BANGALORE RAJU MUDALIAR MOHAN,BANGALORE vs. INCOME TAX OFFICER, WARD- 10(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “C” BENCH: BANGALORE

BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SMT BEENA PILLAI, JUDICIAL MEMBER

ITA. Nos. 108 & 109/Bang/2020 Assessment Years: 2008-09 & 2009-10 Shri Bangalore Raju Mudaliar Mohan, Prop: BNR Exports, Plot No. 125-126, The Income Tax Officer, 4th Phase, Jigani Link Road, Ward -10(1), Bommasandra Industrial Bangalore. vs. Area, Bangalore – 560085. PAN: ACLPM6054B (Appellant) (Respondent)

Assessee by : Shri B.S. Balachandar, Advocate Shri Raghavendra Rao, Addl. CIT Revenue by : (DR) Date of Hearing : 02.12.2021 Date of Pronouncement : 08.12.2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeals has been filed by assessee against separate orders dated 27/11/2019 passed by the Ld.CIT(A)-9, Bangalore on following grounds of appeal. At the outset, both sides submitted that on merits the issues contested by assessee for assessment years under consideration are identical. The Ld.AR submitted that, for assessment year 2008-09 assessment order passed is under section 143(3) read with section 147 of the Act,

Page 2 of 14 ITA Nos. 108 & 109/Bang/2020 and for the assessment year 2009-10 the assessment order is passed under section 143 (3) of the Act. For sake of convenience we are reproducing the grounds raised for assessment year 2008- 09 as under: “1. The order of the lower authorities is erroneous & not maintainable in law, facts and evidences on record in so far as assumption of jurisdiction u/s 147 is concerned and disallowance of claim u/s 10B is concerned. 2. The learned CIT(A) has erred in upholding the assumption of jurisdiction u/s 147 on the ground that it is a case of non formation of any opinion in the A.Y 2008-09 on the ground that the Assessing Officer had not discussed this issue of reconstruction. 3. The learned CIT(A) failed to appreciate that this issue is considered and can be considered only in the A.Y 2001-02 which is the initial AY and to take a view contrary to that settled in that A.Y 2001-02 is in itself a change of opinion and exercising revisionary and appellate jurisdiction over the predecessor Assessing Officer and CIT which is not permissible. 4. The learned CIT(A) has erred in making out a new case and failed to consider the fact that disallowance u/s 10B has been made on the ground that it is an old business existing for more than 50 years and not on the grounds of any reconstruction. 5. The learned CIT(A) has erred in holding that the appellant has not proved that it is not reconstituted in the AY under consideration without appreciating that this issue cannot be subject matter of the AY under consideration and the same has been considered in the initial AY which is binding on the AO in the year under consideration. 6. The learned CIT(A) has erred in holding that old machineries have been used to effect exports in the AY 2000-01 for the broken period on the ground that samples of machineries purchased dated from 20-9- 1999. 7. The learned CIT(A) if only had called for the evidence in this regard the first purchase of new machinery would have been furnished which is 20-9-1999 and thus the findings that old machineries were used is erroneous. 8. Without prejudice to the above, the learned CIT(A) failed to appreciate that without a finding that the old machineries constituted 20% or more of the total machineries used in the undertaking, no disallowance of claim u/s 10B is permissible in law and in the absence of such a finding the learned CIT(A) ought to have desisted from upholding the disallowance. 9. The learned CIT(A) has erred in holding that the benefit of doubt should be held against appellant purportedly following some decisions of S.C without appreciating the fact that whatever doubts were there got cleared in the proceedings u/s 263 and thus there existed no doubts at all.

Page 3 of 14 ITA Nos. 108 & 109/Bang/2020 10. The learned CIT(A) has also failed to appreciate that the above issue is outside the subject matter of AY under consideration. 11. The learned CIT(A) has erred in upholding the disallowance u/s 10B on the ground that Form No. 56G has not been filed along with the return of income without appreciating the fact that the said report could not have been e-filed at the relevant time and that filing of the said report even at the assessment stage or appellate stage could be a sufficient compliance to the provisions of law as settled by judicial decisions. 12. The learned CIT(A) has also failed to appreciate that the claim allowed by the original Assessing Officer was correct in as much as the appellant being a 100% Export Oriented Unit the Export Turnover & Total Turnover remains same and thus there is no material to hold that the Assessing Officer has not examined this issue in the original Assessment order just because no disallowance has been made in respect of non repatriation of forex. 13. The learned CIT(A) failed to consider and appreciate that Form 56G could not be uploaded with the return of income nor could it be filed manually because manual return of income was not allowed, and in any event filing the said form in the assessment proceedings is sufficient compliance. 14. For these and any other ground that may be taken during hearing with the approval of the Hon'ble Authority, it is prayed that this appeal may be allowed in the interest of equity and justice.” 2. He submitted that assessment year 2008-09 assessee has challenged validity of assumption of jurisdiction under section 147 of the has also raised additional ground that reads as under: “That learned CIT(A) failed to appreciate that the various reasons stated by the learned CIT(A) for indicating there is no change of opinion are not the reasons recorded u/s 148(2) by the Learned A.O. and hence cannot be considered in examining the validity of the reasons recorded u/s 148(2) of the Act.” 3. Assessee has also raised following additional grounds on merits apart from those challenged individual grounds of appeal: “The Learned CIT(A) erred in holding that no new unit is setup because the appellant is an existing DTA converted into 100% EOU based on the certificate issued by the concerned authority without considering and overlooking the facts that this issue has also been considered by the CIT in proceedings u/s 263 for the AY 2002-03 and by the learned A.O. in the AY 2001-02 u/s 143(3) and as such it was not open to deviate from the earlier view as there is no change in facts and circumstances and further without appreciating the fact that the new unit is a DTA in the Assessment Year 2000-01( where deduction

Page 4 of 14 ITA Nos. 108 & 109/Bang/2020 u/s 80HHC is claimed) since the approval of the concerned authority was not available in that year and there was no customs central excise bonding in that year and the exemption u/s 10B has been claimed for the remaining 9 years as per the CBDT circular which position has been correctly understood by the learned A.O in the Assessment Year 2001-02 and by the learned CIT u/s 263 for the Assessment Year 2002-03 and all along in all the other Assessment Years. The learned CIT(A) failed to appreciate that the eligibility criteria on the issue of reorganization, splitting up or using old machineries stands determined in the first year in view of the word "formed" as settled by the judicial decision in the case of Nippon Electronics India (Pvt) Ltd. by the Hon'ble Karnataka High Court [181 ITR 518(Kar)] and once that condition is satisfied in the first year, the benefit of allowance endures for the next 9 or 10 year as available and as such denial of exemption for the Assessment year 2008-09 is bad in law [349 ITR 0309(Bombay), 123 ITR 669(Gujarat) & 216 ITR 548(Bombay)] since the undisputed fact remains that the appellant has been held entitled to benefit of section 10B in the first year of claim which is 2001-02 and subsequently it is found to be correct in the proceedings u/s 263 in the Assessment Year 2002-03 which has become final.”

Admission of additional grounds: Assessee filed above additional grounds vide application dated 25.09.2020. Ld.AR submitted that these additional grounds was raised as a general ground in the main grounds of appeal. He submitted that no new evidences need to be looked into to adjudicate these issues. He thus prayed for its admission. The Ld.Sr.DR objected for admission of the same. We have perused the submissions advanced by both sides. We note that the additional grounds is directly connected with the main issue of disallowance and no new facts needs to be investigated for adjudicating the same. Considering the submissions and respectfully following the decisions of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute

Page 5 of 14 ITA Nos. 108 & 109/Bang/2020 Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional grounds raised by the assessee. Accordingly, the additional grounds raised stands admitted. 3. Brief facts of the case are as under: 3.1 The assessee is an individual deriving income from manufacturing of precision turned machine components and filed his return of income for assessment year 2008-09 on 15/10/2009 declaring income of ₹ 81,580/-. The Ld.AO passed assessment order decision 143(3) of the Act, and accepting the returns filed by assessee wherein, deduction under section 10B amounting to ₹ 43,92,234/-was claimed. 3.2 Subsequently, a notice under section 148 was issued seeking disallowance of exemption claimed under section 10B on the premise that the subsequent year that is for assessment year 2009-10 the claim was disallowed on the basis that assessee’s business is 50 years old and therefore assessee do not qualify for the claim under section 10B of the Act. Assessee filed its return of income in view of notice under section 148 of the act, being the original return. 3.3 During the re assessment proceedings, assessee submitted that, action of the Ld.AO under section 148 of the Act is not in accordance with law, as the original assessment was completed accepting the above claim of assessee. The Ld.AO was of the opinion that the approval given by Cochin EPZ for conversion of the existing DTA unit at TR Mills Industrial Estate charmarajapet into EOU by the letter dated 7/08/2000. The Ld.AO observed

Page 6 of 14 ITA Nos. 108 & 109/Bang/2020 that assessee shifted the premises to Bommasandra Industrial Estate, for which no fresh approval was taken by assessee. 3.4The Ld.AO thus denied the deduction under section 10 B by holding that assessee commenced the manufacturing activity for more than 10 years and consequent to conversion as EOU, no deduction could be allowed. Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld.CIT (A). 4. The Ld.CIT(A) while considering the legal issue regarding the reasons recorded for reopening noted that, there was 263 proceedings initiated for assessment year 2002-03 on identical reasons which subsequently was dropped. However the Ld.CIT(A) upheld the validity of notice under section 147 of the Act. 5. On merits, the Ld.CIT(A) rejected the contention of assessee and upheld the disallowance of exemption claimed. Aggrieved by the order of Ld.CIT(A), assessee is on appeal before the us now. 6. Before us the Ld.AR submitted that assessee was allowed deduction under section 10 B from assessment year 2001-02 up to 2007-08. The Ld.AR submitted that assessee is a proprietary concern and was set up during the fag end of assessment year 2000-01. It had applied for EOU registration after completing all the relevant formalities in August 2000. The Ld.AR submitted that, the unit was set up with new plant of imported machines in December 1999 against which assessee claimed deduction under section 80HHC since the certification process was not completed as on 31/03/2000.

Page 7 of 14 ITA Nos. 108 & 109/Bang/2020 7. He submitted that assessee set up this new unit to carry on production of precision turned machine components with fresh capital and that, the unit fulfilled all the prerequisites of section 10B to qualify for deduction. He submitted that the unit was always set up as 100% EOU. 8. The Ld.AR submitted that there was 263 proceedings initiated during the assessment year 2002-03 to verify identical issue regarding eligibility of claim made under section 10 B of the Act. Relying on para 24 of the order passed by the Ld.CIT(A) for assessment year 2008-09, Ld.AR submitted that, there is a categorical observation as under: “24. I find that marks for column 3 to be “a notice under section 263 was issued for AY 02-03 but dropped later”. 9. Ld.AR placed reliance on page 17 of people book wherein the notice under section 263 issued during assessment year 2002-03 has been placed and reply filed by assessee thereafter in response to such notice. He thus submitted that, the notice issued under section 147 of the Act for year under consideration amounts to change of opinion without relying on any new material to establish a statement of income. He placed reliance on following positions in support of his contention: Decision of Hon’ble Bombay High Court in case of CIT vs. Western Outdoor Interactive (P) Ltd reported 349 ITR 309 Decision of Hon’ble Karnataka High Court in case of H Nippon Electronics (India).Pvt.Ltd reported in 181 ITR 518 Decision of Hon’ble Gujarat High Court in case of Saurashtra Cement and Chemical Industries Ltd vs. CIT reported in (1980) 123 ITR 669

Page 8 of 14 ITA Nos. 108 & 109/Bang/2020 10. On merits, the Ld.AR submitted that, the issue of approval is dated 07/08/2000 and assessee started claiming deduction under section 10B from assessment year 2001-02. He submitted that it is factually incorrect as the Ld. CIT(A) observed that the unit has been formed by reconstruction/reconstitution of old business. He submitted that assessee is qualified and was granted deduction from assessment year 2001-02 uninterruptedly till assessment year 2007-08. Placing reliance on a recent decision of Hon’ble Karnataka High Court in case of Indus Teqste Pvt. Ltd. Vs. DCIT in WP No.2259 of 2021 and CPM No.14396-143397 of 2021 by order dated 03/09/2021 and a submitted that the issues under consideration has been decided in favour of assessee. On the contrary the Ld.Sr.DR relied on orders passed by the authorities below. 11. We have perused the submissions advanced by both sides in light of records placed before. We shall 1st consider the legal issue raised by assessee. The reasons recorded by Ld.AO for reopening are as under:- “Subsequently it was noticed that the assessee has not satisfied the Conditions prescribed for getting the benefit of exemption u/s 10B of the IT Act in so far as the assessee;e undertaking was formed as a result of reestablishment/reconstitution having been carrying on the business for over 50 years. Consequently, on the premise that the income has escaped assessment within the meaning of section 147 of the Act a notice u/s 148 of the Act a notice u/s 148 of the Act was issued on 30.01.2014 after obtaining prior approval of the competent authority.”

Admittedly, the validity of deduction under section 10B was looked into for assessment year 2001-02 in the proceedings initiated under section 263 of the Act. There is no dispute that

Page 9 of 14 ITA Nos. 108 & 109/Bang/2020 the said proceedings were subsequently dropped. Thereafter up to 2007-08 the claim under section 10 B was not denied to assessee. Again for assessment 2008-09 proceedings under section 147 was initiated seeking withdrawal of the claim under section 10B on identical grounds. In our view this clearly amounts to change of opinion. Hon’ble Supreme Court in case of CIT vs. Kelvinator India Ltd reported in 320 ITR 561 held that the concept of “opinion” must be treated as an inbuilt test to check abuse of power by the assessing officer Hon’ble Court further held that assessing officer could not initiate reassessment proceedings on a mere change of opinion when the primary facts for the assessment were fully and fully disclosed. Hon’ble Karnataka High Court while considering an identical issue in case of Indus Teqste Pvt. Ltd. Vs. DCIT (supra) observed and held as under: “7. The assessee placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. [reported in (2010) 320 ITR 561] wherein it was held that the concept of 'change of opinion' must be treated as an in-built test to check abuse of power by the Assessing Officer. Referring to the decision of the Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd. [reported in (2002) 256 ITR 1] as confirmed by the Hon'ble Supreme Court in the decision reported in (2010) 320 ITR 561, it was contended that if two interpretations were possible, the interpretation, which upheld the constitutionality, should be favoured. 8. It was further contended by the appellant - assessee that in any event, the Assessing Officer could not initiate reassessment proceedings on a mere change of opinion. It was also contended that the primary facts necessary for assessment were fully and truly disclosed and that in the absence of any findings recorded by the Assessing Officer that the assessee did not make full and true disclosure, the reopening of assessment would be a case of change of opinion. In support of such a contention, reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Bhanji Lavji [reported in (1971) 79 ITR 582]. 9. It was contended by the appellant - assessee that where a deduction was considered and allowed, the subsequent withdrawal of the same under Section 148 of the Act amounted to change of opinion. The

Page 10 of 14 ITA Nos. 108 & 109/Bang/2020 appellant – assessee pointed out that they had been granted approval by the Authority as early as 17.4.2008 and based on such approval, deductions were claimed by the assessee under Section 10B of the Act, which were accepted by the Assessing Officer. All of a sudden, for the assessment year 2006-07, after the assessment was completed under Section 143(3) of the Act, the same was sought to be reopened by invoking the power under Section 147 of the Act. 10. Thus, the question, which is required to be decided in W.P. No.6543 of 2014, is as to whether the reopening of assessment was valid in law and was it a case of change of opinion and without deciding such a question, W.P.No.6543 of 2014 could not have been dismissed. This would be sufficient to set aside the order passed in W.P.No.6543 of 2014. 11. Now, we need to examine as to whether the reasons given by the Assessing Officer in the order dated 26.8.2013 would qualify as valid reasons for reopening the assessment. For better appreciation, we quote the reasons hereunder : “On perusal, it is found that the assessee company has not produced ratification certificate given by Board of Approval (BoA) on the approval granted by the Development Commissioner as per Section 10B Explanation 2(iv) and directions issued by Board vide Instruction No.02/2009 dated 09 of March 2009. In this regard, the Instruction of the Board clearly says that 'it has been decided that an approval granted by the Development Commissioner in the case of an 100% EOU will be considered valid, once such an approval is ratified by the BoA for EOU Scheme'. Hence, assessee company is not eligible for claiming deduction under Section 10B.” 12. On perusal of the above reasons, it is seen that there was no allegation that the assessee did not fully and truly disclose all the material and primary facts required for completing the assessment. The settled legal principle is that the Assessing Officer cannot be directed to complete the assessment in a particular manner. The duty cast upon the assessee is to place all the materials before the Assessing Officer to enable him to take a decision. In the absence of any such allegation, if we examine the reasons for reopening, it is solely on the ground that the assessee has not produced the ratification certificate given by the Board of Approval on the approval granted by the Development Commissioner as per Explanation 2(iv) to Section 10B of the Act. 13. The Assessing Officer referred to Instruction No.2/2009 issued by the CBDT, which was challenged by the appellant - assessee in W.P.No.6542 of 2014. The challenge to the said Instruction of the CBDT can have no impact on the relief sought in W.P.No.6543 of 2014 because the challenge in W.P.No.6543 of 2014 was to the reopening of assessment proceedings and the first aspect to be considered is as to whether the reopening was on account of change of opinion because the appellant – assessee had relied upon the approval granted by the Development Commissioner as early as 17.4.2008 and the assessment had been completed in respect of other

Page 11 of 14 ITA Nos. 108 & 109/Bang/2020 years as well as the subject assessment, which was sought to be reopened. Therefore, in the absence of any such allegation against the appellant – assessee for non disclosure of primary facts, the reopening cannot be justified. 14. The learned Junior Standing Counsel appearing for the respondent submits that the assessee has not followed the procedure, which has been laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO [reported in (2003) 259 ITR 19], as the assessee has not given their objections to the reasons recorded by the Assessing Officer for reopening the assessment as communicated to the assessee vide letter dated 26.8.2013. 15. In our considered view, such a non adherence to such a procedure would be a fait accompli in the case on hand and more so, when W.P.No.6543 of 2014 was pending from the year 2014 and the challenge was to the notice issued under Section 147 of the Act. Therefore, at this distance of time, we are not inclined to issue a direction to the appellant – assessee to file their objections to the reopening and once over again allow the Assessing Officer to take a decision as to whether the objections are sustainable or not. 16. Furthermore, the reasons for reopening were not based on any allegation of non disclosure of the financial details of the assessee or in respect of any transaction done by them in the normal course of business. The reopening was solely on the basis that an order of ratification by the Board had not been furnished.” 12. On merits of the case, the issue of splitting up was observed and verified during the 263 proceedings for assessment a 2002- 03 which was subsequently dropped. Under present circumstances unless there are evidence brought on record by the revenue, the denial cannot be upheld merely on assumption. The burden to establish that during the year the denial is justified, is on the revenue. Admittedly, the revenue was granting the deduction under section 10B in the preceding 5 assessment years. We rely on following observation in decision of Hon’ble Bombay High Court in case of CIT vs Western Outdoor Interactive Pvt.Ltd., (supra) as under: “5. On the other hand, Mr. Percy Pardiwalla, Senior Counsel appearing on behalf of the respondent-assessee submitted that in view of the decision of this court in the matter of CIT v. Paul Bros. [1995] 216 ITR 548 and Direct Information (P.) Ltd. v. ITO [2011] 203 Taxman 70, the issue is no longer open to debate. In the above case, it

Page 12 of 14 ITA Nos. 108 & 109/Bang/2020 is held that once a benefit of deduction was extended in respect of a provision for a particular number of years then unless the benefit is withdrawn for the first year it cannot be withdrawn for subsequent years, particularly, when there is no change in the facts. Therefore, he states that once a benefit of Section 10A was extended to the respondent-assessee for the assessment year 2000-01 and 2001-02 in respect of its claim for exemption under Section-10A of the Act and the same not having been withdrawn for those years it cannot be denied in the subsequent assessment years. This is for the reason that the benefit under Section 10A of the Act is available inter alia if the unit has not been formed by splitting up or reconstruction of business already in existence. This aspect of the matter was examined while completing assessment under Section 143(3) for the assessment year 2000-01 and 2001-02 and the benefit was extended after reaching a conclusion that the same was not formed by splitting up or reconstruction of the business already in existence. Further, the benefit which is given to the respondent-assessee under Section-10A is for the period of 10 consecutive assessment years beginning with the assessment year in which the undertaking begins to export computer software. Besides the above, he submitted that both Commissioner of Income Tax (Appeals) and the Tribunal have concluded on examination of evidence that SEEPZ unit was an independent unit not formed by splitting up of the Fort unit. Therefore, this Court should not interfere with this finding of fact. 6. We have considered the submissions. We find that the submissions made by Mr. Pardiwalla on the basis of the decision of this Court in the matter of Paul Brothers (supra) and Direct Information (P.) Ltd. (supra) merits acceptance. Therefore, in this case, it is not necessary for us to decide whether SEEPZ unit was set up/formed by splitting up of the first unit. In both the above decisions, this Court has held that where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the Income Tax Act, then unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set aside, the Income Tax officer cannot withdraw the relief for subsequent years. More particularly so, when the revenue has not even suggested that there was any change in the facts warranting a different view for subsequent years. In this case for the assessment years 2000-01 and 2001-02 the relief granted under Section 10A of the Act to SEEPZ unit has not been withdrawn. There is no change in the facts which were in existence during the assessment year 2000-01 vis-a-vis the claim to exemption under section 10A of the Act. Therefore, it is not open to the department to deny the benefit of Section 10A for subsequent assessment years i.e. assessment years 2002-03 and 2003-04 and 2004-05. Besides that, on consideration of the facts involved both the Commissioner of Income Tax (Appeals) and the Tribunal have recorded a finding of fact that the SEEPZ unit is not formed by splitting up of the first unit.”

Page 13 of 14 ITA Nos. 108 & 109/Bang/2020 Accordingly, we direct the Ld.AO to grant deduction under section 10B of the Act to assessee for the year under consideration. Assessment Year 2009-10: 13. For the year under consideration, issue pertains to withdrawal of the claim under section 10B of the Act to assessee. It is submitted that the denial is based on identical premise which has been submitted by the learned area hereinabove. As we have already taken the view on merits for assessment to 2008-09 granting the deduction claimed under section 10 B of the Act, the same observation is applied mutatis mutandis for year under consideration. Accordingly we direct the loan due to grant deduction under section 10 B of the act to assessee for the year under consideration. In the result appeals filed by both the years under consideration stands allowed. Order pronounced in open court on 08th December, 2021.

Sd/- Sd/- (B.R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 08th December, 2021. /MS/

Page 14 of 14 ITA Nos. 108 & 109/Bang/2020 Copy to 1. The Appellant 2. The Respondent 3. CIT(A) 4. Pr. CIT 5. DR, ITAT, Bangalore. 6. Guard File By order

Assistant Registrar Income-tax Appellate Tribunal Bangalore