Where the Revenue believes an assessment order is erroneous, recourse lies under Section 263 and not Section 147.

Final Outcome

Both writ petitions were allowed. The notices issued under Section 148 and the orders disposing of objections dated 20.11.2019 for Assessment Years 2014-15 and 2015-16 were set aside, and the reassessment proceedings were quashed.

 

Link to Download order- https://mytaxexpert.co.in/uploads/1769502956_MATRIXCLOTHINGPVTLTDVsASSISTANTCOMMISSIONEROFINCOMETAXCIRCLE162NEWDELHI.pdf

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