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TMI Blog2013 (1) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... baxy Laboratories Ltd. for the assessment year 2003-04 was completed u/s 250/143(3) 01.08.2004 determining an income of Rs. 3,10,79,46,649/- after allowing deduction under Section 80-O. It was later observed that the deduction was allowed on gross receipts of Rs. 49,96,75,364/- without deducting the proportionate expenses to such income after considering the total expenses debited to the relevant profit and loss account allocated on pro-rata basis between the receipts from foreign enterprise and other income the admissible deduction worked out to Rs. 2,69,82,469/- against Rs. 9,99,35,082/- allowed by the department. The incorrect allowance of deduction resulted in under assessment of income of Rs. 7,29,52,603/- involving tax effect of Rs. 2,68,10,082/,- Incorrect allowance of deduction in respect of export profits The assessment of M/s Ranbaxy Laboratories Ltd. for assessment year 2003-04 was completed u/s 143(3) 250 on 01.08.05 determining on income of Rs. 3107946649/-. It was later observed that while computing the deductions trade discount and R&D (Capital) expenses was not incurred in the indirect cost. The omission resulted in excess allowance of deduction of Rs. 45741309 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to disclose all material facts truly and fully that were necessary for assessment. Here it is relevant to mention the explanation 1 in section 147 that states that "production before the AO of account books or other evidence from which material evidence could with the diligence have been discovered by the AO will not necessarily amount to disclosure with the meaning of the foregoing proviso". 3. After receipt of a copy of the said purported reasons on 10.08.2010, the petitioner filed its objections on 06.09.2010. Detailed objections comprising of about 48 pages were given by the petitioner explaining each of the purported reasons. However, the Assessing Officer did not accept the objections and rejected the same by virtue of an order dated 29.07.2011/ 01.08.2011. The said order reads as under:- "Order against Objection for issuing notice u/s 147 r.w. sec.148 of the Income Tax Act, 1961 in the case of M/s Ranbaxy Laboratories Ltd. for A.Y. 2003-04. Assessment in the case of M/s Ranbaxy Laboratories Ltd. for the A.Y 2003-04 was completed on 26.03.2004 u/s 143(3) at an income of Rs.315,80,98,132/- under normal provision and Rs.270,59,86,259 u/s 115313 of the Income Tax Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out a fact which has been overlooked by the ITO in the assessment The dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by a larger Bench of this Court. There can be no dispute that the audit party IS entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of a factual error pointed out by the audit party is permissible under law. In view of that we hold that reopening of the case under section 147(6) in the facts case was on the basis of factual information given by the internal audit party and was valid in law." 3. Next issue raised by the Assessee relates to pendency of proceedings u/s 154 at the time of issue of notice u/s 148 on the issues mentioned in the reasons recorded for reopening. Assessee's objection is not acceptable as the proceedings u/s 154 stands automatically filed once proceedings u/s 147 are initiated as elaborated in the G.P. Aggarwal Vs. ACIT (1994) 208 ITR 795 (Allahabad). Section 154 of the Act is applicable only for mistakes apparent from record and accordingly, the issues raised vide notices u/s 154 dated 06.10.2005 and 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of gross receipts from the foreign enterprise in convertible foreign exchange without considering expenses on a pro rata basis. The learned counsel for the petitioner pointed out that a specific claim in the return supported by a certificate in Form No. 10HA along with copies of FIRC/TAR/ accounts had been submitted by the assessee. A copy of the list of enclosures to the return has been annexed at page 53 of the paper book and we find that serial No. 18 has a specific reference to certificates in Form 10HA in support of deduction claimed under Section 80-O. Thus, according to Mr Syali, there was a complete disclosure on the part of the assessee. Moreover, the Assessing Officer had raised a specific query in his detailed questionnaire issued on 27.02.2004, wherein question No. 23 was as under:- "23. Details of expenses incurred during the year for earning royalty income eligible for deduction u/s 80-O. Why not the deduction u/s 80-O should be allowed on net income after deducting expense incurred during the year to earn such royalty." A specific and detailed reply was given to this query by a letter dated 19.03.2004 and it had been specifically dealt with in Annexure-C to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest income credited to Profit & Loss Account has been disallowed as per explanation (baa) below section 80HHC(4B) of the Act, while computing business income for deduction u/s 80HHC." A specific reply was also given by the petitioner/ assessee in the following terms:- "7. As regards deduction made on export profits u/s 80HHC, your goodself has asked to explain as to why the entire Research & Development expenses were not considered as a part of indirect cost, while computing the said deduction. Your goodself has also desired to know as to whether the 90% of interest income has been disallowed as per explanation (baa) below Section 80HHC (4B) of the Act, while computing business income for deduction u/s 80HHC. In this respect, we would like to submit that deduction u/s 80HHC in respect of profits and gains derived from exports of traded and manufactured products is computed in accordance with the provisions of Section 80HHC(3). The R&D expenditure is incurred by the assessee for discovery of, new drugs and the same is not related directly or indirectly to the export activity, which relates to existing products. Accordingly the expenditure incurred on R&D has not been deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction. 10. Mr Syali pointed out that in the tax audit report in Form 3-CD at serial No. 17(d), the expenditure incurred on clubs has been specifically mentioned and the break-up with regard to the expenditure on entrance fee and subscriptions as also cost for club services and facilities used have also been specified. Therefore, according to Mr Syali, there has been no failure to disclose the said expenditure at clubs. Furthermore, Mr Syali invited our attention to the document at page 249, which is a reply given by the Assessing Officer to the Deputy Director (Revenue Audit) in respect of the audit memo No. 56 dated 06.09.2005 for, inter alia, assessment year 2003-04. The said audit memo was as under:- "Audit scrutiny revealed that as per 3CD report annexed to the return an amount of Rs.10,77,769 and Rs.27,95,827 for A.Y. 2003-04 and 2004-05 were debited to the profit & loss account on account of expenditure incurred at clubs and were allowed as deduction. As the said expenditure were personal in nature / not related to assessee's business, the entire amount should have been disallowed. Omission to do so resulted in under assessment of income of Rs.38,73,596 involving tax effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice under Section 148 was bad in law and was liable to be quashed. 13. Mr Maratha appearing on behalf of the respondents, vehemently supported the re-opening of the assessment in respect of the assessment year 2003-04 and submitted that there was failure on the part of the assessee to fully and truly disclose all material facts which were necessary for assessment. He strongly relied upon the 4th reason, that is, of club expenses by stating that the assessee had not disclosed this at the time of the assessment. On a pointed query, Mr Maratha could not show as to which particular information or material fact had not been disclosed by the assessee at the time of the original assessment proceedings. He only sought to place reliance on Explanation 1 to Section 147 which reads as under:- "Explanation 1: Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso." However, we do not see as to how Mr Maratha could place reliance on the said Explanation. Insofar as all the purported rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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