ACIT 1(1), MUMBAI vs. CANNON INDUSTRIES LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य लेखा सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER RAJENDRA, AM- लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Brief Facts: Challenging the order,dated 31.3.12 of CIT(A)-I,Mumbai the Assessing Officer (A.O.)has filed the present appeal.Assessee-company,engaged in the business of manufacture and sale of cloth,filed its return of income 22.10.2002,declaring total income at Rs.nil.The assessment order u/s.143(3) of the Act, was passed on 28.3.2005 determining the total income of the assessee at Rs.2.80 crores.In the original assessment order deduction u/s.80HHC was not allowed though a claim under the said section amounting to Rs.70.44 lakhs was made.Afterwards, an order u/s.154 of the Act,dt.27.4.2006,was passed and deduction of Rs.48.91 lakhs was allowed u/s.80HHC of the Act. Subsequently,a notice u/s.148 was issued to the assessee,as the AO was of the opinion that the assessee was entitled to deduction of Rs.7.65 lakhs only.He held that the excess deduction of Rs.41.25 lakhs was allowed,that the escapement of income was because of the failure on part of the assessee to disclose fully and truly all the material facts necessary for assessment.The AO 5517/Mum/2011Cannon Industries completed the assessment u/s.143(3) r.w.s. 147 of the Act on 29.12.2009 deter - mining the income of the assessee at Rs.3.22 crores. 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him,issue of the validity of notice issued u/s.148 was questioned and it was stated that there was no failure on part of the assessee to disclose the facts fully and truly.The assessee also agitated the issue of disallowance of deduction u/s. 80HHC,amounting to Rs.48.91 lakhs.He called for a remand report from AO. After considering the matter available on record,he held that notice u/s.148 was issued on 23.3.2009 i.e., after completion of 4 years of the end of the relevant AY.,that the issue to be decided was as to whether there was any failure on the part of the assessee to disclose material facts necessary for the assessment, that the assessee had filed its return of income on 22.12.02, after claiming deduction, u/s.80HHC of Rs.70.44 lakhs, that the working of deduction claimed was given with the return of income,that it showed the amount of receipt of duty drawback and DEPB,that the AO had not allowed any deduction in the original order, that subsequently,while passing the rectification order u/s. 154 of the Act,he allowed deduction of Rs.48,91,467/- u/s. 80HHC,that he had disallowed the balance claim of Rs.21.52 lakhs on account of DEPB, that all those facts prove that the assessee had made a full and complete disclosure of duty drawback of Rs.1.23 crores,that the reasons recorded by the AO for reopening of the assessment was on account of interpretation of the proviso to section 80HHC(3) r.w.s. 28(iii)(c) of the Act.He referred to Circular No.5/2006 dt.15.5.2006 issued by the CBDT wherein the issue of Duty Drawback Under Customs and Central Excise Duties Drawback Rules,1995 had been explained.The FAA referred to the case of Kelvinator of India Ltd. of the Hon’ble Apex Court(320ITR561)and held that reassessment had to be based on fulfillment of certain conditions, that the AO had no power to review,that he had the power to reassess only, that in the case under consideration CBDT Circular of May 2006 was very much available to 2 5517/Mum/2011Cannon Industries the AO at the time of recording his reasons on 23.3.2009, that the Board had clarified the issue,that the AO was not correct in saying that full and true disclosure was not made by the assessee in its return of income, that there was no failure on part of the assessee. He referred to the case of ICICI Bank Ltd. (268ITR203) of the Hon'ble Bombay High Court and the orders of the Gujarat Flourochemicals Ltd.(6SOT64),Ahmednagar Forgings Ltd.(107TTJ129)and Chandan Metal Products (P)Ltd.(76TTJ201).Finally, he held that the AO’s action of reopening of the assessment u/s.147 of the Act was not justified. Annulling the assessment order, he allowed the appeal. 4.Before us, the Departmental Representative (DR) stated that matter could be decided on merits.None appeared for the assessee, as stated earlier. 5.We have heard the rival submissions and perused the material before us.We find that the assessment was reopened after a period of 4 years, that the proviso to section 147 were applicable,that the AO had failed to prove that the assessee had not disclosed the material facts fully and truly.Secondly,even on merits the action taken by the AO by issuing notice u/s. 148 was not justifiable.The FAA has given a finding of fact that the issue was covered in favour of the assessee in the light of the Board Circular of May, 2006.Thus, the reopening was not valid on both the counts i.e. jurisdiction and merits.In our opinion the order of the FAA does not suffer from any legal or factual infirmity.So,confirming his order,we decide the effective Ground of appeal against the AO.