M/S. RICHA INDUSTRIES LTD.,FARIDABAD vs. ACIT, FARIDABAD

PER ANADEE NATH MISSHRA, ACCOUNTANT MEMBER

(A). The present appeal has been filed by the assessee assailing the correctness of the

order dated 22.01.2014 of CIT(A)-2, Faridabad pertaining to 2005-06 assessment year on

various grounds.

(B). The original return was filed by the assessee on 29.10.2005 declaring income of

Rs.41,97,398/-. The assessment order u/s 143(3) of Income Tax Act, 1961 (In short “Act”) was

passed on 19.12.2007 wherein total income was assessed at Rs.52,74,330/-. Subsequently,

the order was rectified vide order dated 10.03.2008 u/s 154 of the Act under where income of

the assessee was determined at Rs.50,89,020/-. The re-assessment proceedings u/s 147 of

the Income Tax Act, were initiated by notice dated 29.03.2012 u/s 148 of the Act. Regarding

reasons for initiation of re-assessment proceedings, the AO has stated as under in the

assessment order:-

“The following reasons were recorded before issue of notice u/s 148 of the Act:- "It has come to notice that under section 36(i)(iii) of the Income Tax Act, 1961 interest paid on borrowed fund for acquiring of capital assets is not deductible till the date of their utilization in business but the assesses has claimed the interest on this amount in its profit and loss account. As per Balance Sheet, status of borrowed funds was as under: Capital work in progress in IMT Gurgaon unit Rs.2,17,66,774/- Secured and unsecured loans Rs.12,48,72,290/- I.T.A .No.-1476/Del/2014 Richa Industries Ltd. vs ACIT

Page 2 of 8 Loan (Inter units) from Faridabad unit in IMF unit Rs.1,72,97,700/- The assessee in IMT units claimed deduction of interest of Rs.81,85,546/- and in Faridabad unit from which above funds were transferred to IMT Gurgaon of Rs.7,41,789/-. Thus, total interest for IMT unit was paid of Rs.89,27,335/- for which deduction has been claimed and allowed. Since 15. 31% funds were utilized in capital work in progress which was not been put into use in business upto 31.03.2005. Therefore, 15.31% of total interest paid by this unit which worked to Rs.13,66,775/- needed to be disallowed. Hence income of Rs.13,66,775/- has escaped assessment. It was farther observed that the IMT unit had also received receipt of Rs.45,03,509/- on account of DEPB/DDB which was not income derived from manufacturing activity but incidental to the business and hence deduction on this income is not admissible. Thus after reducing other income of Rs.45,03,509/- from eligible profit of Rs.26,74,214/- and Rs.6,17,703/- on account of addition made, the eligible profit of lMT Manesar unit comes to (-) Rs.12,11,592/- and thus, no deduction was admissible u/s 80IB but was allowed at the time of assessment/rectification amounting to Rs.9,87,575/-. Hence income of Rs.9,87,575/- has escaped assessment. In view of the above, I have reason to believe that taxable income chargeable to tax amounting to Rs.23,54,350/- (Rs.13,66,775/- + Rs. 9,87,575/-) and any other income which subsequently comes to notice has escaped assessment for the assessment year 2005-06 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for that assessment year. Accordingly, notice u/s 148 of the Income Tax Act, 1961 is being issued after getting necessary approval from the Commissioner of Income Tax, Faridabad.”

(B.1). In the assessment order dated 31.03.2013 passed u/s 143(3)/147 of the Act, the AO re-

assessed the income of the assessee at Rs.74,43,370/- wherein the following additions were

made:-

(a) an addition of Rs.13,66,775/- on account of disallowance of interest paid on fund

borrowed for acquiring of capital assets;

(b) an addition of Rs.9,87,575/- on account of disallowance of deduction u/s 80IB of the

Act claimed by the assessee on DEPB/DDB.

(B.2). Aggrieved, the assessee filed an appeal before the CIT(A). Vide order dated

22.01.2014, Ld.CIT(A) dismissed the appeal of the assessee. Aggrieved again, the assessee

has filed this appeal in ITAT. In the course of the appellate proceedings in ITAT, the assessee

filed a Paper Book containing 162 pages. The assessee also filed written submissions. The

assessee moreover filed copy of Audit Objection raised by Revenue Audit which led to re-

opening of assessment. At the time of hearing before us, the Ld.AR appearing for the

I.T.A .No.-1476/Del/2014 Richa Industries Ltd. vs ACIT

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assessee relied upon the written submissions and explained the same with help of Paper Book

and copy of Audit Objection raised by Revenue Audit. The Ld.AR also contended that the

dispute is covered in faovur of assessee by the decisions of the Co-ordinate Benches of ITAT,

Delhi in the following cases:-

(i) Landbase India Ltd. vs DCIT [2015] 43 ITR (Trib) 172 (ITAT [Del]);

(ii) Uttaranchal Jal Vidyut Nigam Ltd. vs ACIT [2016] 47 ITR (Trib) 198 (ITAT[Del]);

(iii) Upkar International P.Ltd. vs DCIT [2016] 49 ITR (Trib) 551 (ITAT [Del]); and

(iv) Magppie Exports vs DCIT [2016] 49 ITR (Trib) 47 (ITAT [Del]).

(B.3). For ease of reference, the written submissions filed by the assessee are reproduced as

under:-

Date of Hearing:-29.09.2016

S.No. Particulars Page 1. Returned Income Rs.41,97,398.00 ITR Enclosed PB 1-2 Assessed Income u/s 143(3) Rs.52,74,330.00 on 19-12-2007 Asstt Order 72-79 Rectified u/s 154 Rs.50,89,020.00 on 10-03-2008 Rectification Order 81-83 2. Appeal filed before CIT(A)-against order u/s 143(3) is allowed to withdraw on 23-06- PB 81-83 09 as necessary rectification was allowed in order dated 10-03-2008 u/s 154 3. (Para 3 A) NOTICE U/S 148 IS VOID-AB-INITIO Proposal Sent to CIT for approval 26-03-12 PB 159 Got Approval 28-03-12 Notice issued u/s 148 29-03-12 � The reasons were not recorded on the date of issuance of notice. � The entries in the order sheet were made on 19-09-12 being computerized entries can't be made in advance / can't be predicted, it means the entries in order sheet were never made on 26-03-12/28-03-12/29-03-12 (before the issuance of notice u/s 148), 15-05-12/11-09-12/19-09-12, (the actions taken thereafter; PB-93 � Even the reasons recorded/supplied bears a date 29-03-12, it means reasons were never recorded on 26-03-12, & were never sent to CIT along with form u/s 151 sent for approval, Hence approval of CIT is mechanical. See Form -Para 11 92 for Reasons = As per annexure attached => how it is possible to attach the reasons dated 29.03.12 to be attached on letter sent to CIT on 26-03-12 93 � Means reasons were never recorded on or Before the issuance of notice u/s 148. Further see the last lines of '"Reasons" "......Accordingly, notice u/s 148 of the Income Tax Act, 1961 is being issued after getting necessary approval from the Commissioner of Income Tax, Faridabad" Safe inference can be drawn that the above reasons were recorded when the "Reasons' were demanded by assessee on 23-04-2012, with back dated singed (29- 03-12) by AO, as the entries in the order sheet are not supporting to any of above. � OR, the "Reasons" were recorded at the time of approval, but that were not supplied to the assessee / or never acted upon. Means there are two copies of "Reasons", one were attached to the form sent for approval u/s 151 and one supplied to assessee. May be ?? � (Para 3B) 147/148 AFTER 4-6 YEARS FROM THE END RELEVANT AY • Relevant AY 2005-06 • Date of Notice u/s 148 29-03-2012 i.e. after 4 years but before 6 years from the end of Relevant AY 05-06. 147. Income escaping assessment, (first proviso)-Relevant Portion I.T.A .No.-1476/Del/2014 Richa Industries Ltd. vs ACIT

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Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: First Proviso to See-147 => unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to make a return under section 139 or in response to notice under section 142(1) or section 148 or to disclose fully and truly all material facts necessary for the assessment for that assessment year.

INFACT ALL THE FACTS FULLY DISCLOSED, i.e. WHY THE AUDIT OBJECTIONS HAS BEEN RAISED SO SPECIFICALLY, HAD THE INFORAMATION NOT SUBMITTED AT THE TIME OF ORIGINAL ASSESSEMENT, NO SUCH DATA BEFORE THE AUDIT TEAM, VIZ A VIZ NO AUDIT OBJECTIONS -> Places severe restriction on the power of the AO to reopen an assessment order passed under section 143/147, after the expiry of four years from the end of the relevant assessment year, except in cases where assessee has failed to file a return of income under section 139, 142(1) or under section 148 or has failed to disclose fully and truly all material facts necessary for the assessment for that assessment year. -> The assessee has filed all the material facts in its ITR, disclosed all the facts while scrutiny u/s 143(2)/(3) -> No where in the "Reasons" stated that the assessee failed to disclosed all the facts. -> Asstt Order - Even clearly-indicates "Books of Accounts Produced" Relevant judicial pronouncements are Referred in 3B below (Para 3C) OBJECTIONS RAISED TO NOTICE U/S 148 WERE NEVER REPLIED IN FULL The then AR raised 3 objections to notice u7s 148 -> Letter dated 21-08-12 1. Towards the interest u/s 36(l)(iii) of I. T. Act, 1961 PB 95-101 2. Regarding the duty drawback 95 3. Objection regarding the Column -12 for form sent to CIT u/s 151 100 100 The then AO issued order on Point-3, of the objections are were silent / never discussed on Point-1 & 2 102 The fact that the AO is silent on both of the above points were even raised the then AR vide letter submitted on 24-09-12. 104 Relevant judicial pronouncements are in Para 3C below (Para 3D) "REASONS" WERE PURLY BASED ON AUDIT OBJECTIONS / NO APPLICATION OF MIND BY AO � Even order of CIT(A) gives the reference "....Subsequently there were audit PB-146 objections on the issue of Section 80IB and disallowance of interest as per Section 36(l)(iii)......" � Two audit memos No 2 & 26 are attached to the submission, which clearly Attached shows that the figures and words were borrowed from the audit memos. � Refer advice dated 24th June 1982 => Ministry of Law to the Ministry of Finance, has opined, after referring the ruling of SC,(in Eastern Newpaper Society Vs CIT(1979) that the ".....audit objection as well as the note of Ministry of Law cannot be basis for re-opening of the assessment made………….” � Refer Income Tax Simplification Committee under the Chairmanship of Justice R V Easwar, Former Judge DHC, and Former President of ITAT. Attached Relevant judicial pronouncements are in Para 3D below (Para 3E) ITS CHANGE OF OPINION / NO NEW MATERIAL FACTS WERE FOUND ON RECORD � As stated above, the "Reasons" were solely and purely based on the words / figures raised by the audit objections. � Now, how it is possible that audit has raised some objections, even I.T.A .No.-1476/Del/2014 Richa Industries Ltd. vs ACIT

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specifically, in a calculated manner, in words and figures, without having any material on record. � The assessee filed its -> ITR (AY 2005-06) on 29-10-15, along with Computation of Income Clearly stating that the Assessee has availed deduction u/s 801B PB -1-2 ->Audit Report in Form 10CCB, for claiming deduction u/s 80IB ->the assessee has provided even unit wise balance sheets i.e. for Gurgaon 69-71 unit, Faridabad unit, Filling Station, Retail Division and consolidation of all (PB-3 to 68). It contain the details of Capital WIP, interest paid 3-68 -> Even unsecured loans were specifically looked by the then AO, and has made additions, due to non-confirmations. (Para-2, PB-73) 73 � As per Asstt Order -> "...Books of accounts produced……..." PB-73 73 -> accepted the income as declared Rs.4197400/- and made certain additions (Rs.1076931), if the Rl is accepted without any verification (PB-79) -> Interestingly, vide rectification u/s 154/155 dated 10-03-08, the same AO discussed the deduction u/s 80IB in detail and even allowed additional deduction u/s 80-IB (PB- 80-82 80-82) -> and surprisingly, even the "Reasons" states that "..... no deduction 93 was admissible u/s 80IB but was allowed at the time of assessment / rectification amounting to Rs.987575....." (Last two lines of Para 2nd Last at PB-93) Means at the time of assessment u/s 143(3) 80IB was allowed � [Relevant Judicial pronouncements are in Para 3E below

Hence it is requested as follows:- 1. “CIT(A) Faridabad is erred in concluding that notice u/s 148 is valid and re- assessment proceedings are validly initiated. The appellant prays that notice issued u/s 148 is bad in law. The conditions stipulated u/s 147 is not satisfied. Thus it may be concluded that neither the reopening not the additions made by the AO was valid and therefore, reopening should be quashed and additions should be deleted. 2. The assessee is very much eligible as per law to claim deduction u/s 80IB and which was allowed in original assessment, after due application on mind, and the inconsistent stand of the revenue is not only legally invalid but also causing undue hardship to taxpayer. 3. It may fairly be admitted that nothing is available in assessment record to show any approval/sanction of authority of competent authority with regard to "reasons" recorded. 4. The jurisdictional requirement to reopen an assessment are : (i) the AO must have reason to believe that the income chargeable to tax escaped assessment. ii) the AO in regular assessment proceedings had not formed an opinion in regard to the issue on which the reopening notice is issued; and (iii) there has been a failure on the part of the Assessee to truly and fully disclose all necessary facts for the assessment.

AND NONE OF THE ABOVE THREE CONDITIONS PRECEDENT HAVE BEEN SATISFIED. 5. The satisfaction of AO can't be outsourced and can't be on the basis of audit objections. The law requires the application of mind of the AO himself. Simply copy / paste, with few changes, and that not to figures, do not amount to application of mind. 6. On perusal of computation sheet enclosed with the return shows the complete facts have been narrated in the computation sheet, wherein deduction u/s 80IB has been claimed and even audit report in Form 10CCB have been furnished. The deduction u/'s 80IB was allowed in original assessment u/s 143 and further rectification u/s 154 was on the basis of ITR, information provided, computation sheet, Form 10CCB and AO's attempt of reopening this case on the same facts and factual material is based upon change of opinion. 7. It is not at all a case of failure on the part of the assessee in disclosure of material facts. If at all there was any failure, it would be on the part of AO in not appreciating the facts and applicable legal position, in the manner as the AO want now at the reassessment stage.

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JUDICIAL PRONOUNCEMENTS WRT TO PARA 3B ABOVE. Judgement Judgement Name Number 1. Asst. CIT v. ICICI Securities Primary Dealership Ltd. [2012] 348 ITR 299 (SC). 2. Deputy CIT v. Simplex Concrete Piles (I) Ltd. [2013] 358 ITR 129 (SC). 3. Voltas Ltd. v. Asst. CIT [2012] 349 ITR 656 (Bom). 4. Ranbaxy Laboratories Ltd. v. Deputy CIT [2013] 351 ITR 23 (Delhi). 5. Atomstroyexport v. Deputy DIT (I.T.) [2014] 363 ITR 612 (Bom). 6. Sayaji Hotels Ltd. v. ITO [2011] 339 ITR 498 (Guj). 7. Bhor Industries Ltd. v. Asst. CIT [2004] 267 ITR 161 (Bom). 17. Gemini Leather Stores v. ITO [1975] 100 ITR 1 (SC). 28. HARYANA ACRYLIC MANUFACTURING CO. vs. CIT AND ANOTHER [2009] 308 ITR 38 (Del) 29. WEL INTERTRADE P. LTD. AND ANOTHER vs. ITO [2009] 308 ITR 22 (Del) 30. NESTLE INDIA LTD. vs.DCIT [2016] 384 ITR 334 (Del) 31. CIT (LTU) vs. RELIANCE INDUSTRIES LTD. [2016] 382 ITR 574 (Bom) 32. MUNJALSHOWA LTD. vs.DCIT AND ANOTHER [2016] 382 ITR 555 (Del) 33. NIRMAL BANG SECURITIES PVT. LTD. vs.ACIT AND OTHERS [2016] 382 ITR 93 (Bom) 34. SUN PHARMACEUTICAL INDUSTRIES LTD.(Earlier known as Ranbaxy Laboratories Ltd.) us.DCIT AND ANOTHER[2016] 381 ITR 387 (Del) 35. BHARAT JAYANTILAL PATEL vs. UNION OF INDIA AND OTHERS S.C. DHARMADHIKARI and A. K.MENON JJ. [2015] 378 ITR 596 (Bom) 37. CONSULTING ENGINEERING SERVICES (INDIA) P. LTD. us.DCIT [2015] 378 ITR 318 (Del) 40. GLOBAL SIGNAL CABLES (INDIA) P. LTD. us.DCIT [2014] 368 ITR 609 (Del) 41. BBC WORLD NEWS LTD.(formerly known as BBC World Ltd.) vs. ASSISTANT DIRECTOR OF INCOME-TAX [2014] 362 ITR 577 (Del)

JUDICIAL PRONOUNCEMENTS WRT TO PARA 3C ABOVE Judgement Judgement Name No. 21. GKN Drivershafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC) 22. Allana Cold Storage Ltd. v ITO [2006] 287 ITR 1 (Bom.) 23. Smt. Kamlesh Sharma v. B.L.Meena, ITO [2006] 287 ITR 337 (Delhi) 24. IOT Infrastructure and Energy Services Ltd. v Asst. CIT [2010] 329 ITR 547 (Bom.)

JUDICIAL PRONOUNCEMENTS WRT TO PARA 3D ABOVE Judgement Judgement Name No. 14. CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi). 25. Vishwanath Engineers v. Asst. CIT [2013] 352 ITR 549 (Guj). 38. SHREE RAM BUILDERS vs. ACIT (OSD) [2015] 377 ITR 631 (Guj) 39. RAAJRATNA METAL INDUSTRIES LTD. vs. ACIT [2015] 371 ITR 222 (Guj) 43. XEROX MODICORP LTD. Vs DCIT [2013] 350 ITR 308 (Del) 44. ROSE SERVICED APARTMENTS PVT. LTD. AND ANOTHER vs DCIT [2012] 348 ITR 452 (Del)

JUDICIAL PRONOUNCEMENTS WRT TO PARA 3E ABOVE Judgement Judgement Name No. 5 Atomstroyexport v. Deputy DIT (I.T.) [2014] 363 ITR 612 (Bom). 6 Sayaji Hotels Ltd. v. ITO [2011] 339 ITR 498 (Guj). 8 CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). 9 CIT v. ICICI Bank Ltd. [2012] 349 ITR 482 (Bom). 10 Direct information (P.) Ltd. v. ITO [2012] 349 ITR 150 (Bom) 11 NYK Line (India) Ltd. v. Deputy CIT (No. 2) [2012J 346 ITR 361 (Bom). 12 Rabo India Finance Ltd. v. Deputy CIT [2012] 346 ITR 528 (Bom). I.T.A .No.-1476/Del/2014 Richa Industries Ltd. vs ACIT

Page 7 of 8 13 NDT Systems v. ITO [2014] 363 ITR 602 (Bom) 15 Ritu Investments (P) Ltd. v. Deputy CIT [2012] 345 1TR214 (Delhi). 16 Amrit Feeds Ltd. v. Asst. CIT [2012] 344 ITR 187. (Cal) 18 ITO v. Nawab Mir Barkat Ali Khan Bahadur [1974J 97 ITR 239 (SC). 19 Asst. CIT v. ICICI Securities Primary Dealership Ltd. [2012] 348 ITR 299 (SC). 20 CIT v. Usha International Ltd. [2012] 348 iTR 485 (Delhi). 26 ABHA GUPTA Vs. DCIT [2016] 385 ITR 452 (Del) 27 ALLIED STRIPS LTD. vs. ACIT [2016] 384 ITR 424 (Del) 34 SUN PHARMACEUTICAL INDUSTRIES LTD.(Earlier known as Ranbaxy Laboratories Ltd.) vs. DCIT AND ANOTHER[2016] 381 ITR 387 (Del) 36 CIT vs.ARVIND REMEDIES LTD. [2015] 378 ITR 547 (Mad) 37 CONSULTING ENGINEERING SERVICES (INDIA) P. LTD. vs.DCIT [2015] 378 ITR 318 (Del) 42 RANBAXY LABORATORIES LTD Vs DCIT [2013] 351 ITR 23 (Del)

(B.4). The Ld.DR appearing on behalf of the Revenue, supported the orders of the AO and the

CIT(A) and relied upon their orders.

(C). We have heard both the sides patiently. We have also considered all materials on

record. The central issue in dispute is whether initiation of re-assessment proceedings u/s 147

r.w.s. 148 of the Act vide aforesaid notice dated 29.03.2012 u/s 148 of the Act is valid in law.

We find that the re-assessment proceedings have been initiated vide notice issued on

29.03.2012 u/s 148 of the Act. This is after the expiry of 4 years from the end of relevant

assessment year. On perusal of Proviso to section 147 of the Act, it is obvious that re-

assessment proceedings u/s 147 r.w.s 148 of the Act cannot be initiated after expiry of 4 years

from the end of the relevant assessment year unless there is a failure on the part of the

assessee to disclose fully and truly all material facts. In the instant case, neither the AO nor

the CIT(A) has mentioned which material facts necessary for the assessment of the assessee

were not fully and truly disclosed by the assessee. There may be an Audit Objection raised by

the Revenue Audit but even the Audit Objection itself is based on the material already

available to the AO at the time when he passed assessment order dated 19.12.2007 u/s

143(3) of the Act/ Rectification order dated 10.03.2008 u/s 154 of the Act. It is not the case of

the AO or the CIT(A) that the Audit Objection was based on any fresh material which was not

already disclosed by the assessee. On perusal of the orders of the lower authorities and on

consideration of materials available on record, we do not find any fresh material, not already

disclosed by the assessee that led to the objection raised by Revenue Audit or which resulted

in initiation of re-assessment proceedings. Revenue has failed to make a case that there was

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Page 8 of 8 failure on the part of the assessee to disclose all material facts fully and truly. Further, the dispute is also covered in favour of the assessee by orders of Co-ordinate Bench of the ITAT, Delhi in the cases of Landbase India Ltd. vs DCIT(supra); Uttaranchal Jal Vidyut Nigam Ltd. vs ACIT(supra); Upkar International P.Ltd. vs DCIT(supra); and Magppie Exports vs DCIT (supra). Respectfully following these precedents and also in view of the fact that Revenue has

failed to make out a case that there was failure on the part of the assessee to disclose material facts fully and truly; we hold that initiation of re-assessment proceedings was invalid in the facts and circumstances of this case. Accordingly, we set aside the order of the Ld. CIT(A) and annul the assessment order dated 31.01.2013 passed u/s 143(3)/147 of the Act. (D). As we have already decided to set aside the order of the CIT(A) and to annul the

assessment order, other issues raised by the assessee in the appellate proceedings do not require specific adjudication being academic in nature; hence not decided. In the result, the appeal of the assessee is allowed for statistical purposes. The order is pronounced in the open court on 14th of March 2017. Sd/- Sd/- (KULDIP SINGH) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:- 14.03.2017 *Amit Kumar* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI

I.T.A .No.-1476/Del/2014 Richa Industries Ltd. vs ACIT