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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI R.C. SHARMA & SHRI SANDEEP GOSAIN
PER SANDEEP GOSAIN, JM :
The present appeal has been filed by the assessee against the order of CIT(A)-15, Mumbai dt. 28.12.2011 for A.Y 2003-04 in Appeal No. CIT(A)-15/IT-135/08-09 on the following grounds of appeal :
“Re-opening of assessment
(i) The learned Commissioner of Income Tax (Appeals) [„learned CIT(A)‟] erred in confirming reopening of assessment under section 147. The learned CIT(A) ought to have appreciated
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that reopening of the assessment is not permitted as a result of mere change of opinion.
(ii) The appellant objects to the reassessment order and prays that the reassessment order shall be held as bad in law and void ab initio.
Addition of advance license
(i) The learned CIT(A) erred in confirming that the value of advance license amounting to Rs. 74.17 lakhs cannot be reduced from raw material cost of the Rifampicin undertaking and should rather be excluded from the profits and gains of this industrial undertaking while computing deduction under section 80-IB.
(ii) The learned CIT(A) erred in confirming that the value of advance license is not any profit/gains derived from any industrial undertaking and shall not be eligible for deduction under section 80-IB.
(iii) The learned CIT(A) failed to appreciate that advance license scheme which is meant to reduce the cost of goods to be exported and therefore, it is directly related to the activity of the industrial undertaking and hence, need to be considered for determining the profit under section 80-IB.”
The brief facts of the case are that the assessee is a limited company and is engaged in the business of manufacture and sale of formulations and bulk drugs. Assessment u/s 143(3) was completed on 30.3.2006 assessing the total income at Rs.58,77,06,709/- under normal provisions and Rs.78,68,15,426/- as book profits u/s 115JB of the Income Tax Act, 1961 (in short „the Act‟). As tax on total income under normal provisions was more than tax on book profits, the assessment was completed under normal provisions of the Act.
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Rectification order u/s 154 was passed on 22.3.2007 to grant deduction u/s 35(2AB) revising total income to Rs.58,19,15,964/- under normal provisions and Rs.78,04,08,440/- as book profits u/s 115JB. Against the order u/s 143(3) passed by the Assessing Officer on 30.3.2006, the assessee had filed an appeal on 28.4.2006 vide No. CIT(A)-15/IT-26/06-07 which was disposed of by order dated 29.12.2010. Case of this year, i.e., Assessment Year 2003-04 was reopened u/s 147 and notice u/s 148 dated 7.3.2008 was duly served upon the assessee by the Assessing Officer, Addl. CIT-Asst. CIT 10(1), Mumbai. The assessee vide letter dated 17.3.2008 submitted that return filed u/s 139 be considered for the purpose of Sec. 148 notice. The jurisdiction of the case was transferred to LTU, Mumbai u/s 127 vide order no. CIT-10/Juris 127/Transfer/2007-08 dated 26.5.2008. The assessment order u/s 143(3) r.w.s. 147 of the Act was passed on 30.12.2008 reassessing the income at Rs.60,41,53,464/- under the normal provisions of the Act after withdrawing the deduction u/s 80IB. Aggrieved by the order of assessment u/s 143(3) r.w.s. 147 of the Act, the assessee preferred an appeal before the CIT(A) and CIT(A) after considering the case of both the parties has partly allowed the appeal vide order dated 28.12.2011. Aggrieved by the order of CIT(A), assessee has preferred the present appeal before us on the grounds mentioned hereinabove as per the revised summarized and alternate grounds of appeal.
Ground no. 1 - This ground relates to reopening of assessment wherein the assessee has challenged the order of CIT(A) confirming reopening of assessment u/s 147. The Ld. AR representing the assessee drew our attention first of all to the order of the Assessing
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Officer whereby the Assessing Officer has recorded reasons for reopening which are reproduced as under :-
“5. Reasons for reopening The reasons recorded by ACIT-10(1) for issuing notice u/s 148 are as below: “Assessee company filed their return of income on 28.11.2003 declaring total income of Rs.49,48,05,000/-. The assessement was completed u/s. 143(3) on 30.03.2006 at an income of Rs.58,77,06,709/-. Excess allowance of deduction u/s. 80 I When the gross total income of an assessee includes any Profits & Gains derived from a newly established undertaking, which goes into production after 31.03.1991, the assessee is entitled to a deduction of 30% of profits subject to the fulfillment of certain conditions. For determining the quantum of deduction, profits and gains of the eligible business shall be computed as if such profits and gains were the only source of income of the assessee during the relevant previous year.
In this case, assessment was completed u/s. 143(3) on 30.03.2006 determining taxable income at Rs. 58,77,06,709/-. On verification of the case records, it is seen that assessee company has claimed deduction u/s.80lB amounting to Rs. 214.44 lakhs being 30% of profits and gains of Rs. 714.80 lakhs in respect of Rifampicin Manufacturing unit. The profits and gains of Rs. 719.80 lakhs was arrived at after reducing the export incentive of Rs.368 lakhs earned by the Rifampicin unit for the purpose of computing 80 lB deduction. In the assessement, the profit determined from Rifampicin unit was determined at Rs. 7,41,25,014/- and deduction under section 80IB was allowed on it @ 30% amounting to Rs.2,22,37,504/-.
It is seen that export benefit of Rs. 763.26 lakhs was shown under the head other income in the profit and loss account. It is also seen that the export benefits of Rs. 763.26 lakhs was allocated to different units in the following manner:
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(Rs. in lakhs) Total FML FML Bulk Rifampicin New CEFACLORE Other injections other other (Eligible Pril for 80IB) 763.26 0.40 138.56 256.25 368.00 - - 0.05
It was noticed from the schedule 17, item (i) and form the detailed submission of raw material consumed that export benefit of Rs.6032.80 lakhs was adjusted against the cost of raw materials.
It is also seen that computing deduction u/s.80IB in respect of Rifampicin unit, export benefit of Rs.763.26 lakhs shown under the head 'other income' (i.e. 368.00 lakhs for Rifampicin Unit) was considered for disallowance, the export benefit (advance licence) of Rs. 60,32,80 lakhs adjusted against the cost of raw materials was remained to be considered for disallowance. Out of export benefit of Rs.60,32.80 lakhs, the export benefit allocable to Rifampicin unit i8s hereby worked out to Rs.2908.41 lakhs by applying the same ratio/percentage as taken by the assessee in respect of export incentive of Rs. 763.26 lakhs. (i) 368.00 lakhs (export incentive of Rifampicin unit out of 763.26 lakhs) x 100 763.26 lakhs (export incentive shown under other income) = 48.21% (ii) By applying the same percentage Export incentive of Rifampicin unit out of export Incentive of Rs.60,32,80 lakhs (shown under cost of raw materials) works out to: = 60,32.80 x 48.21% = 2908.41 lakhs
The export incentive of Rs.2908.41 lakhs worked out in respect of Rifampicin unit was also required to be reduced for arriving at profits eligible for 80 IB deductions.
After reducing the export incentive of Rs.2908.41 lakhs, no profit would be available for claiming 80IB deductions in respect of the said unit and therefore, no deduction is allowable.
The entire deduction of Rs. 2,22,37,504/-, u/s. 80 IB, was incurred and should have been disallowed. The wrong claim of the assessee resulted in escapement of Rs. 2,22,37,504/- from assessment.
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In view of the above, I have reason to believe that income chargeable to tax, as mentioned above, has escaped assessment within the meaning of section 147. Proceedings u/s. 147 is initiated herewith."
Apart from the above reproduction, the Ld. AR also drew our attention to para 5.1 from pages 5 to 17 which contains the reply filed by the appellant vide their letter dated 2.11.2007 before the Assessing Officer in respect of reasons for reopening. The Ld. AR further argued that the Assessing Officer has not considered the legal submissions made by the assessee and has wrongly reopened the assessment in violation of the provisions of the Act as well as the judicial pronouncements. The Ld. AR further argued that the CIT(A) has also erred in confirming the reopening of the assessment u/s 147 without appreciating that reopening of assessment is not permitted under the facts of the present case.
The Ld. AR relied upon the detailed submissions made by the assessee before the CIT(A) and, apart from taking other grounds, the Ld. AR challenged the order of Assessing Officer of reopening on the ground that the Assessing Officer ought to have passed a separate speaking order disposing of the objections raised by the assessee and in case the Assessing Officer did not pass any speaking order regarding disposing of the objections raised by the assessee, then, reopening is invalid u/s 148. In this respect, the Ld. AR relied upon the following judgments :
i) GKN Driveshafts India Ltd., (2003) 259 ITR 19 (SC)
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ii) Tupperware India Pvt. Ltd., ITA 415 of 2015 (Del. HC) dated 10th August 2015 iii) Asian Paints Ltd., (2008) 296 ITR 90 (Bom HC) iv) Multiplex Trading & Industrial Co. Ltd., (2015) 94 CCH 30 (Del HC) v) Gujarat Eco Textile Park Ltd., (2015) 372 ITR 584 (Guj HC) vi) Samcor Glass Limited, ITA 768 and 769/Del/2015 (Delhi HC) dated 12th October 2015
The Ld. AR further argued that reopening is bad in law on mere change of opinion and, in the present case, no tangible material was available, therefore, in the absence of any new tangible material reopening is bad in law. In this respect, the Ld. AR relied upon the following judgments :
i) Kelvinator India Ltd., (2010) 320 ITR 561 (SC) ii) Kalvinator of India Ltd., (2002) 256 ITR 1 (Del HC) iii) Motilal R. Todi, ITA No. 2910/Mum/2013 (Mum Trib) dated 22nd September, 2015 iv) GKN Sinter Metals Ltd., (2015) 371 ITR 225 (Bom HC) v) Oriental Insurance Company, (2015) 94 CCH 12 (Del HC) vi) Amitabh Bachchan, (2012) 349 ITR 76 (Bom HC) vii) Cartini India Ltd., (2009) 314 ITR 275 (Bom HC) viii) Asian Paints Ltd., (2009) 308 ITR 195 (Bom HC) ix) Asteriods Trading & Investment P. Ltd., (2009) 308 ITR 190 (Bom HC) x) Commissioner of Income Tax vs Orient Craft Ltd., (2013) 354 ITR 536 (Delhi HC)
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xi) M/s. GTL Limited vs ACIT, ITA No. 6971/Mum/2010 (Mum Trib) dated 2nd January, 2015 xii) Prashant Joshi vs Income Tax Officer & Anr, (2010) (Bom HC) 324 ITR 154
The Ld. AR further argued that the ACIT (LTU) without first dealing with the objections and disposing of the said objections through a separate speaking order dismissed the appellant‟s claim of deduction u/s 80IB in the reassessment order itself. It was further argued by the Ld. AR that in respect of the reassessment notice dated 7.3.2008 issued u/s 148 of the Act, the assessee submitted vide letter dated 17.3.2008 that the return filed u/s 139(4) r.w.s. 139(1) shall be treated as a return filed in response to the said notice and requested to provide reasons for reopening the assessment. Simultaneously, the appellant also objected to the reopening proceedings. Thus, the case of the appellant was transferred to LTU, Mumbai. The ACIT (LTU) without passing a speaking order dealing with the objections raised by the appellant straightaway passed reassessment order. Thus, the said reassessment order passed by the Assessing Officer without disposing of the appellant‟s objections through a speaking order shall be treated as bad in law and void ab initio. It was further argued by the Ld. AR that even while disposing of the objections in the reassessment order, the Assessing Officer did not give any finding as to how he has come to the conclusion that he has valid reasons for reopening of the assessment.
On the other hand, the Ld. DR relied upon the orders passed by the Assessing Officer as well as the CIT(A). Further, it was argued by the Ld. DR that notice u/s 142(1) and copy of reasons recorded was
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given to the assessee on 29.9.2008 but even inspite of receipt of the copy of reasons recorded, the assessee has not made any compliance. However, after sufficient gap of almost a month notice has been given to the assessee on 26.11.2008 and vide this notice assessee has been told that he had not complied with the earlier notice u/s 141(1) dated 29.9.2008. It was argued by the Ld. DR that on 3.12.2008 the assessee had filed adjournment and sought time and even on 5.12.2008, the assessee did not make any compliance and instead, vide letter dated 12.12.2008, the assessee filed the objection. The Ld. DR further submitted that as per Sec. 153(2) the time barring date of the reassessment proceedings was 31.12.2008, therefore, in view of this peculiar fact where despite being given enough time to file objection, the assessee chose to file objection at the fag end of time barring date, i.e., 31.12.2008 for the completion of the reassessment proceedings. Therefore, the Assessing Officer was compelled to dispose of the objections raised by the assessee in the assessment order. It was further argued that the Assessing Officer had to pass the order disposing the objections of the assessee as part of the assessment order due to the delay on the part of the assessee in late filing of its objections. The Ld. DR, lastly, relied upon the order passed by the CIT(A).
We have heard the counsels of both sides, perused the material on record as well as the orders passed by the revenue authorities. The moot question before us is to analyze as to whether the order of reopening passed vide reassessment order by the Assessing Officer is correct as per law or not. In this context, after hearing the detailed arguments of both sides we first of all refer to the judgment of Hon'ble Supreme Court in the case of GKN Driveshafts India Ltd., (2003) 259
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ITR 19 (SC) (supra). The relevant portion of the said judgment is at para 5 which is reproduced as under:-
“5. We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under s. 148 of the IT Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the AO has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.”
Next, we refer to the judgment of Hon‟ble Delhi High Court in the case of Tupperware India Pvt. Ltd., ITA 415 of 2015 (Del. HC) dated 10th August 2015 (supra). The relevant portions of the said judgment are at para 6, 12, 13, 15, 17 & 20 which are reproduced as under:-
“6. The Court is of the considered view that after having correctly understood the decision of the Supreme Court in G.K.N. Driveshafts (India) Ltd. (supra) as mandatorily requiring the AO to comply with the procedure laid down therein and to dispose of the objections to the reopening order with a speaking order, the CIT(A) committed an error in not quashing the reopening order and the consequent assessment. 12. At the outset it requires to be factually noticed that the reopening order of the AO only refers to the report of Statutory Auditor under Section 44AB of the Act which report was already enclosed with the return filed by the Assessee. Therefore, factually, there was no new material that the AO came across so as to have „reasons to believe that the income had escaped assessment‟.
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As far as the legal requirement is concerned, the Court finds that the decision in CIT v. Orient Craft Ltd. (supra) answers the question squarely in favour of the Assessee in the facts of the present case. In Orient Craft Ltd. this court considered the decisions of the Supreme Court in CIT v. Kelvinator India Ltd. (2010) 320 ITR 561 and Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra).
In CIT v. Orient Craft Ltd. (supra) the Revenue sought to argue, placing reliance on Rajesh Jhaveri Stock Brokers P. Ltd. (supra) that “intimation” could not be equated with “assessment”. The Court observed that the decision in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) “contrary to what the Revenue would have us believe, does not give a carte blanche to the Assessing Officer to disturb the finality of the intimation under Section 143(1) at his whims and caprice; he must have reason to believe within the meaning of the Section.” The Court in Orient Craft Ltd. recorded that the decision in Rajesh Jhaveri Stock Brokers P. Ltd. underscored that the intimation under Section 143(1) of the Act could be disturbed by initiating reassessment proceedings only:
“so long as the ingredients of Section 147 are fulfilled and with reference to Section 147(1) vis-a-vis Section 147, the only ingredient is that there should be reason to believe that income chargeable to tax has escaped assessment and it does not matter that there has been no failure or omission on the part of the assessee to disclose full and true particulars at the time of the original assessment. There is nothing in the language of Section 147 to unshackle the Assessing Officer from the need to show “reason to believe”. The fact that the intimation issued under Section 143(1) cannot be equated to an “assessment”, a position which has been elaborated by the Supreme Court in the judgment cited above, cannot in our opinion lead to the conclusion that the requirements of Section 147 can be dispensed with when the finality of an intimation under Section 143(1) is sought to be disturbed.”
The Court in CIT v. Orient Craft Ltd. (supra) further comprehensively rejected the argument of the Revenue, which it seeks to urge in the present case as well, that an „intimation‟ under Section 143(1) cannot be equated to an assessment. The Court held:
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“The argument of the revenue that an intimation cannot be equated to an assessment, relying upon certain observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be self-defeating, because if an “intimation” is not an “assessment” then it can never be subjected to Section 147 proceedings, for, that section covers only an “assessment” and we wonder if the revenue would be prepared to concede that position. It is nobody‟s case that an “intimation” cannot be subjected to Section 147 proceedings; all that is contended by the assessee, and quite rightly, is that if the revenue wants to invoke Section 147 it should play by the rules of that section and cannot bog down. In other words, the expression “reason to believe” cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under Section 143(3) and another applicable where an intimation was earlier issued under Section 143(1). It follows that it is open to the assessee to contend that notwithstanding that the argument of “change of opinion” is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under Section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements.” 20. In the first place, it requires to be noted that the decision in Orient Craft Ltd. was delivered after the decision of the Full Bench in Usha International Ltd. (supra). Secondly, the subsequent decision in Madhukar Khosla noted the decision in Usha International Ltd. and reiterated the dictum in Orient Craft Ltd. Again in a decision dated 28th January 2015 in Mohan Gupta (HUF) v. Commissioner of Income Tax-XI (2014) 366 ITR 115 (Del) the Court reiterated the decision in Orient Craft Ltd. Thirdly, the Court finds that the questions framed for consideration by the Full Bench in Usha International Ltd. as set out in para 1 of the said judgment did not pertain to reopening of an assessment under Section 143(1) of the Act. The four questions referred to the Full Bench were as under :
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“(i) What is meant by the term “change of opinion” ? (ii) Whether assessment proceedings can be validly reopened under Section 147 of the Act, even within four year, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment and whether and when in such cases reopening is valid or invalid on the ground of change of opinion? (iii) Whether the bar or prohibition under the principle “change of opinion” will apply even when the Assessing Officer has not asked any question or query with respect to an entry/note, but there is evidence and material to show that the Assessing Officer had raised queries and questions on other aspects ? (iv) Whether and in what circumstances Section 114(e) of the Evidence Act can be applied and it can he held that it is a case of change of opinion? “
We have also analyzed the judgment of Hon‟ble Delhi High Court in the case of Multiplex Trading & Industrial Co. Ltd., (2015) 94 CCH 30 (Del HC). The relevant portion of the said judgment is at para 33 which is reproduced as under:-
“33. In the present case, the objections filed by the Assessee were not disposed of by the AO and he proceeded to frame the assessment. This court in M/s. Haryana Acrylic Manufacturing Co. (P) Ltd. had observed that the requirements regarding recording the reasons to believe; communicating the same to the Assessee; permitting the Assessee to file the objections; and passing a speaking order disposing of the objections are all designed to ensure that the AO does not reopen assessments, which have been finalized, on his mere whim and fancy and that he does so only on the basis of lawful reasons. It was further held that a deviation from the directions issued by the Supreme Court in G.K.N. Driveshafts (India) Ltd. would entail nullifying the proceedings. Although the AO
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is required to provide reasons, receive objections and pass a speaking order thereon, only after the notice under Section 148 has been issued; these requirements are an integral part of the safeguards which have been inbuilt for ensuring that the assessments are reopened only for lawful reasons and in a transparent manner. If the said safeguards are flouted, it would invalidate the exercise of jurisdiction u/s 147 and 148.”
From the co-joint reading of all the aforementioned judicial pronouncements it is clear that the Assessing Officer has to dispose of the objections, if filed by the petitioner, by passing a speaking order before proceeding with the assessment. It has been categorically mentioned that the Assessing Officer is bound to dispose of the objections filed by the assessee by passing a speaking order before proceedings with the assessment and further, it has also been categorically mentioned that if the Assessing Officer fails to comply with the procedure laid down thereunder, and to dispose of the objections to the reopening order with a speaking order, then, in that eventuality, the CIT(A) is to quash the reopening order and the consequent assessment. The crux of all the aforementioned judgments leads us to the conclusion that Assessing Officer is required to receive the objections and to pass a speaking order thereon before proceeding to pass the assessment order. We have also gone through the judgment of the Hon‟ble Bombay High Court in the case of Asian Paints Ltd., (2008) 296 ITR 90 (Bom HC) wherein it has been held as under :-
“If the AO does not accept the objections filed by the assessee against reopening of assessment, he is not to proceed further in the matter for a period of four weeks from the date of service of order rejecting the objections on the assessee – Above procedure is to be followed strictly in all such cases of reopening of assessment.”
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As per the factum of the aforementioned judgment of the jurisdictional High Court it is made clear that if the Assessing Officer does not accept the objections filed by the assessee against reopening of assessment, then, he is not to proceed further in the matter for a period of 4 weeks from the date of service of order rejecting the objections of the assessee. As per the aforementioned judgment, the Hon‟ble Court has directed that the above procedure is to be followed strictly in all such cases of reopening of assessment. After going through all the judgments referred to by both the parties and after considering the plea of the Revenue that there was a delay on the part of the assessee to file objections to the reasons for reopening, we noted that the reasons recorded by the Assessing Officer were received by the assessee on 6.10.2008 as per page 133 to 136 of the paper book filed by the assessee. Further, we have also noticed that the said reasons were requested by the assessee in the month of March, 2008 vide letter dated 17.3.2008 which was filed on 19.3.2008. Therefore, calculating the date for seeking reasons from the Assessing Officer and from actually getting the reasons recorded by the Assessing Officer there is a gap of approximately 8 months. Hence, under these circumstances we are of the view that the Ld. DR was justified in arguing that after filing objections by the assessee, the Assessing Officer did not have sufficient time. In the peculiar facts the Assessing Officer took approximately 7 months to give reasons to the assessee. From the perusal of the record it is quite clear that there was also some delay on the part of the assessee to file objections as the present case was a time barring case and the time barring date of this reopening proceeding was 31.12.2008. Therefore, the Assessing Officer had passed the order well within time, but at the same time we have also noticed that the Assessing Officer has violated the principles
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of natural justice as well as the principles laid down by the above judicial pronouncements as while passing the order of assessment u/s 143(3) r.w.s. 147 of the Act after considering the objections of the assessee, the Assessing Officer has disposed of the same in para 6 which is reproduced below :
“6. The explanation offered by the assessee has been considered. The case laws cited by the assessee are also perused. The contention of assessee that as all facts were before Assessing Officer before doing the assessment u/s 143(3) and hence reopening is not justified is not acceptable.
6.1 Assessee's mere submissions that the facts related to deduction were disclosed during assessment proceedings do not absolve the assessee from its responsibility of showing correct dedcution in its' return of income. Explanation 2 to section 147 clearly states that for the purposes of section 147, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:
where an assessment has been made, but- (i) income chargeable to tax has been under- assessed; or (ii) such income has been assessed at too low rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive toss or depreciation allowance or any other allowance under this Act has been computed
Further, in (2007) 161 TAXMAN 316 (SC) Assistant Commissioner of Income-tax Vs. Rajesh Jhaveri Stock Brokers (P.) Ltd., Hon'ble Supreme Court has held that
"In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it
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confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147... So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings..."
Hon'ble Delhi High Court also has held in (2006) 151 TAXMAN 41 (DELHI) Consolidated Photo & Finvest Ltd Vs Assistant Commissioner of Income-tax that
"Action under section 147 was permissible even if the Assessing Officer gathered his reasons to believe from the very same record as had been the subject-matter of the completed assessment proceedings. The argument that production of the account books and other documentary evidence relevant for assessment must imply a full and true disclosure of all material facts must be rejected out of hand in the light of the provisions of Explanation (1), according to which mere production of the books of account or other evidence from which the Assessing Officer could have, with due diligence, discovered the material evidence does not necessarily amount to a disclosure within the meaning of the proviso. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it has drawn, it can well be said that the authority has not applied its mind to the issue before it nor formed any
'
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opinion. The principle that a mere change of opinion cannot be a basis for reopening computed assessments would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment, as is the position in the present case. It is in that view inconsequential whether or not the material necessary for taking a decision was available to the Assessing Officer either generally or in the form of a reply to the questionnaire served upon the assessee. What is important is whether the Assessing Officer had based on the material available to him taken a view. If he had not done so, the proposed reopening cannot be assailed on the ground that the same is based only on a change of opinion."
That the disclosure should be both 'true' and 'full' has been settled by Hon'ble Supreme Court in Sri Krishna P. Ltd. V. ITO 221 ITR 538, Indian Oil Corporation ltd. V. ITO 1061TR 1.
In this case, assessee though had disclosed some facts related to claim of deduction. However, it had failed to disclose truly and correctly the effect of the same on the income of the assessee.
In view of the above and the fact that Assessing Officer had recorded the reasons to believe u/s 148 of the I.T.Act that income had escaped assessment, assessee's claim that all material facts were before Assessing Officer while framing assessment u/s 143(3) and therefore case can not be reopened, is not acceptable and hence rejected.
6.2 coming to the issue of facts of the case, as has been held in the case laws of Cambay Electric Supply Industrial Co Ltd v. CIT 113 ITR 84 (SC), CIT v. Sterling Foods 237 ITR 579 (SC), CIT v. Pandian Chemicals Ltd 262 ITR 278
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(SC), CIT v. Ritesh Industries Ltd 274 ITR 324 (Del), CIT v. Sundaram Clayton Ltd 281 ITR 425 (Mad), Liberty India v. CIT 293 ITR 520 (P&H) and Mentha & Allied Products Pvt Ltd 302 1TR 144 (All) that the income that is 'derived‟ from an industrial undertaking is only deductible u/s 80IB is clearly applicable in this case.
Further reliance is placed on the ratio of decision of the apex court in the case of M/s. Pandian Chemicals ltd vs. CIT 262 ITR 278 (SC) and CIT vs. Sterling Foods 237 ITR 579 (SC). In both the decisions, the apex court have held that the deduction inter-alia under section 80I is available only in respect of such profits and gains which have a direct and proximate nexus with the activity of manufacture or production. Any other profit or gain which is not 'derived from' an industrial undertaking though 'attributable to' the business of the industrial undertaking would not be entitled to deduction. The profit and gain must accrue in the course of or arise from the manufacture or production of the industrial undertaking. There must be for the application of the words "Derived from" a direct nexus between the profits and the industrial undertaking, a view taken by the apex court in the case of Sterling Foods. In the said decision the court have further observed that to claim the benefit the assessee has to establish that the profits and gains were derived from industrial undertaking and it was just not sufficient that commercial connection between the two was established. The industrial undertaking has to be the source of profits. The business of the industrial undertaking has directly to yield the profits. The industrial undertaking should be the direct source of that profit and not a means to earn the profit. The ratio of decision of the Apex Court in the case of M/s. Cambay Electrical Supply Industrial Company Ltd. Vs. CIT Gujarat-II [ 113 ITR 84] is also very much relevant here wherein the Hon'ble Supreme Court had an occasion to examine the meaning of the word 'derived from" and "attributable to". The question in this case was whether balancing charge u/s. 41(2) was a
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profit attributable to the business of the assessee. The assessee had sold machinery and buildings and had earned a profit there upon. While deciding this case the Hon'ble Supreme Court stated that:-
"It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that the balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains "derived from" the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the Learned Solicitor General, it has used the expression “derived from”, as for instance in section 80-J. In our view since the expression of wider import namely “attributed to”, has been used, the legislature intended to cover receipts from sources other than actual conduct of the business of generation and distribution of electricity.”
In view of the above, it is held that the assessee is not eligible for deduction u/s 80IB as held and computed in the reasons for reopening as in Para 5 above. Therefore, deduction u/s 80IB of Rs.2,22,37,504/- is disallowed and added back to total income of assessee.”
From the entire reading of the order of assessment we are of the considered view that the Assessing Officer has dealt with the objections in the assessment order itself in a composite manner. The Assessing Officer should have passed a speaking order before proceeding for assessment, and in this case, the Assessing Officer has not passed a well-reasoned speaking order which was required as per the principles of natural justice as well as the principles laid down by the above judicial pronouncements. Apart from this, as per the entire order of assessment u/s 143(3) r.w.s. 147 there was no new tangible material on record before the Assessing Officer, and in the absence of
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any new tangible material on record, the order of the Assessing Officer for reopening is bad in law as has been held in the following judgments.
i) Kelvinator India Ltd., (2010) 320 ITR 561 (SC) ii) Kalvinator of India Ltd., (2002) 256 ITR 1 (Del HC) iii) Amitabh Bachchan, (2012) 349 ITR 76 (Bom HC) iv) Cartini India Ltd., (2009) 314 ITR 275 (Bom HC) v) Asian Paints Ltd., (2009) 308 ITR 195 (Bom HC)
After considering the entire facts of the case and the legal position in the aforementioned cases, we are of the considered view that there is no need to go further in this case when once we are convinced that principles of natural justice as well as the principles laid down by the above judicial pronouncements have not been fully complied with by the Assessing Officer while passing the order of assessment u/s 143(3) r.w.s. 147 of the Act. Therefore, in our considered view the order passed by the Assessing Officer is bad in law and therefore stands quashed.
In the net result, the appeal of the assessee is allowed.
Order pronounced in the open court on 13th July, 2016.
Sd/- Sd/- (R.C. SHARMA) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date : 13th July, 2016 *SSL*
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Copy to : 1) The Appellant 2) The Respondent 3) The CIT(A) concerned 4) The CIT concerned 5) The D.R, “A” Bench, Mumbai 6) Guard file By Order
Dy./Asstt. Registrar I.T.A.T, Mumbai