Madras HC Upholds Reassessment Under Income Tax Act When Original Order Is Silent on Section 80HHC Deduction Claim

Chennai: The Madras High Court has held that reassessment under Section 147 of the Income Tax Act, 1961, is valid where the original assessment order is completely silent on the assessee’s claim for deduction under Section 80HHC, as this constitutes excessive relief under Explanation 2(c)(iii) to Section 147 and does not amount to a mere change of opinion.

A Division Bench comprising Justice Dr. Anita Sumanth and Justice Mummineni Sudheer Kumar delivered the decision on December 11, 2025, while dismissing a tax case appeal filed by Jasmine Towels (P) Ltd., challenging the assumption of jurisdiction for reassessment for Assessment Year 2004–05.

The appellant, a manufacturer and exporter of terry towels, had filed a return of income claiming deduction under Section 80HHC of the Income Tax Act. The return was taken up for scrutiny, and an assessment was completed on December 29, 2006, under Section 143(3) of the Act. However, the assessment order was wholly silent with respect to the deduction under Section 80HHC. The Assessing Officer neither referred to the computation under Section 80HHC nor recorded any discussion with the assessee regarding the details necessary for computing the deduction.

Further, details of notices issued under Section 143(2) and questionnaires under Section 142(1) were also absent from the assessment order. This was thus a case where the assessment order was entirely silent regarding any discussion relating to the deduction under Section 80HHC.

In these circumstances, a notice under Section 148 was issued on March 31, 2009, proposing reassessment of income for AY 2004–05. The assessee responded by a letter dated April 25, 2009, stating that the return of income originally filed may be treated as a response to the notice and sought a copy of the reasons for reopening. An acknowledgment dated April 27, 2009, showed that the letter had been filed before the Assessing Officer.

Despite this, the reassessment was completed on October 13, 2010, wherein the Assessing Officer recorded that no response had been received to the Section 148 notice. However, the reassessment order itself referred to discussions held with the Chartered Accountant of the assessee, including on the issue of excess claim under Section 80HHC, which formed the basis for reopening.

The reasons recorded for reopening stated that the assessee had admitted total income of ₹28,33,890 after claiming deduction under Section 80HHC amounting to ₹35,45,309. It was observed that the assessee had omitted the factor of Export Turnover / Total Turnover × Adjusted Profit of Business, as the computation yielded a negative figure. Since the deduction under Section 80HHC was required to be allowed on the net of both factors, the assessee had claimed excess deduction of ₹17,33,542. Accordingly, the Assessing Officer had reason to believe that income had escaped assessment.

The assessee challenged the reassessment before the Commissioner of Income Tax (Appeals), contending that the assumption of jurisdiction under Section 147 was bad in law. The appeal was dismissed by order dated January 9, 2012, upholding the assumption of jurisdiction. There was no discussion on merits in the appellate order, and the assessee did not challenge such non-consideration before the Income Tax Appellate Tribunal.

The Tribunal also dismissed the appeal by order dated July 20, 2012, affirming the assumption of jurisdiction under Section 147. Aggrieved, the assessee filed the present Tax Case (Appeal) before the High Court.

The substantial question of law admitted was:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the contention of the assessee that the reopening based on change of opinion was bad in law?”

The appellant contended that the reassessment proceedings were based entirely on a change of opinion and were therefore invalid. It was argued that the computation of deduction under Section 80HHC had been filed along with the return and accepted during the original assessment, and no new or tangible material had emerged to justify reopening. Reliance was placed on the Supreme Court’s decision in Income Tax Officer Ward No. 16(2) v. M/s. TechSpan India Private Ltd. & Anr. and the Gujarat High Court’s decision in Hareshkumar Bhupatbhai Panchani v. Income Tax Officer, Ward 3(3)(1) & Anr.

The Revenue, however, submitted that there had been no consideration whatsoever of the Section 80HHC claim in the original assessment. Reliance was placed on Explanation 2 to Section 147, which treats grant of excessive relief as a deemed case of income escaping assessment.

Upon examination, the High Court observed that ordinarily, in a scrutiny assessment under Section 143(3), a presumption arises that the Assessing Officer has applied his mind to the issues arising from the return. The Court referred to CIT v. Kelvinator of India Ltd. (256 ITR 1), wherein the Full Bench of the Delhi High Court, relying on Section 114(e) of the Evidence Act, held that judicial and official acts are presumed to have been regularly performed.

However, the Court noted that such presumption operates only where there is some evidence of pre-assessment inquiry or discussion, such as issuance of notices under Sections 143(2) or 142(1). In the present case, the assessment order was completely silent and non-speaking with respect to the claim under Section 80HHC.

In these circumstances, the Court held that Explanation 2(c)(iii) to Section 147 squarely applied. Since the assessee had been granted excessive relief under Section 80HHC, the case was deemed to be one where income chargeable to tax had escaped assessment, justifying reassessment.

The Court distinguished the judgments relied upon by the appellant, noting that in both TechSpan India and Hareshkumar Bhupatbhai Panchani, the original assessments were preceded by detailed notices, replies, and discussions, evidencing application of mind—an element conspicuously absent in the present case.

Accordingly, the substantial question of law was answered against the assessee and in favour of the Revenue. The Tax Case (Appeal) was dismissed with no order as to costs.

Case Title: Jasmine Towels (P) Ltd. v. Assistant Commissioner of Income Tax, Circle-I, Madurai
TCA No. 394 of 2012