ETHIX HEALTHCARE,CHANDIGARH vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE , PARWANOO

Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has since sustained the said addition.

Against the said findings and the directions of the Ld. CIT(A), the assessee is in appeal before us.

During the course of hearing, the Ld. AR submitted that the AO has erred in exercise of jurisdiction under section 147 of the Act as no new fact or information has come to his knowledge to form a belief that income has escaped assessment as all the relevant facts and information basis which the reassessment has been initiated were already available on record and considered at length by AO while framing the original assessment under section 143(3) of the Act. It was submitted that it is clearly a case of change of opinion which is not permissible for invocation of jurisdiction under section 147 of the Act and in support reliance was placed on the decision of the Full Bench of the Delhi High Court in case of CIT vs. Kelvinator of India Ltd. 256 ITR 1. Elaborating further, it was submitted that the amount of Rs. 30,85,390/- was received by the assessee towards packaging material etc as per the requirement of the party and corresponding expenses have been debited in the P&L Account and during the course of original assessment proceedings, the AO has examined the said fact and duly verified the record produced before him and after due verification of sales as well as purchase invoices, out of the receipt of Rs. 30,85,390/- after allowing for corresponding expenses, the AO had made the addition of Rs. 48,149/-, being the net income which is apparent from the assessment order passed under section 143(3) dt. 27/02/2015 and our reference 4 was drawn to the relevant findings which are contained at para 3 & 4 of the assessment order passed under section 143(3) and the contents thereof read as under: “3. As per information given in Form No. 10CCB, the assessee started its business activity / operation on 03/02/2009 and initial Asst. Year for claim of deduction u/s 80-IC of the Act was Asst. Year 2009-10 accordingly the assesssee has claimed deduction u/s 80-IC to the extent of the 100% eligible profit being current year is 4th year. During the course of assessment proceedings, assessee’s counsel was asked to justify its claim for deduction under section 80-IC. After verification of documents furnished, it has been observed that the assessee firm fulfills all the requisite conditions as laid under the Income tax Act for claiming deduction under section 80-IC of the Income Tax Act.

On perusal of the P & L account, it was noticed that the assessee has credited an amount of Rs.48,149/- under the head 'packing and other receipt also claimed deduction u/s 80IC of the Act on this receipt. The assessee was asked to explain the same, to which it was stated that the said income is consequential to business and hence, deduction u/s 80-IC of the Act was rightly claimed on the same. The contention of the assessee' counsel is not found to be acceptable in view of the judgment of the Hon'ble Supreme Court in the case of M/s. Liberty India Ltd. Vs CIT (317 ITR 218) wherein it has been held by the Hon'ble Court that income in the nature of duty drawback and DFPB benefits does not have a nexus of the first degree with the industrial undertaking and is therefore not eligible for deduction u/s 801B of the Act. In this judgment, the Hon'ble Court also considered the question as to whether such remissions should be set off against the cost of purchases. The Court held that duty drawback, rebates etc. cannot be credited against the cost of manufacture for the purposes of section 80-IC of the Act, as such, credits would constitute individual sources of income beyond the first degree nexus between profits and industrial undertaking. This part of the judgment indicates that even credits like trade discounts. rebates cannot be considered as income derived from the industrial undertaking. In view of the above referred judgment of Hon'ble Supreme Court, it is held that the income on account of interest cannot be said to be directly derived from manufacturing activities of the industrial undertaking and hence is not eligible for deduction u/s 80-IC of the Income Tax Act 1961. Accordingly, the deduction claimed u/s 80-IC amounting to Rs.48,149/- is disallowed and the same is added to its total income of the assessee firm.” 8. It was accordingly submitted that the proceedings have been wrongly initiated under section 147 of the Act and the same deserves to be set aside as no new material or information has came to the notice of the AO and the subject matter of the reasons so recorded was already examined and additions have been made in the original assessment order. 9. Further on merits, it was submitted that as part of its regular business activity, the assessee raise invoices on its customers which includes the amount 5 towards packing and labelling charges etc amounting to Rs. 30,85,390/- and has incurred corresponding expenditure of Rs. 30,50,389/- debited under the head “purchases” resulting in gross profit of only Rs. 35,001/- and therefore the question that arise for consideration is whether the said profit of Rs. 35,001/- is eligible for 80IC deduction or not and not the whole of the gross receipt of Rs. 30,85,390/- which has been brought to tax by the AO. It was submitted that the assessee has not claimed deduction under 80IC on the amount credited in the P&L account but on the profit derived out of the transaction i.e, Rs. 35001/- as so acknowledged by the ld CIT(A). It was further submitted that in any case, the AO in the original assessment proceedings has already made a disallowance of Rs. 48,149/- on the said transaction and therefore, there is no question of further disallowance of the said amount. It was accordingly submitted that the addition so made be directed to be deleted.

It was further submitted that as far as the assessee’s eligibility for claim of deduction under section 80IC is concerned, the same was never disputed by the AO and in fact, it is not the first year of claim of said deduction and the said deduction has been claimed and allowed since A.Y. 2009-10 as evident from Form No. 10CCB wherein it has been stated that the eligible business/undertaking is located in notified specified area in the state of Himachal Pradesh at Khasra No. 82/33, Kalka Shimla Highway, Deonghat, Saproon, Solan and therefore, where the AO for the impugned assessment year has not questioned the assessee’s eligibility for claim of deduction, the ld CIT(A) has exceeded his jurisdiction and that too, without issuing any notice to the assessee or allowing any opportunity to the assessee.

Per contra, the Ld. DR has relied on the findings of the lower authorities.

We have heard the rival contentions and purused the material available on record. In the reasons so recorded before the exercise of jurisdiction u/s 147, the AO states that on perusal of Trading and Profit & Loss Account, it has been noticed that asssessee firm has credited an amount of Rs. 30,85,390/- under the 6 head 'Endorsement and packaging charges and other receipts' and also claimed deduction u/s 80 IC of the Act on this receipt. This fact is thus emerging from the existing information and infact, reflected on the face of the profit/loss account and no new information has come on record and the AO’s reasons are limited to claim of deduction on Rs 30,85,390/-, being in the nature of endorsement and packing charges and not on the whole of the deduction which has been claimed and allowed in the original assessment proceedings. Further, the AO stated that during the course of original assessment proceedings, his predecessor AO has made an addition of Rs. 48,149/- under the same head for the reasons that there is no first degree nexus between profit and industrial undertaking. Therefore, basis the existing information, the AO records the fact that an opinion has already been formed by his predecessor and where the AO now seeks to review the said decision, it is a clear case of change of opinion which is not permissible as per the settled legal position as so laid down by the Courts from time to time. As far as the quantum of income which is sought to be held not eligible for deduction u/s 80IC is concerned, the AO has wrongly considered the gross receipts without allowing for corresponding expenses as it is only the net income which is eligible for deduction and which infact has been claimed by the assessee. In the original assessment proceedings, the assessee has submitted details workings regarding the receipts and corresponding expense debited under the head “purchases” and basis the same, the AO has already disallowed net income of Rs 48,149/- on this account as not eligible for deduction u/s 80IC and therefore, there cannot be further disallowance of the said amount again during the reassessment proceedings.

We therefore agree with the contention of the ld AR that the AO has erred in exercise of jurisdiction u/s 147 as no new information has come on record and matter has already been examined by the AO in the original assessment proceedings and it clearly amounts to change of opinion and taxing the income twice which has already suffered a disallowance in the original