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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI RAMIT KOCHAR
1 M/s Hanil Era Textiles Limited ITA No.5359/Mum/2011 आयकर अपीलीय अिधकरण “एच” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H”, MUMBAI �ी अिमत शु�ला, �याियक सद�य एवं �ी रिमत कोचर, लेखा सद�य के सम� ।
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
ITA No. : 5359/Mum/2011 (Assessment year: 2004-05) M/s Hanil Era Textiles Limited, Vs Asst. Commissioner of Income 1, New Era House, Moghul Lane, Tax- 6(3), Matunga (West), Aayakar Bhavan, M K Road, Mumbai -400 016 Mumbai -400 020 �थयी लेखा सं.:PAN: AAACH 2154 D अपीलाथ� (Appellant) ��यथ� (Respondent) Appellant by Shri Madhur Agarwal : Respondent by : Shri L K Dehiya सुनवाई क� तार�ख /Date of Hearing : 19-08-2015 घोषणा क� तार�ख /Date of Pronouncement : 16-11-2015 आदेश ORDER अिमत शु�ला, �या. स.: PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the assessee against impugned order dated 29.03.2011, passed by CIT(A) -12, Mumbai for the quantum of assessment passed u/s 143(3) r.w.s. 147 for the assessment year 2004-05, on the following grounds of appeal :-
“1. On the facts and in the circumstances of the case and in law the CIT(A) (A) erred in holding that the order passed by the Assessing Officer under section 147 r.w. section 143(3) is not bad in law and without jurisdiction. 2. On the facts and in the circumstances of the case and in law the CIT(A) (A) erred in holding that the Appellant is not entitled to deduction under section 10B in respect of the first undertaking which commenced manufacturing from the AY 1994-95 for which the deduction was claimed form the AY 1997-98. 3. On the facts and in the circumstances of the case and in law the CIT(A) (A) erred in holding that the Appellant is not
2 M/s Hanil Era Textiles Limited ITA No.5359/Mum/2011 entitled to deduction under section 80IA and 80HHC of the Act in reassessment proceedings.
On the facts and in the circumstances of the case and in law the CIT(A) (A) erred in levying interest under section 34A, 234B and section 234C of the Act”.
Brief facts of the case are that, assessee is a Public Limited Company, which is engaged in the business of manufacturing and exporting of yarn and textile from its 100% Export Oriented Unit (EOU) in SEZ Andheri (East). It had started its manufacturing from the assessment year 1994-95 and its profit from such an undertaking was eligible for deduction u/s 10B. Since at the relevant time the section 10B provided for choosing of initial assessment year for the purpose of deduction, therefore, the assessee started the claim by treating the initial year for deduction from assessment year 1997-98. For the impugned assessment year i.e. AY 2004-05, the assessee had filed its return of income declaring total income at “nil” after claiming deduction u/s 10B of Rs. 11,84,96,323/-. In support of its claim, it had filed Audit report as required u/s 10B in Form 56G. The said return of income was initially processed u/s 143(1) on 24.01.2005, however, later on it was selected for scrutiny vide notice dated 20.05.2005 u/s 143(2). The AO in the assessment order passed u/s 143(3), dated 24.03.2006 noted the factum of claim of deduction u/s 10B; the period from which assessee had started its manufacturing; and the period from which it has claimed deduction u/s 10B. The said observation of the AO in the original assessment order reads as under:-
“The assessee has started manufacturing form the AY 1994- 95 onwards. However, it has started claiming deduction u/s 10B from the AY 1997-98 for which certificate from an accountant as prescribed by Rule 16E in form no. 56G was submitted along with the return of income”
Thereafter, the AO computed the profit and deduction u/s 10B in the following manner:-
3 M/s Hanil Era Textiles Limited ITA No.5359/Mum/2011
I) Profit and gains of undertaking 19,16,79,548 II) Export turnover 65,77,03,148 III) Total turnover 1,00,46,67,175 Exemption allowable u/s 10B Profits of undertaking x Export turnover/Total turnover (Restricted to 90%) x 65,77,03,146Ux 90 = 11,29,34,333 19,16,79,548 1,00,46,67,175 100
Thus, the assessee’s claim for exemption u/s 10B was duly examined and adjudicated upon by the AO in the order passed u/s 143(3), dated 24.03.2006. After having completed the assessment in the aforesaid manner, the assessee’s case was reopened vide notice dated 20.03.2009 u/s 148 after recording the following reasons :- The return of income in this case was filed on 1.11.2004 declaring a total Income at NIL after claiming deduction u/s 10B of Rs 11,84,96,323/- and balance income h is set off against b/f Losses. The return was processed uls.143(1) on 5,02.2004. The assessment under section 143(3) was completed on 24-1-05 accepting the returned Income. The assessment u/s 143(3) was completed on 24-3-06 computing income at Nil but reducing the claim of deduction u/s 10B to Rs. 11,29,34,333/- and computing Book Profit as per provisions of section 115JB at Rs. 4'7264/-.
However it is seen that as per the provisions of section I0B(1) the said deduction u/s 10B is allowable for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things. However, on perusal of the records as well as certificate filed for the said claim, it is seen that the undertaking on which assessee was claiming the said deduction u/s 10B had started manufacture or production from 1st January, 1994 relevant to A.Y. 1994-95 and hence the period of 10 consecutive assessment years as per the provisions of section 10B expired with A.Y. 2003-04. Hence the entire claim of exemption I deduction u/s 10B made by the assessee for A.Y 2004-05 is no allowable.
Considering the above I have reason to believe that income to the extent of Rs.1129,34,333/-claimed/allowed as a deduction / exemption u/s 10B is chargeable to tax and has escape assessment. (Sd/-) Income Tax Officer 6(3)-2 Mumbai”
4 M/s Hanil Era Textiles Limited ITA No.5359/Mum/2011 In response, the assessee has challenged the validity of reopening, which has been rejected by the AO after relying upon various case laws as cited in the assessment order.
On merits, the Ld. AO in the impugned assessment order has observed that, the assessee has claimed an amount of Rs. 11,84,96,323/- as deduction u/s 10B from its 100% EOU. As per the certificate enclosed with the return of income, the assessee had mentioned that this was the 8th year of claim, because the assessee had chosen the initial year of claim from the assessment year 1997-98. The AO noted that as per the amended provision of section 10B(1), the deduction is allowable for a period of 10 consecutive assessment years beginning with the assessment year in which the undertaking begins to manufacture or produce article or things. Since assessee had started its manufacturing or production from 1st January, 1994, the period of 10 consecutive assessment years had expired in the assessment year 2003-04 itself, therefore, the assessee was not eligible for claim of deduction u/s 10B in this assessment year. Accordingly, the AO after detailed discussion and analyzing the provisions of section 10B(1) and Proviso thereto, disallowed the claim of deduction u/s 10B for sum of Rs. 11,84,96,323/-.
This action of the AO has been confirmed by the CIT(A) including the assessee’s challenge of validity of reopening. Besides this, the assessee before the CIT(A) has raised the alternative issues of claim of deduction u/s 80IA for the Power generation unit and claim u/s 80HHC from the export of the unit, to which assessee was entitled to. In support the assessee had filed audit report in prescribed form. The Ld. CIT(A) has rejected the assessee’s alternative claim made for the first time on the ground that this has not been taken earlier and it amounts to review of original assessment order which is not permissible and it is purely an afterthought by the assessee.
5 M/s Hanil Era Textiles Limited ITA No.5359/Mum/2011 5. Before us the Ld. Counsel, Shri Madhur Agarwal after explaining the entire facts submitted that, here in this case, the assessee had made full disclosure of its claim u/s 10B which has been examined and allowed by the AO in the original assessment proceedings. The AO has also noted the fact that assessee had started its production in the assessment year 1994-95 and claim for the first time u/s 10B was made from the assessment year 1997-98, because, at that time the statute provided for choosing of initial assessment year. Thus, the AO was aware of these facts and after considering these aspects he has allowed the claim. Now without there being any tangible material coming on record and on the basis of the same records, which was there earlier, the reopening has been done by the AO for disallowing the claim of deduction u/s 10B which is not permissible in law as it amounts to “change of opinion”. In support of his contention, he relied upon the decision of Hon’ble Bombay High Court in the case of Aroni Commercials Ltd vs ACIT, reported in [2014] 362 ITR 403 and Asteroids Trading and Investments Pvt Ltd vs DCIT, reported in [2009] 308 ITR 190 (Bom). In these decisions, he submitted that the Hon’ble Bombay High Court has held that, if no new material is brought on record then reopening cannot be done on mere change of opinion. The reasons recorded must be based on tangible material and not on the material which are already on record. He also relied upon a decision of Hon’ble Supreme Court in the case of CIT vs Kelvinator of India Ltd, reported in [2010] 320 ITR 561 (SC), wherein the Hon’ble Supreme Court has emphasized that power to reopen an assessment is not akin to power to review. The order of assessment based on mere change of opinion could not justify the reopening u/s 147.
Mr. Agrawal further submitted that, when the assessee has chosen initial assessment year, that is, 1997-98, then as per the amended provision the assessee was eligible for claim for deduction for 10 years, which was applicable uptil the year 2006-
6 M/s Hanil Era Textiles Limited ITA No.5359/Mum/2011 2007, therefore, assessee has rightly claimed the deduction u/s 10B in the impugned assessment year. However, he fairly admitted that on merits the Tribunal in assessee’s own case for the assessment year 2005-06 has decided this issue against the assessee inasmuch as the claim of deduction u/s 10B has not been accepted.
On the other hand, Ld. CIT-DR submitted that it is not a case of “change of opinion” here, because it has not been brought on record by the Ld. Counsel that, whether the AO had asked any question or raised any query about the commencement period of deduction u/s 10B and it does not appear that assessee has given any reply in this regard to the AO. Thus, there was no occasion by the AO to form his opinion. In support of his contention, he strongly relied upon Full Bench decision in the case of CIT vs Usha International Ltd., reported in [2012] 253 CTR (Del)(FB) 113 wherein, the Hon’ble Delhi High Court has also explained the decision of Hon’ble Supreme Court in the case Kelvinator of India. He drew our specific reference to para 13 of the decision, wherein it was held that reassessment would be invalid in the cases where in the assessment order itself the issue has been raised and decided in favour o the assessee or a query was raised by the AO which has been specifically answered by the assessee. Otherwise, it would not amount to change of opinion. If the AO has not examined the particular subject matter, then he cannot be held to be forming any opinion. Thus, there is no question of any change of opinion as argued by Ld. Counsel. On similar proposition he further referred to the decision of Hon’ble Gujarat High Court in the case of Gujarat Power Corporation Ltd. vs ACIT, reported in [2013] 350 ITR 266. Regarding plea of the Ld. Counsel, that there was no tangible material, he relied upon the decision of Hon’ble Bombay High Court in the case of Export Credit Guarantee vs Addl CIT, reported in 350 ITR 651, wherein Hon’ble High Court held that, it cannot be presumed or held that the AO must too have
7 M/s Hanil Era Textiles Limited ITA No.5359/Mum/2011 deemed to accepted what he has plainly overlooked or ignored in the assessment order. If the AO has ignored a relevant material in arriving at an assessment and acts contrary to the law, then there is an escapement of income within the meaning of section 147. Thus, he strongly placed reliance upon the said decision of the Hon’ble Bombay High Court. On merits he submitted that this issue as admitted by the Ld. Counsel is covered against the assessee by the Tribunal for the assessment year 2005-06.
We have heard the rival contentions, perused the relevant material on record and the finding given in the impugned orders. It is an undisputed fact that, assessee is a 100% EOU; eligible for deduction u/s 10B on the profits derived from such undertaking; it has commenced its production/manufacturing from the assessment year 1994-95; and the period of 10 years there from would be available up till assessment year 2003-04. However, the assessee as per then relevant provision of section 10B had chosen the initial assessment year AY 1997-98 and started its claim for deduction u/s 10B from AY 1997-98 onwards. In support of its claim, it has filed an Audit report as per the requirement of section 10B along with the return of income. The Ld. AO during the course of the original assessment proceedings has specifically embarked upon this issue and has noted the fact about the period of manufacturing; period of claim of deduction and also the overall components of profit of 10B as we have noted above. After examining the various issues relating to section 10B, he has computed the deduction u/s 10B. Thus, from the face of the assessment order it appears that, AO has applied his mind and has reached to a certain conclusion in respect of claim u/s 10B. Now, such an assessment has been sought to be reopened though within the time limit of 4 years on the ground that as per the amended provision, the assessee’s claim for deduction u/s 10B has expired in AY 2003-04 and assessee is not eligible for such a claim in the impugned assessment year. From the perusal of the
8 M/s Hanil Era Textiles Limited ITA No.5359/Mum/2011 “reasons recorded”, it is evident that there is no whisper or reference about any tangible material coming on record having live-link-nexus with the income chargeable to tax escaping assessment. For entertaining “reason to believe” in the cases where assessment have been completed u/s 143(3), the primary requirement is that the issue which has been examined and dealt upon by the AO cannot be reopened unless there is tangible material coming on record. The Hon’ble Supreme Court in the case of CIT vs Kelvinator of India Ltd (supra) emphasized very heavily that the power to reopen an assessment is not akin to a power to review the order of the assessment and reopening cannot be done on mere change of opinion. Unless the AO has any tangible material to reopen an assessment, the power u/s 147 cannot be validly exercised. Here in this case, as stated above, the AO has specifically dealt with this issue and has noted these facts about period of production and the period from assessee has chosen to claim deduction. If some legal mistake is committed by the AO or proper inference has not been drawn section 147 does not empower the succeeding AO to exercise the power of review so as to change the conscious decision taken by the predecessor AO. This is the clear cut mandate of Hon’ble Supreme Court in Kelvinator India (supra). In the case of Aroni Commercials Ltd, the Hon’ble jurisdictional High Court after considering the decision of Kelvinator of India Ltd and other decisions of jurisdictional High Court has reiterated the same proposition by observing and holding as under :- “The common jurisdictional requirement for reopening of assessment / both within and beyond a period of four years has to be on the basis of reason to believe that income chargeable to tax has escaped assessment and the reason for issuing a notice to reopen are recorded before issuing a notice. However, there is one additional jurisdictional requirement to be satisfied while seeking to reopen the assessment beyond the period of four years from the end of the relevant assessment year, viz., that there must have been a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment during the original assessment proceedings. Thus, the primary requirement to reopen any assessment is a reason to believe
9 M/s Hanil Era Textiles Limited ITA No.5359/Mum/2011 that income chargeable to tax has escaped assessment. However, as observed by the Supreme Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 1TR 561 (SC), in the context of section 147/ 148 of the Act that reason to believe found therein does not give arbitrary powers to reopen an assessment. The concept of change of opinion is excluded /omitted from the words "reason to believe". Thus, a change of opinion would not be reason to believe that income chargeable to tax has escaped assessment. Besides the power to reassess is not a power to review. Further, reopening must be on the basis of tangible material. Therefore, the power to reassess cannot be exercised on the basis of mere change of opinion, i.e., if all facts are available on record and a particular opinion is formed, then merely because there is change of opinion on the part of the Assessing Officer notice under section 147/148 of the Act is not permissible. The powers under section 147/148 of the Act cannot he exercised to correct errors/mistakes on the part of the Assessing Officer while passing the original order of assessment. There is a sanctity bestowed on an order of assessment and the same can be disturbed by exercise of powers under section 147/148 of the Act only on satisfaction of the jurisdictional requirements. Further, the reasons for reopening an assessment has to be tested/examined only on the basis of the reasons recorded at the time of issuing a notice under section 148 of the Act seeking to reopen an assessment. These reasons cannot be improved upon and/or supplemented much less substituted by affidavit and/or oral submissions. Moreover, the reasons for reopening an assessment should be that of the Assessing Officer alone who is issuing the notice and he cannot act merely on the dictates of any another person in issuing the notice. Moreover, the tangible material upon the basis of which the Assessing Officer comes to the reason to believe that income chargeable to tax has escaped assessment can come to him from any source, however, reasons for the reopening has to be only of the Assessing Officer issuing the notice. At the stage of issuing notice under section 148 of the Act to reopen a concluded assessment the satisfaction of the Assessing Officer issuing the notice is of primary importance. This satisfaction must be prima facie satisfaction of having a reason to believe that income chargeable to tax has escaped assessment. At the stage of the issuing of the notice under section 148 of the Act it is not necessary for the Assessing Officer to establish beyond doubt that income indeed has escaped assessment”
Further, after analyzing the legal provisions and case laws, their Lordships held that tangible material would mean factual material and not inference or opinion on the material already in existence and considered during the assessment proceedings. Here in this case, also if we apply the ratio and the law reiterated by the
10 M/s Hanil Era Textiles Limited ITA No.5359/Mum/2011 Hon’ble Bombay High Court, then it can be seen that no new fact has come on record which can suggest AO can entertain a reason to believe that income chargeable to tax has escaped assessment. This principle have been earlier reiterated by the Hon’ble Bombay High Court in the case of case of Asteroids Trading and Investments Pvt. Ltd (supra) also, wherein the Hon’ble High Court held that the power conferred u/s 147 cannot be used like a power to review to reopen the assessment. The assessment cannot be reopened on mere change of opinion u/s 147. Merely on fresh application of mind by the AO to the same set of facts initiation of reassessment proceedings cannot be upheld. The foundation of acquiring a jurisdiction u/s 147 is “reason to believe” and such ‘reason’ should have live-link-nexus with an objective fact and materials coming on record. If there is no tangible material coming on record post assessment which has been completed u/s 143(3), then reopening u/s 147 cannot be done on the same set of facts. Thus, the present reasons recorded by the AO do not clothe him with the jurisdiction to reopen the assessment within the scope of section 147 which has been completed u/s 143(3), firstly, on the ground that it amounts to “change of opinion” and secondly, there is no reason to believe based on any tangible material coming on record.
Coming to the decision of Hon’ble Bombay High Court in the case of Export Guarantee Corporation of India (supra) as relied upon by the Ld. CIT-DR, the same is not applicable on the facts of the present case, because here as stated earlier, the AO in the original assessment order has applied his mind and even noted down the entire facts and has computed the deduction u/s 10B. It is not a case where the assessment order is sub-silentio on the issue on which reasons have been recorded. Accordingly, on preliminary ground, we hold that the impugned assessment order passed u/s 143(3) r.w.s. 147 passed in pursuance of notice u/s 148 is void-ab-initio and deserves to be quashed. We order
11 M/s Hanil Era Textiles Limited ITA No.5359/Mum/2011 accordingly. Thus, ground no. 1 raised by the assessee is allowed and other grounds on merits have become purely academic.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 16th November, 2015.
Sd/- Sd/- (रिमत कोचर) (अिमत शु�ला) लेखा सद�य �याईक सद�य (RAMIT KOCHAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 16th November, 2015 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT(A) -12, Mumbai. 4) The CIT– City -6, Mumbai. 5) िवभागीय �ितिनिध “एच”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “H” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, मुंबई Dy./Asstt. Registrar I.T.A.T., Mumbai *च�हान व.िन.स *Chavan, Sr.PS