TMI Blog2014 (10) TMI 357X X X X Extracts X X X X X X X X Extracts X X X X ..... l the material facts necessary for his assessment for the impugned assessment year - there is no allegation levelled by the AO on the Assessee that there is a failure on the part of the Assessee to disclose fully and truly any material fact relating to the income for which he believes that there is an escapement of income by the Assessee - The AO did not allege that there is a failure on the part of the Assessee to disclose fully and truly all the material facts necessary for his assessment – Decision in the case of Grindwell Norton Ltd. vs. ACIT [2003 (12) TMI 31 - BOMBAY High Court] followed. Reasons to believe bona fide or not – Evidences submitted to prove claim u/s 10B - Held that:- The 'reason to believe' must be bona fide - Under the garb of 'reason to believe', the AO cannot be empowered to review its own order - Sec. 147 does not empower the AO to review his decision – relying upon CIT vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - the AO took a particular view and allowed deduction to the Assessee u/s 10B and did not disallow any expenditure u/s 40(a)(i) - on the basis of the same material the AO cannot take a different view by taking shelter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for deduction u/s 10B, which is the ground taken by the Revenue in its appeal, the AO will compute the exemption to the Assessee u/s 10B in accordance with the formula laid down u/s 10B(4) - The exemption under this section has to be based on the basis of the formula – thus, the matter is to be remitted back to the AO for fresh adjduciation – Decided in favour of assessee. Eligibility for claim of deduction u/s 10B – 100% Export Oriented Units - Held that:- New units had actually been established by the assessee in the FY 1999-2000 at Codli; in the FY 2002-03 at Amona; and in the FY 2005-06 at Chitradurga - there is no requirement that the assessee should maintain separate books of accounts in respect of 100% EOU Unit for claiming deduction – following the decision in DCIT Vs Arabian Exports Ltd. [2007 (3) TMI 287 - ITAT BOMBAY-G] - in respect of the Amona plant the assessee has duly informed the DC, SEZ Bombay vide his letter dated 9.3.2008 i.e., commercial production started on 8.3.2000 and copy of the said letter was duly sent to Customs Department which was not disputed by these competent authorities - In the case of Chitradurga plant also, the assessee vide its le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013 ITA No. 36/PNJ/2013 - - - Dated:- 28-3-2014 - Shri P.K. Bansal, And Shri D.T. Garasia,JJ. For the Assessee : P.J. Pardiwalla, Sr. Adv., Nishant Thakkar, Adv. For the Revenue : Smt. Asha Desai, Ld. DR ORDER PER P.K. BANSAL : ITA NOS . 321 425/PNJ/2013 : 1. Both these cross appeals have been filed against the order of CIT(A) dt. 27.9.2013. In ITA No. 321/PNJ/2013 the Assessee has taken the following effective grounds of appeal : 1. That the order of the Commissioner of Income Tax (Appeals), Panaji, Goa (hereinafter referred to as CIT(A) ) is opposed to law and facts of the case. 2. That the CIT(A) erred in coming to the conclusion that the assumption of jurisdiction to issue notice under section 148 of the Act by the AO is proper and that the AO has adhered to all the legal requirements in so far as prerequisite conditions prescribed under section 147 of the Act. 3.(a) That the alleged Notices under section 143(2) of the Act dated 22.09.2008 and 21.08.2009 having not been served upon the appellant, the reassessment order dated 30.12.2009 passed by the AO is bad in law and deserves to be quashed. (b) That the Appellant having declared on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for exemption 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 article or things. The period therefore ended with the A. Y 2000-01. The assessee was, therefore, not entitled to claim exemption u/s 10B for the A. Y 2002-03. The C. A. of the assessee has mentioned in enclosure-1 (enclosed to the return of income) that during the F. Y. 1994-95 the company decided to go for substantial investment in plant and machinery and approval was sought and obtained from the Central Government vide Ministry of industrial Development s letter dated. 10thNovember 1994 which was subsequently amended vide their letter dated 29.02.1996 wherein status of 100% EOU was extended for further period of 5 years beyond 1996 and again amended by the Central Govt. vide their letter dated 05.10.2001 issued by the office of the Development Commissioner SEEPZ, Special Zone Ministry of Commerce and Industry, Mumbai wherein the status of 100% to Ferromet Concentrates has been extended for a further period of 5 years from 01.04.2001 onwards. It has been claimed that the new unit (which the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Despatch earned ₹ 2,41,542 (c) Sundry creditors written back ₹ 3,22,820 (d) Miscellaneous income ₹ 2,01,314 a). From Banks ₹ 3,062 b). Despatch earned ₹ 2,41,542 c). Sundry creditors written back ₹ 3,22,820 d). Miscellaneous income ₹ 2,01,314 The exemption u/s 10B is available in respect of profits and gains as are derived by the unit from export of articles or things. The assessee has claimed exemption u/s 10B on these items also and the same was allowed in the assessment. Therefore the income chargeable to tax has escaped assessment. 3. Similarly, the assessee has claimed repairs and maintenance of vehicles at ₹ 18,42,471/-. This expenses have been disproportionately claimed in the EOU unit and non EOU unit. These are as under: These are as under: Non EOU EOU Total 17,97,928 44,543 18,42,471 Since these expenses are common expenses of both u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order. The AO rejected the objections as, in his opinion, the objections were not tenable. The AO completed the assessment on a total income of ₹ 3,40,76,816/- as per the computation made on the basis of normal provisions but under the MAT the book profit u/s 115JB was computed at ₹ 2,29,07,838/-.The Assessee was denied in addition to the various disallowances, the exemption u/s 10B but the Assessee was allowed deduction u/s 80HHC at 70% of the business profit from the exports business vide order dated 30.12.2009 ignoring the fact that the finding of the CIT(A) vide order dated 4.12.2009 for the assessment year 2006-07 has become final so far the establishment of the new unit is concerned as the revenue has not filed any appeal before the tribunal. The Assessee went in appeal before CIT(A). CIT(A) dismissed the contention of the Assessee relating to the validity of the re-assessment as well as the service of the notice u/s 143(2) but allowed exemption u/s 10B by holding as under : 5.3. During the course of appellate proceedings, Shri Nishant Thakkar claimed that the issue of new unit is covered by the decision of Hon ble ITAT in assessee s own case for A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has escaped assessment. Our attention was drawn towards the proviso to Sec. 147 and it was pointed out that if the assessment has been completed u/s 143(3), action after the expiry of 4 years can be taken u/s 147 if the Assessee fails to make a return u/s 139 or in response to a notice issued u/s 142(1) or 142 or fails to disclose fully and truly all material facts necessary for his assessment for that assessment year. There is no failure on the part of the Assessee to make a return u/s 139 or in response to a notice u/s 142(1) or Sec. 148. The Assessee has disclosed fully and truly all the material facts necessary for his assessment for the impugned assessment year. In this regard, attention was drawn towards the reasons to believe and it was pointed out that the AO has alleged that the income has escaped assessment in respect of following 4 items : 1. The Assessee was not entitled to claim exemption u/s 10B for the impugned assessment year. 2. Excess claim u/s 10B has been given in respect of certain income credited in the Profit Loss account. 3. The Assessee has claimed disproportionate expenses against EOU unit. 4. The Assessee has paid remuneration to Jt. Manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not state that the Assessee is not entitled for the claim of exemption u/s 10B and the unit established by the Assessee is not a new unit. It only states about its reliance on the representation of the management. The Assessee has submitted the objections vide letter dt. 22.10.2009 claiming therein that there is no failure on the part of the Assessee to file return or to disclose material facts. It was also objected therein that the claim of deduction of the Assessee u/s 10B was duly examined and verified by the AO. The reasons nowhere whispers or alleges any failure on the part of the Assessee to disclose all the relevant facts for making the assessment. The miscellaneous income has duly been credited to the Profit Loss account on which the Assessee has claimed deduction u/s 10B on the basis of the computation made as per the formulae given u/s 10B(4). For this, attention was drawn to para 2 of the reasons to believe in respect of the expenses which were claimed by the Assessee for determining the income of the EOU unit. It was stated that the Assessee had analysed the expenses and had filed details how the proportionate expenses have been allocated. For this, attention was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Ltd., 320 ITR 561 (SC). Reliance was also placed on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Orient Craft Limited, 354 ITR 536 (Del.) and that of Telco Dadaji Dhackjee Ltd, 59-SOT-46 and other various decisions. 2.2 The ld. DR, on the other hand, vehemently relied on the order of the AO as well as the order of CIT(A). He contended that the reasons recorded by the AO were bona fide. The assessment has been re-opened as the Assessee has incorrectly claimed deduction u/s 10B for which he was not entitled. The Tribunal cannot look into the sufficiency of the reasons. There was material before the AO which proves that the Assessee has not established a new unit but has simply renovated an old unit. Substantial expansion has been carried out. Exemption has been claimed by the Assessee u/s 10B for which the Assessee was not entitled. CIT(A) after examining all the facts has given a finding of fact and therefore the order of CIT(A) must be confirmed on the issue of validity of the reassessment. 2.3 We have carefully considered the rival submissions alongwith the order of the tax authorities below as well as the various documents as has been referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt to disclosure within the meaning of the foregoing proviso. Explanation 2. For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice. Explanation. For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section. (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. 149. (1) No notice under section 148 shall be issued for the relevant assessment year, (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c); (b) if four ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o believe' would mean cause or justification. If the AO has the cause or justification to think or suppose that income has escaped assessment, he can be said to have reason to believe that such income has escaped assessment. The words 'reason to believe' cannot mean that the AO should have finally ascertained the facts by legal evidence. It only means that the AO forms a belief from the examination he makes and the information that he receives. If he discovers or finds or satisfies prima facie himself that taxable income has escaped assessment, it would amount to saying that he has reason to believe that such income has escaped assessment. The justification for his belief cannot be judged from the standards of proof required for coming to a final decision whether the income escaped assessment or not. His formation of a belief is not a judicial decision but an administrative decision. The decision to initiate the proceedings is not to be preceded by any judicial or quasi-judicial inquiry. At this stage he is not required to give hearing to the Assessee to provide material or information which he has in his possession for the rebuttal of the Assessee. The reason to believ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return u/s 139. It is an undisputed fact that the original return in this case has been filed by the Assessee on 31.10.2002 i.e. within the due date. No notice u/s 142(1) was issued to the Assessee for filing the return by the revenue. Except notice u/s 148 dt. 1.4.2008, no other notice u/s 148 prior to this notice has been issued in the case of the Assessee so that it can be said that there is a failure on the part of the Assessee to file the return in response to notice issued u/s 148. Now, the only condition remains which must be fulfilled by the AO before issuing the notice u/s 148 is that the Assessee has failed to disclose fully and truly all the material facts necessary for his assessment for the impugned assessment year. We have gone through the reason to believe as recorded by the AO. For ready reference, the reasons are re-produced hereunder : 1. The assessee is engaged in the business of extraction, processing and sale of iron ore. It has claimed exemption u/s 10B on the income of M/s. Ferro-met Concentrates (M/s.Greater Ferro-met) and the same was allowed in the assessments. The asssessee has set up a 100% EOU in the year 1985-86 and the EOU was approved by the M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii. No new unit has been approved by Development Commissioner SWEEPZ as seen from the LOP s. The existing Unit was granted extension upto 2005-06 iii. One of the essential conditions of 10B is that it should not be formed by transfer of machinery or plant, previously used for any purpose. vi. The Accountant stated that he has relied upon the representations made by the company for the purpose of reporting u/s 10B, relying merely on the representations by the assessee company, in contrary to section 10B of the I. T. Act. In the circumstances, the assessee is not entitled for claim of exemption u/s 10B for the above A.Y. Since the claim itself is not admissible which has been wrongly allowed in the assessment, in view of the Explanation 2 to section 147 of the Act it has to be treated as income escaped assessment. Reliance is also placed on the decision of the Honourable Supreme Court in the case Phool Chand Bajrang Lal 203 ITR 456 (1993) Therefore I have reason to believe that the income chargeable to tax has escaped assessment within the meaning of section 147 of the Income tax Act for the above assessment year. 2. The assessee is engaged in the business of extr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter XVIIB are applicable and the assessee should have been deducted tax on such payment. However, the company has not deducted tax on the remuneration paid to Shri. Prashant timbo. Therefore, the said amount has to be disallowed as per section 40a(iii) of the I. T. Act. However the same was not disallowed in the assessment. Therefore the income chargeable to tax has escaped assessment. For all the above reasons I have reasons to believe that the income chargeable to tax has escaped assessment within the meaning of section 147 of the Income tax Act for the above assessment year. Since the assessment in this case was completed u/s 143(3) and four years have been lapsed, a proposal u/s 147 is submitted to the CIT(central) Bangalore, for necessary approval for reopening the assessment u/s 147 the I. T. Act. From the reasons, we noted that there is no allegation levelled by the AO on the Assessee that there is a failure on the part of the Assessee to disclose fully and truly any material fact relating to the income for which he believes that there is an escapement of income by the Assessee. In the reasons as has been rightly submitted by the learned Sr. Advocate, the AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y disclosed that the Assessee has paid remuneration to its Joint Managing Director, Shri Prashanth Timblo who is posted as manager of the liaison office in Dubai. In the reasons, therefore, the AO nowhere stated that there was any failure on the part of the Assessee to disclose fully and truly any material fact which is necessary for the assessment. On the other hand, the AO himself recorded on the basis of the assessment records that there is an escapement of income. Thus, all the facts stated in the reasons to believe were already on the record of the Revenue. Under these facts, it cannot be said that there was a failure on the part of the Assessee to disclose truly and fully any material fact. All the facts, whatever stated in the reasons, were on the record of the Department at the time of framing the assessment, therefore, the question of failure in disclosing the same by the Assessee does not arise. The Assessee is supposed to disclose facts which are in the special knowledge of the Assessee. From these facts, we are of the opinion that there is no failure on the part of the Assessee to disclose any material fact so that the proceedings can be initiated after the expiry of 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and, therefore, in that case the notice issued was quashed. The relevant finding of the Hon'ble High Court are re-produced as under : Where an assessment under sub-s. (3) of s. 143 has been made for relevant assessment year, no action can be taken under s. 147 after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reasons of the failure on the part of the assessee to disclose all material facts necessary for his assessment for that assessment year. The reasons recorded by the AO nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the AO to reach to the conclusion as to whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdictional facts necessary for the purpose of exercise of the power under s. 147. The jurisdictional facts prescribed under s. 147 must exist before a notice under s. 148 can be issued. The time-limit prescribed under s. 149 for issuance of a notice under s. 148 is in addition to and not in derogation with the necessary conditions required to be satisfied under s.147. In other words, if the basic jurisdictional facts required for reopening of an assessment under s. 147 do not exist it would not be competent for the AO to issue a notice under s. 148. Even where the jurisdictional facts prescribed under s. 147 exist and all conditions laid down under s. 147 and the proviso thereto are satisfied, the notice under s. 148 can be issued only after the AO has recorded his reasons for doing so under sub-s. (2) of s. 148 and has further obtained the necessary sanction for issuance of the notice as required under s. 151. Such notice is also required to be issued within the time-limit prescribed under s. 149. Sec. 149 does not relax the restriction of four years prescribed in the proviso to s. 147 for issuance of a notice under the proviso to s. 147. The restriction of four years would be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udit report in Form 10CCB and the other details filed by the assessee, it cannot be said that there was a failure on the part of the assessee to disclose fully and truly all the facts for the assessment so as to invoke the provisions of section 147 for re-examining the deduction under section 80-IB of the Act, after expiry of four years from the end of the assessment year. 2.3.8 In the case of Mistry Lalji Narsi Development Corp. vs. ACIT (2010) 229 CTR 359 (Bom), the Hon ble Mumbai High court clearly laid down that order of Assessing Officer u/s. 143(3) reflects that the primary facts relating to case was before the Assessing Officer therefore there was disclosure of all primary facts relating to claim of deduction u/s. 80-IB(10). 2.3.9 In the case of Yash Raj Films P. Ltd. vs. ACIT (2011) 332 ITR 428 (Bom.), the Hon ble Mumbai High court clearly held reassessment to be invalid when allowance of bad debt was specifically raised in the original assessment proceedings and on receiving explanation from assessee the claim of assessee was allowed. 2.3.10 Not only this, on this issue the Hon'ble Supreme Court in the case of Calcutta Discount Co. Ltd. vs. ITO, 41 ITR 191 (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessing authority has to draw inferences as regards certain other facts ; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else far less the assessee to tell the assessing authority what inferences, whether of facts or law, should be drawn. 2.3.11 In the case of CIT v. Hemchandra Kar (1970) 77 ITR 1 (SC), the assessee, a Hindu undivided family consisting of six members had been asked for the assessment year 1946-47. Following the demonetization of high denomination notes in January 1946, the assessee encashed notes of the value of ₹ 19,000/- and five members of the family encashed notes of the aggregate value of ₹ 1,10,000/-. The ITO reopened the assessments of the assessee and of the five members and by his re-assessment orders made on 31.01.1955, included the sum of ₹ 19,000/- in the re-assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiating re-assessment proceedings for that year. The appellant-firm filed a writ petition in the High Court challenging the validity of that notice, inter alia, on the ground that the requirements of section 151(2) were not complied with. But the writ petition was dismissed by the High Court. On appeal, the Supreme Court directed the Department to produce the records to show that the ITO had complied with sections 148 and 151(2). After considering the said records, it was held that the ITO had not even come to a prima facie conclusion that the loan transactions to which he referred were not genuine transactions; he appeared to have lonely a vague feeling that they might be bogus transactions. Such a condition did not fulfil the requirements of section 151(2). Under that section, he had to give prima facie grounds before him for taking action u/s 148. His conclusion that there was a case for investigating the truth of alleged transactions was not the same thing as saying that there were reasons for the issue of the notice. The ITO could not have had reason to believe that income had escaped assessment by reason of the appellant-firm s failure to disclose material facts and if the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the drafts it was for the officer to make the necessary enquiries and draw proper inference as to whether the amounts represented by the drafts could be treated as part of the total income of the appellant. This the officer did not do. It was plainly a case of oversight and it could not be said that income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the appellant to disclose fully and truly all material facts. He could not, thereafter, take recourse to section 147(a) to remedy the error resulting from his own oversight. 2.3.15 In the case of ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), the respondent was assessed for the year 1958-59 u/s 23(3) of the Indian Income-tax Act, 1922, on 14.06.1960. His total income was assessed at ₹ 37,872/-. While making the assessment, the ITO allowed deduction of a sum of ₹ 15,991/- by way of expenses claimed by the respondent. The expenses included ₹ 10,494 4as 3ps by way of interest. According to the assessee, he produced through his authorized representative, all books of account, bank statements and other necessary documents in connection with the return. On 14.03.1967 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y ends. It is for the ITO to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference, which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. 2.3.16 The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the ITO to form the above belief that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds, which induce the ITO, is, therefore, not a justifiable issue. It is, of course, open to the assessee to contend that the officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is amount from the income. Subsequently, when the notice u/s 147A was issued for bringing the said amount to tax, when the matter travelled to the Supreme Court, the Hon'ble Supreme Court took the view that there was no failure on the part of the Assessee to disclose fully and truly the material facts necessary for the assessment year and therefore held that the provisions of Sec. 147A are not applicable. 2.3.19 The Hon ble jurisdictional High court of Mumbai in the case of Arthur Andersor Co. vs. ACIT (2010) 324 ITR 240 (Bom) also took the view that disclosure in balance sheet also amounts to disclosure. 2.3.20 In the following cases also it was held that when there is no failure on the part of the assessee to disclose fully and truly all the material facts, reassessment is invalid and void ab initio :- i) Bhagwati Shankari Karkhana (2004) 269 ITR 186 (Bom) ii) Western Outdoor Interactive (2006) 286 ITR 620 (Bom) iii) Prashant Project Ltd. vs. Asst. CIT (2011) 333 ITR 368 (Bom) iv) Hindustan Petroleum Corporation Ltd. vs. Dy. CIT (2010) 328 ITR 534(Bom) v) Nihilent Technologies (P) Ltd vs. Dy CIT (2011) 59 DTR 281 (Bom) vi) Shriram Foundry Ltd. vs. Dy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration while arriving at the carry forward position. We noted that subsequently the AO passed order u/s 154 dt. 25.5.2006 and from para 1 of that order also it is apparent that the AO was fully aware about the allowance of deduction to the Assessee u/s 10B. The relevant observations of the AO are reproduced as under : The Scrutiny assessment Order u/s. 143(3) of the Income Tax Act for the asst year 2002-2003 was completed on 31.03.2005. In the Return of Income the assessee claimed deduction u/s 80HHC of ₹ 12,45,747/- being 70% of 17,79,639/- On the income earned by export of goods through supporting exporter. The deduction allowable u/s 80HHC is ass based deduction, whereas, exemptions u/s 10B is unit based deduction. Since the division of the company has claimed exemption u/s 10B further grant of deduction u/s 80HHC on the goods supplied to export house/trading house is not allowable. Therefore, the deduction allowed u/s 80HHC is a mistake and required to be rectified. It is a settled law that the 'reason to believe' must be bona fide. Under the garb of 'reason to believe', the AO cannot be empowered to review its own order. Sec. 147 does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that on the basis of the facts and material available on record either filed alongwith the return or during the course of the assessment, the AO took a particular view and allowed deduction to the Assessee u/s 10B and did not disallow any expenditure u/s 40(a)(i). Therefore, in our opinion, on the basis of the same material the AO cannot take a different view by taking shelter of Sec. 147 that there is an escapement of income. No fresh or tangible material has come to the knowledge of the AO. The case of the Assessee, in our opinion, is duly covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd., 320 ITR 561 (SC) (supra). There is no whisper in the reasons recorded of any tangible material which came to the possession of the AO subsequent to the original assessment framed. On the basis of the material which was available at the time of the assessment, re-opening of the assessment, in our opinion, will not be permissible as the reasons cannot be regarded to be a bona fide one and it will tantamount to be change of opinion. Re-opening cannot be permitted in the garb of review. On this basis also, the assessment order, in our opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.2009, 11.11.2009 and 16.11.2009, the proof of service of these notices are available on record. He contended that these notices which have been issued and served subsequent to 30.9.2009 do not have any legal validity. The notice has to be served on the Assessee as per the proviso to Sec. 143(2) upto 30.9.2009. In the absence of service of the notice prior to 30.9.2009, the assessment is invalid and void ab initio and has to be quashed. It was requested that in case the Bench is not convinced, the Bench may call for the dispatch register when these notices were given to the notice server or dispatched by speed post. Reliance was placed in this regard on the decision of the Hon'ble Supreme Court in the case of ACIT vs. Hotel Blue Moon, 321 ITR 362. Reliance was also placed on the decision of the Hon'ble Delhi High Court in the case of R.L. Narang vs. CIT, 136 ITR 108 (Del) for the proposition of law that in case service is made through a process server, there must be a service report and evidence to show the identity of the person to whom service was affected. 3.2 The ld. DR, on the other hand, vehemently contended that notice u/s 143(2) was sent to the Assessee alongwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for issue of notice u/s 148 for A.Y 2002-03 was sent through speed post. Had the notice u/s 143(2) been sent through speed post, it would have been specifically mentioned. Referring to the register showing service through notice server, it was pointed out that it is only the annexure and the letter for the impugned assessment year which was handed over to the notice server on 1.10.2009. Even if it is presumed that notice u/s 143(2) is handed over, it cannot be served prior to 30.9.2009. By referring to the dispatch register and the notice server register, it was pointed out that wherever the notice is issued to any Assessee, this action has specifically been mentioned in the third column. Referring to the assessment file specially the order sheet, it was mentioned that in the order sheet also there is no mention of the issuance of the notice u/s 143(2) for the impugned date. How the notice dt. 22.9.2008 was lying till 21.8.20009. Referring to the decision of the Hon'ble Punjab Haryana High Court, it was pointed out that in that case notices were sent to the Assessee through speed post and the envelope never returned back. Therefore, in view of Sec. 27 of the General Clauses A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act for the A.Y 2002-03. The enclosure which has been marked on the left side of this letter as enclosed as above talks of enclosure of the reasons for issue of the notice u/s 148. Enclosure does not talk of enclosing notice u/s 143(2). The AO, we noted, in this letter nowhere stated either in the subject or the body of the letter or in the enclosure that the copy of the notice u/s 143(2) has been enclosed alongwith this letter. Issuance of notice u/s 143(2) is the foundation for making assessment. 3.4.1 CIT(A) has also called for the remand report from the AO but observed that notice u/s 143(2) was issued by the AO on 21.8.2009 and hearing was fixed on 28.8.2009. However, proof of service of this notice is not available on the records available with the AO even though notices u/s 143(2) issued on 14.10.2009, 11.11.2009 and 16.11.2009 were served on the Assessee and proof of service of the notices are available on record. We noted that Affidavit dt. 11.4.2012 given by Shri Sitaram P. Bhat is filed before the CIT(A) which is enclosed at pg. 106-107 of the paper book. This Affidavit reads as under : Affidavit I, Sitaram P. Bhat, son of late Shri Parameshwar T. Bhat ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e evidences, in our opinion, do not prove that any notice has been sent to the Assessee through speed post on 21.8.2009 or through notice server prior to 30.9.2009. The ld. DR was not able to produce any evidence except the copy of the notice issued u/s 143(2) which may prove that the notice has been served on the Assessee u/s 143(2) prior to 30.9.2009. Until and unless there is evidence to prove that the notice has been sent to the Assessee either through speed post or through notice server prior to 30.9.2009 for the impugned assessment year, the onus cannot be said to have been discharged by the revenue and shifted on the Assessee to prove that the Assessee has not been served with the notice u/s 143(2). We have also gone through the decision of Jabalpur Bench in the case of ACIT vs. Vindhya Telelinks Ltd., 107 TTJ (Jab) as relied on by the ld. A.R in respect of service of notice. In this case it was held :- As per s. 148, the service of notice upon the assessee is a condition precedent to the validity of any reassessment under s. 147. The burden is upon the AO to prove that the notice was duly served upon the assessee after issuing the same within the prescribed period under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring reassessment proceeding cannot be said to be valid service of the notice, because it should be served before initiation of such reassessment proceeding. In view of the above, the notice under s. 148 was not properly served upon the assessee. R.L. Narang vs. CIT (1982) 136 ITR 108 (Del) applied. We therefore hold that the notice was not served on the assessee within the permissible time as stipulated u/s 143(2). 3.4.3 We have gone through the provisions of Sec. 148 as well as Sec. 143(2) of the Income Tax Act. Sec. 148(1) is reproduced hereunder : 148(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 148 139 both are under Chapter XIV of the Income Tax Act. It is a settled law that legal fiction has to be taken to its logical conclusion and therefore what is valid for the return filed u/s 139 will be valid in respect of return filed in response to notice u/s 148. The word used =shall makes it mandatory that all the provisions of this Act as are applicable to the return filed u/s 139 will apply to the return filed in response to a notice issued u/s 148. From the perusal of section 148 it is apparent that two provisos were inserted therein by the Finance Act 2006. The notice u/s 143(2) is not merely procedural in nature but the mandatory provision. No doubt u/s 148 while treating the return so filed as if it is a return furnished u/s 139, the words used are so far as may be for applicability of all the provisions of this act in respect of return furnished 139. The Hon ble Supreme Court has interpreted the word So far as may be while discussing the applicability of provision of section 144B in respect of a return filed in response to notice issued u/s 148 in the case of R. Dalmia V/s CIT 236 ITR 480, by holding as under: - The reopening of an already completed assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving retrospective effect from October 01, 1991 and lays down that if notice u/s 143(2) is served after the expiry of 12 months but before the expiry of time limits for making assessment/reassessment than such notice shall be deemed to be a valid notice but these provisos applies only to return furnished during the period commencing on 1st day of October 1991 and ending on 30th day of September 2005 in response to a notice issued u/s 148. Explanation to these provisos explicitly lays down that these provisos will not apply to any return which is furnished on or after 1st day of October 2005 in response to notice served u/s 148. This is a fact on record that the return in response to a notice 148 in the case of the assessee is filed only after 1st day of October 2005 as the notice u/s 148 was issued on 30/03/2010. These provisos in fact in our opinion support the contention of the Ld. AR that issuance of the notice u/s 143(2) is mandatory. In the case of the assessee even no notice u/s 143(2) was issued at all. The jurisdictional High Court, Mumbai in the case of CIT 10 , Mumbai V/s Ms Malvika Arun Somaiya, ITA No. 994 of 2008 held: - We have heard the learned counsel appearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.] From the perusal of the aforesaid section we noted that Sec. 143(2)(i) points to a situation where the return is filed or in response to a notice calling for return u/s 142 in which the AO has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, served on the Assessee specifying the particulars of such loss, exemption, deduction, allowance or relief and requiring the Assessee, on a date to be specified in the notice, to produce or cause to be produced, any evidence or particulars as specified therein on which the Assessee may rely in support of such claim. Sub-clause (ii) of Sec. 143(2) lays down that where a return filed or in response to a notice if the AO considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn filed will be deemed as accepted. Though the appellants were not able to state the exact date of service of notice but the admitted fact was that the notice under section 143(2) in respect of the appellants had been served after the expiry of period of 12 months as provided under proviso to section 143(2). Since the assessing authority had failed to serve the notices within the statutory period provided under section 143(2), the Assessing Officer had lost its jurisdiction to make assessment under section 143(3) read with section 147. In our opinion, this judgment is squarely applicable in the case of the assessee. Incidentally, while going through the provisions of section 148, we have also gone through the provisions of Chapter XIV-B, Special procedure for the assessment of search cases which were applicable prior to the provisions of section 153A, 153B and 153C by the Finance Act, 2003 w.e.f. 01.06.2003. I noted that under the head procedure for block assessment given under section 158BC(b), the legislature has not treated the return filed as if such return was a return required to be furnished under section 139, but has specifically laid down that the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislation is by incorporation. This section even speaks of sub-sections which are to be followed by the AO. Had the intention of the legislature was to exclude the provisions of Chapter XIV of the Act, the legislature would have or could have indicated that also. A reading of the provision would clearly indicate, in our opinion, if the AO, if for any reason, repudiates the return filed by the assessee in response to notice under s. 158BC(a), the AO must necessarily issue notice under s. 143(2) of the Act within the time prescribed in the proviso to s. 143(2) of the Act. Where the legislature intended to exclude certain provisions from the ambit of s. 158BC(b) it has done so specifically. Thus, when s. 158BC(b) specifically refers to [sic-s. 143(2)] applicability of the proviso thereto cannot be excluded. We may also notice here itself that the clarification given by CBDT in its Circular No. 717, dt. 14th Aug., 1995, has a binding effect on the Department, but not on the Court. This circular clarifies the requirement of law in respect of service of notice under sub-s. (2) of s. 143 of the Act. Accordingly, we conclude even for the purpose of Chapter XIV-B of the Act, for the dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in this chapter, all the other provisions of this Act shall apply to assessment made under this chapter. This is an enabling provision, which makes all the provisions of the Act, save as otherwise provided, applicable for proceedings for block assessment. The provisions which are specifically included are those which are available in Chapter XIV-B of the Act, which includes s. 142 and sub-ss. (2) and (3) of s. 143. Thus, in view of the aforesaid discussion and the dictum of law pronounced by the apex court, we are of the view that service of notice u/s 143(2) within the prescribed time as per provisions of Sec. 143(2) is mandatory. In the absence of such service the AO cannot proceed to make an inquiry on the return filed in compliance with the notice issued u/s 148 and consequently, the AO cannot make the addition in the income of the Assessee and the AO is bound to accept the income as returned by the Assessee. Since in this case we have noticed that no evidence has been brought on record for the service of the notice on the assessee u/s 143(2) upto 30.9.2009 by the AO, we, therefore, quash the re-assessment on this basis also. 3.4.6 We have also gone through the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never received, in our considered opinion, is insufficient, to record a finding in favour of the petitioner. We, therefore, find no reason to accept the petitioner s averments and submissions that notice dated 22.5.1992 was not served upon the petitioner, within the period 12 months prescribed by the proviso to Section 143 (2) of the Act. 7. The judgment, relied by the petitioner in Hotel Moon Blue s case (supra), does not enure to the petitioner s benefit as it has only been held that notice under Section 143 (2) of the Act, should be served within one year from the date of filing of return and omission on the part of the revenue to serve notice under section 143 (2) of the Act, is not a mere procedural irregularity so as to curable. We have no quarrel with the ratio of this judgment but as controversy, in the present case, is not, whether the notice suffers from any curable defect, but whether notice was issued and served within 12 months of the period prescribed by proviso to Section 143 (2) of the Act, the judgment does not advance the petitioner s case. 8. In view of what has been stated hereinabove, we find no error of jurisdiction or of law in the impugned order or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard the rival submissions and carefully considered the same. We have also gone through the provisions of Sec. 10B(1) 10B(4). For ready reference these provisions are reproduced as under : 10B. (1) Subject to the provisions of this section, any profits and gains derived by an assessee from a hundred per cent export-oriented undertaking (thereafter in this section referred to as the undertaking) to which this section applied shall not be included in the total income of the assessee. (2) This section applied to any undertaking which fulfils all the following conditions, namely:- (i) it manufacture or produces any article or thing: [(ia) in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1994, its exports of such articles and things are not less than seventy-five per cent of the total sales thereof during the previous year;] (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and gains of the undertakings; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment years. (5) Where the undertaking has begun to manufacture or produce articles or things in any previous year relevant to the assessment year commencing before the 1st day of April, 1989, the assessee may, at his option, before the due date for furnishing the return of his income under sub-section (1) of section 139 for the assessment year commencing on the 1st day of April, 1989, furnish to the Assessing Officer a declaration in writing that the provisions of sub-section (1) may be made applicable to him for any five consecutive assessment years falling within a period of eight years beginning with the assessment year commencing on the 1st day of April, 1989, and if he does so, then, the provisions of sub-section (1) shall apply to him for each of such assessment years and the provisions of sub-section (4) shall also apply in comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... says that profits derived from export of articles or things or computer software shall be the account which bares to the profits of the business of the undertaking and not the profits and gains from export of articles. Therefore, profits and gains derived from export of articles is different from the income derived from the profits of the business of the undertaking. The profits of the business of the undertaking includes the profits and gains from export of the articles as well as all other incidental incomes derived from the business of the undertaking. It is interesting to note that similar provisions are not there while dealing with computation of income under Section 80HHC. On the contrary, there is specific provisions like Section 80HHB which expressly excludes this type of incomes. Therefore, in view of the aforesaid provisions, it is clear that, what is exempted is not merely the profits and gains from the export of articles but also the income from the business of the undertakings 8. In the instant case, the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains from the export of the articles but also all the incomes which are taken by the Assessee in ground no. 4 if these incomes are assessed under the head 'income from business' and relate to and are incidental income derived from the business of the eligible undertaking and allow deduction to the Assessee accordingly. Thus, this ground is allowed for statistical purpose. ITA NO. 425/PNJ/2013 : 5. The only issue involved in the Revenue s appeal relates to the eligibility of the claim of deduction by the Assessee u/s 10B. 5.1 The brief facts relating to this ground are that the Assessee company consists of two divisions; M/s. Sociedade de Fomento Industrial Ltd. and M/s. Ferromet Concentrates. M/s. Ferromet Concentrates derived income from exports only. The division was exempt u/s 10B from A.Y 1999-2000 and was not getting any taxable income during A.Y 1999-2000 to 2001-02 and therefore no exemption u/s 10B was claimed. During the impugned assessment year the Assessee earned a sum of ₹ 7,42,37,232/- from this Division and claimed exemption u/s 10B which was allowed while making assessment u/s 143(3). Subsequently, after recording reasons as stipulated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the Assessee u/s 10B by setting aside the order of CIT(A). 5.3 The ld. Sr. Advocate before us contended that the benefit of exemption u/s 10B of the Act which represents all the profits of the new unit i.e. Greater Ferro-Met was erroneously denied by observing that (i) tax holiday for EOU is 10 consecutive years and the Assessee company has availed it since 1991-92, (ii) no new unit has been approved by the Development Commissioner, SWEEPZ as seen from the LOP s. The existing unit was granted extension upto A.Y 2005-06, (iii) one of the essential conditions of Sec. 10B is that it should not be formed by transfer of machinery or plant previously used for any purpose, (iv) the Chartered Accountant stated that he has relied upon the representation made by the company for the purpose of reporting u/s 10B relying merely on the representation made by the Assessee company in contrary to Sec. 10B of the Income Tax Act. (v) letter dt. 5.10.2001 is addressed to M/s. Ferro-Met Concentrates, a division of Sociedade Fomento Industrial Ltd., and it has been permitted to continue as a 100% EOU for a further period of 5 years from 2001-02 to 2005-06. No reference is mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an agreement dt. 24.6.1995 was entered into between the Assessee company and the government for fulfilment of the export obligation. For this, attention was drawn to pg. 31-41 of the paper book. iii) It was stated that the initial cost estimate got shot up and therefore the company made revised application for approval on 2.11.1995 and it requested for additional import of capital goods of US $ 13,00,000/- and import of spares of US $ 3,00,000/- per annum during the period of export. The Ministry of Industry acceded to the revised application by its letter dt. 29.2.1996. Pursuant to the approval, a fresh agreement dt. 26.8.1996 for the fulfilment of the export obligation of the new unit was executed between the Assessee company and the government enhancing the export obligations. Attention was drawn towards pg. 42-47 of the paper book. Thus, it was contended that the Assessee was permitted to set up a new unit approved as 100% EOU. The export obligation would commence from the date of the commencement of the commercial production of the new unit and would continue for a period of 5 years thereafter. Aggregate export turnover to be achieved by the new unit in the said 5 years pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss water for recirculation before tailings are discharged, has made it possible to operate the GREATER FERRO-MET with only 200 cubic meter per hour of fresh water, which is less than half of the water required for operation of Ferro-met. vii. Tailings are conditioned to 50% Solids by wt., to facilitate storage in self draining stacks which otherwise would not have been possible to handle nearly 0.5 million tons of tailings, annually. viii. All the Iron ore exported from 1998 onwards was of high Fe content produced by the new unit. Thus, it was submitted that the AO failed to appreciate :- i. that the Assessee company has availed tax holiday benefit since 1991-92 is factually incorrect. ii. that the new unit had commenced production only in the financial year 1998-99 relevant to assessment year 1999-2000 and owing to losses in the initial years did not claim deduction for assessment year 1999-2000 to assessment year 2001-2002; iii. that the period of 10 years referred to in Section 10B(1) for the new unit commences from assessment year 1999-00 and concludes with assessment year 2008-09; iv. that the old unit became unviable due to its incapacity to produce the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablishes that the old unit which was not in a position to produce the required high grade of Fe content ore stands as it was and the new unit setup adjacent to this old unit is a standalone unit capable of producing on its own; xiv. that the total capital investment in the new unit (both in indigenous and imported machineries) is over ₹ 30 crores which is ten times of the capital investment of the old unit, and hence, even assuming without admitting, the plant and machineries of old unit are regarded to have been transferred to this new unit they are less than 20% in value when compared with the total investment of the new unit; xv. that the statement made by the chartered account in the Annexure to the tax audit report to the effect that he had relied upon the representations made by the company and relied upon by the Accountant for the purpose of reporting under section 10B was not contrary to section 10B of the Act, that the Chartered Accountant correctly certified the quantum of deduction available to your assessee in the prescribed Form No.56G (pg. 53-60 of the paper book) in that being a non-technical person he had relied on the representations of the company s qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his definition has been removed subsequently but was applicable during the impugned assessment year. It was further submitted that the Greater Ferro-met primarily consists of (a) primary beneficiation section and other related plant and machinery and (b) slime treatment plant. The primary beneficiation section was commissioned on 1.4.1998 and the slime treatment plant was commissioned on 1.10.1998. The old unit was set up in the year 1986 having production capacity of 2 lac tons p.a. and could beneficiate the ore i.e. increase the ferrous (Fe) content by maximum of 2% by feeding low grade of ROM. Over the period, the ore deposits depleted and Fe grade ore has fallen down as low as 56-57%. The ore plant could have produced iron ore of Fe 58-59% which could not meet the contractual requirement and was not commercially saleable. This new unit is capable of independently processing ore to increase the Fe content and reduce the alumina and silica content. The final product ranges in Fe content between 63 65% which is comparatively saleable in the international market. Our attention was also drawn towards pg. 184 of the paper book which contains photograph of the new plant. 5.4 We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion as to whether the industrial undertaking is eligible for deduction or not. It has been observed by the Hon'ble Madras High Court that even though, the heading of the Section 80J indicates that deduction is in respect of the newly established industrial undertaking but any undertaking which fulfills all the conditions laid down in the section become eligible for deduction under Section 80J. In the case of the appellant, if the deduction under Section 10B was allowable to the new established undertaking, the deduction need be allowed in view of the judicial pronouncements discussed above, but the deduction under Section 10B is not allowable to all the newly established industrial undertaking, but it is limited only to newly established 100% export oriented undertaking. Which is evident from the heading of the Section and plain reading of Sub Section (1) of Section 10B which reads as under : Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred percent export oriented undertaking from the export of article or thing or computer software for a period of ten consecutive assessment years beginning with the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export oriented undertaking (hereafter in this section referred to the undertaking) to which the section applies shall not be included in the total income of the assessee. The definition of the hundred percent export oriented undertaking was provided in Clause (i) to Explanation of Section 10B was same as existing in the present Section. Sub Section (3) provided that the profits and gains referred to in Sub Section (1) shall not be included in the total income of the assessee in respect of any ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture, or produce articles or thing. Sub Section (5) of Section 10B with effect from 01.04.1989 read as under :- where the undertaking has began to manufacture or produce articles or thing in any previous year relevant to the assessment year commencing before the first day of April 1989, the assessee may, at his option, before the due date for furnishing the return of his income under Sub Section (1) of Section 139 for the assessment year commencing on 1st day of April 1989, furnish to the Assessing Officer a declaration in writing that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or approval for hundred percent export oriented undertaking formed under Resolution No.8(15/78-EP dated 31.12.1980) issued by the Ministry of Commerce. All the concessions/facilities which are available to hundred percent export oriented undertaking will be available to your undertaking also . (iii) In the term of the conditions of the approval the appellant entered in to a legal agreement in form Appendix 42 on 24.08.1984 In this agreement the reference to the approval dated 21.05.1984 is incorporated as under: whereas the Govt. has communicated vide letter dated 21.05.1984 to the Unit the terms and conditions for setting up the hundred percent export oriented unit for the manufacture of iron ore concentrates and the unit has duly accepted the said terms and conditions vide their letter no.PCH/29/84 dated 16th July 1984. In Para 2 of the agreement it is agreed that the unit shall intimate the date of commencement of production for hundred percent export within one month of such date to the concern Asst. Chief Controller of Imports and Exports, Panjim-Goa . (iv) By letter dated 26.12.1985 department of Industrial development Government of India, in reference to the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the past . In reference to above application, the Under Secretary to the Govt. Of India, Dept of Industrial Development, as per letter dated 10.11.1994 communicated to the appellant as under :- I am directed to refer to your letter addressed to Ministry of Commerce on the above subject and to say that you proposed to undertake modernization and substantial expansion of the project It is also mentioned in the letter that consequent upon substantial expansion of the project the value of addition of the project stands revised from 57% to 85% as per new formula ------- the Para 6 of the letter states that the industrial license dated 26.12.1985 under reference may deemed to have been amended to the above extent (vi) An application was made on November 2 , 1995 to the Secretary Government of India on the subject extention of EOU status for 5 years. This application starts as we are 100% export oriented unit operating under the Industrial license No CIL-420(85) dated 26/12/1985. It was requested by this application for extention of 100% EOU status for further period of 5 years w.e.f. 27.12.1995 and one time approval of import of capitalized goods. (vii) As per letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved as 100% EOU under Industrial License dated 26.12.1985 for a period of 10 years. The appellant claimed exemption under section 10B from the assessment year 1990-91 onwards. (b) The industrial license was extended for a further period of 5 years beyond October 1996 and it was further extended for a further period of 5 years from 01.04.2001 onwards. (c) It was claimed before the Chartered Accountant issuing the Audit Certificate that old 100% EOU Ferromet Concentrates is obsolete, economical non viable and cannot produce the exportable quality of ore on its own without new plant and machinery of greater Ferromet. Thus the company claims that entire production ;and sale of ore is relatable to greater Ferromet 100% EOU division and is eligible for 100 % tax benefit under section 10B of the Income Tax Act 1961. (d) The PBS and other related plant and machinery were commissioned on 01.04.1998 and slime treatment plant was commissioned on 01.10.1998. (e) The Ferromet Division commenced its operation in financial year 1998-1999 relevant to assessment year 1999-2000 is accordingly eligible for deduction under section 10B for 10 assessment years. However, the company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en granted by the board appointed for the purpose of approving hundred percent export oriented undertaking. Here also, it is clarified that the original industrial license is amended to the above extent. (iv) Through the letter dated 05.10.2001, it is clearly mentioned that the industrial license dated 26.12.1985 is permitted to continue as hundred percent export oriented undertaking for further period of five years from 2001-2002 to 2005-2006. This approval was also granted by the Development Commissioner and not by the Board appointed for this purpose. (v) The first time the letter dated 24.02.2006 written by Asst Development Commissioner SEEPZ, Office of Development Commissioner, Mumbai, is addressed to M/s Greater Ferro MET, Division of Sociedadale Formento Industrial Pvt Ltd., it is stated in reference to the letter dated 29.03.2006, the Development Commissioner has approved the request of the appellant to continue as EOU for further period of five years from 01.04.2006 onwards. Here also, the extension has been granted in reference to industrial license dated 26.12.1985. All the above facts proves beyond doubt that except the undertaking which was approved by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.08.1994 the appellant requested for duty free import of plant and machinery costing ₹ 7 crores, procuring free of excise duty and sales tax, indigenous plant and machinery, component, spares, consumables valued at ₹ 13 crores and duty free imported an indigenous (excise commercial tax free) spare parts of ₹ 2 crores for every year for ten years. The Government approved the concessions sought, the agreement with the Development Commissioner was made necessary to ensure that appellant should not only get concessions but should also fulfill the target of earning minimum net foreign exchange. It is also agreed that if the undertaking fails to fulfill the export obligation, the amount of the custom duties/excise duty along with the interest @ 18% from the date of the import supply will be recovered according to the provisions of the Custom Act 1962 and Central Excise and Salt Act 1944. Similarly as per the letter dated 02.11.1995, a request was made for approving one time import of capitalized goods including spares of US Dollar ₹ 35,00,000/- and import spares of US Dollar ₹ 3,00,000/- per annum during the extended period of export. The Government approve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly disallowance of deduction under Section 10B made by the Assessing Officer is upheld. The appeal on this ground is accordingly dismissed. 5.4.2 The Revenue did not file any appeal against the said order of CIT(A) before the ITAT but the Assessee went in appeal before the Tribunal vide ITA No. 42/PNJ/2010 against the finding of CIT(A) that the new unit established by the Assessee does not have the necessary approval of 100% EOU as required u/s 10B. The Tribunal after considering the rival submissions and after discussing the fact ultimately in para 29 to 32 of its order dt. 7.4.2011 as is reproduced below took the view that the approval is accorded to the Assessee and the Assessee has met out the requirement of Sec. 10B of the Act and therefore the Tribunal allowed the ground of appeal of the Assessee claiming the exemption u/s 10B :- 29. We have heard the rival submissions and have also perused the entire material on record. The assessee had approval dated 26.12.1985 as 100% EOU and claimed deduction under section 10B of the Act for assessment years 1990-91 to 1994-95. Thereafter assessee got renewal of its status as 100% EOU by the Ministry of Industries under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout there being an approval from the Board. No undertaking will be eligible for deduction under sections 10B of the Act. The appellant however has placed on record that the approval granted to it by the Development Commissioner is in exercise of the powers delegated to him by the Board of Approval under clause No. 9.37 of the hand book on procedures and thus the approval granted being delegated authority, amounts to exercise of powers by the Board itself. Reliance has also been placed on Supreme Court judgement in the case of Roopchand vs State of Punjab AIR (1963) (SC) 1503. The principle that emerges from this judgement is that order passed by the Delegatee pursuant to powers by the Government, would be the order of the Government. In the present case in appeal, the Development Commissioner accorded approval to the appellant pursuant to the powers delegated in him by the Board of Approval. It therefore, would be an approval accorded by the Board. The delegatee is not shown to have acted beyond the prescribed sphere of authority nor it is shown that the parent law did not permit him to do so. In this view of the matter and going by the order dated 31.3.2006 in ITA No.5439/Mum/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why courts have held parties to the opinion expressed in a decision in one assessment year to the same assessment in the subsequent year is not because of any principle of res judicata but because of theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. Similar view has been taken in the case of CIT vs J.K Charitable Trust(SC) 308 ITR 161. In the case of Radhasoami Satsang vs CIT 193 ITR 321 (SC).We noted Hon ble Delhi High Court in the case of CIT vs ARJ Security Printers 264 ITR 276 (Delhi) also took the similar view when the tribunal allowed relief to the assessee u/s 80I for the assessment year 1992-93, 1995-96 and 1997-98 but the revenue did not challenge the order of the tribunal but the revenue challenged the order of the tribunal for assessment year 1991-92, 1993-94, 1994-95 and 1996-97. The Hon ble High Court categorically held that earlier decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se units as well as Codli plant are approved as 100% EOU units. The necessary Board approvals are placed in respect of each unit by the assessee on record. For Codli Unit, approval was given initially for five years, which was subsequently extended to which we are satisfied as the revenue did not prove that the letter issued is bogus or forged one. To decide the issue whether all these units are engaged in any manufacturing or production of article or thing, it is necessary to refer to the relevant provisions of the Income-tax Act, 1961. 43. Provision of sec. 10A of the Act which deals with the special provisions in respect of the newly established undertakings in free-trade zone, etc., and sec. 10AA of the Act which deals with the special provisions in respect of the newly established units in special economic zones; and also sec. 10B of the Act which deals with the special provisions in respect of the newly established 100% export oriented undertakings were inserted by the Finance Act, 1988 w.e.f. 01/04/1989. Sec. 10B provides that any profits and gains derived by an assessee from a 100% EOU shall not be included in the total income of the assessee. This provision applies to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25% production within the country. With a view to rationalize the concession and to phase these out by the end of the assessment year 2009-10, the provisions of sec. 10A and 10B were substituted by the new provisions by the Finance Act, 2000. CBDT vide circular no. 794 dated 09/08/2000 245 ITR St. 21, 34-35 under para 15.3 explained that the deduction u/s 10B would be granted in respect of profits and gains derived by an undertaking which manufactures or produces article or things or computer software and derived profits and gains from the exports thereof. The said exemption was available for a period of 10 consecutive years in a graded manner. The new provisions contained the following additional conditions: i. The sale proceeds of articles or things or computer software exported out of India, should be received in or brought into India within a period of 6 months from the end of the previous year or within such further period as the competent authority may allow Sub-section (3); ii. The profits derived from the export of articles or things or computer software shall be the amount which bears to the profits of the business, the same proportion, as the export turnover in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition or integral structure. 43.5 In Chowgule Co. Pvt. Ltd. Vs. Union of India (1981) 1 SCC 653 Hon ble Supreme Court, after considering the judgment of Hon ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay (1959) 10 STC 500 (Bom.), clearly observed on the question whether the blending of ore, whilst loading it in the ship by means of the mechanical ore handling plant, constituted manufacture or processing or ore for sale within the meaning of section 8(3) (b) and Rule 13 of the Central Sales Tax Act, 1956. Dealing with this question, their lordships held and observed at pages 659 and 660 of the reports as under:- It still remains to consider whether the ore blended in the course of loading through the mechanical ore handling plant can be said to undergo processing when it is blended. The answer to this question depends upon what is the true meaning and connotation of the word processing in Section 8(3)(b) and Rule 13. This word has not been defined in the Act and it must therefore be interpreted according to its plain natural meaning. Webster s Dictionary gives the following meaning of the word =process : to subject to some special proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and chemical compositions is carried out by the simple act of physically mixing different quantities for such ore on the conveyor belt of the mechanical ore handling plant, but to our mind it is immaterial as to how the blending is done and what process is utilized for the purpose of blending. What is material to consider is whether the different quantities of ore which are blended together in the course of loading through the mechanical ore handling plant undergo any change in their physical and chemical composition is a result of blending and so far as this aspect of the question is concerned, it is impossible to argue that they do not suffer any change in their respective chemical and physical compositions. Thus the Hon ble Supreme Court accepted that there is change in chemical compositions after processing of the iron ore in this case.From the said decision of the Apex Court, it is apparent that Hon ble Apex Court held even blending of iron ore for the purpose of export involves change in the chemical and physical composition of iron ore. But if we look to the facts in the impugned case of the assessee, the assessee is not only blending iron ore but carrying out various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture . It was said (page 423): The word production has a wide connotation than the word manufacture . While every manufacture can be characterized as production, every production need not amount to manufacture The word 'production' or =produce when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. 43.6 In Christian Mica Industries Ltd. Vs. State of Bihar (1961) 12 STC 150 (SC), Hon ble Supreme Court defined the word 'production', albeit, in connection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word production in the Oxford English Dictionary, as meaning amongst other things that which is produced; a thing that results from any action, process or effort, a product; a product of human activity or effort . For the wide definition of the word 'production', it has to follow that mining activity for the purpose of production of mineral ores would com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to subject the commodity to a process, manufacture, development or preparation and the commodity remained in the same condition. The argument of the Revenue before us was that this decision of the Bombay High Court was on all fours with the present case and if the blending of different brands of tea for the purpose of producing a tea mixture in accordance with a formula evolved by the assesses could not be regarded as 'processing' of tea, equally on a parity of reasoning, blending of ore of different chemical and physical compositions could not be held to constitute 'processing' of the ore. Now undoubtedly there is a close analogy between the facts of Nilgiri Tea Company case [10 STC 500 (Bom HC)] and the facts of the present case, but we do not think we can accept the decision of the Bombay High Court in the Nilgiri Tea Company case [10 STC 500 (Bom HC)] as laying down the correct law. When different brands of tea were mixed by the assessee in Nilgiri Tea Company case [10 STC 500 (Bom HC)] for the purpose of producing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to a different conclusion and these observations were relied upon by the assessee, since, in the present case, the blending was done by application of mechanical force, but that is not the correct test to be applied for the purpose of determining whether the operation constitutes is 'processing'. (vii) The question is not whether there is any manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes processing . 43.10 Therefore, Hon ble Supreme Court, in construing the expression processing allowed the appeal of the assessee, in Chowgule Co. Pvt. Ltd. (supra), holding, inter alia, that where any commodity is subjected to a process or treatment with a view to its development or preparation for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U u/s 10B of the Act are very similar in nature and the wordings of the statutory provisions are similar in nature. Hon ble Kerala High Court also considered the judgment in the decision of Supreme Court in Tara Agencies (292 ITR 444 (SC) relied upon by the Sr. Standing Counsel for the revenue, wherein Hon ble Supreme Court clearly held that blending of tea does not amount to 'manufacture' or 'production' of an article or thing, but is only processing. Hon ble High Court allowing the appeal of the assessee held that the assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognized as a 100% EOU division and the Department had no case that the assessee s unit engaged in export of tea bags and tea packets was not a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial units of the assessee s 100% EOU, it would defeat the very object of section 10B of the Act. (similar to assessee s case). Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10B. Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, will continue to enjoy tax exemption under section 10A and section 10AA respectively. The still worse position is that the appellant would be denied of export exemption available under section 80HHC even to a merchant exporter. In our view, the decision of the Supreme Court in Tara Agencies case [2007] 292 ITR 444 (SC) is not applicable for the purpose of considering exemption for industries in the export processing zones, free trade zones and to 100 per cent export oriented units covered by sections 10A, 10AA and 10B of the Income-tax Act. Therefore, following the judgment of this court above referred to we hold that the assessee is entitled to exemption on the profit derived by its 100 per cent export oriented unit engaged in blending, packing and export of tea bags and tea packets. Consequently, we allow the appeals by reversing the orders of the Tribunal and by restoring the orders of the first appellate authority declaring the appellant s entitlement for exemption. 43.12 Hon ble high court in this case, in ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kolkata, Guwahati, Siliguri, Cochin, Coimbatore and Coonoor. The assessee conceded the factual position that it imports small quantity of tea of the type and quality not produced in India. It further conceded the factual position that it does not grow or manufacture any tea. According to the assessee, tea so bought in different auctions is processed with a view to remove all dust and foreign substances and thereafter it blends different varieties of tea to make it of uniform and consistent quality throughout the year. Thereafter, it is packed in consumer packets of 50, 100, 250, 500 or 1000 gms. Etc. or packed in the form of tea bags of 1.94 gms. Or 2 gms. etc., as the case may be. The assessee claimed exemption u/s 10B of the Act in respect of its 100% EOU for export of manufactured jute bags, packet tea, tea bags, bulk tea, etc. The AO rejected the claim of assessee of exemption u/s 10B in respect of export of blending of tea. The rejection of exemption u/s 10B was confirmed by the CIT(A). When the matter went before the special Bench, Special Bench after discussion the relevant provisions as well as the various decisions of High Court and the Supreme Court held as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted in the Exim Policy of 2002-07. Further, even in Prevention of Food Alternation Rules, 1955, it has been inter alia stated that Tea used in the manufacture of flavoured tea shall conform to the standards of tea. The flavoured tea:manufacturers shall register themselves with the Tea Board before making flavour tea In The Tea (Distribution Export) Control Order, 1957 issued by the Government of India, Ministry of Commerce Industry (Department of Commerce) the expressions flavour tea , green tea instant tea , packet tea quick brewing black tea , tea and test bag have been separately defined as distinct product. In Tea (Marketing) Control Order, 2003 issued by the ' Central Government, in exercise of the powers conferred by section 30(5)(3) of The Tea Act, 1953, the expressions manufacturer , Buyer , Packet Tea , Tea Bag ,- Green Tea , Quick Brewing Black Tea , Instant Tea and Made Tea have also been distinctly and separately defined. Clause (29BA) was inserted in section 2 of the Income Tax Act, 1961 by the Finance (No.2) Act, 2009 w.e.f. 01.04.2009 to define the expression manufacture as under: manufacture , with its grammatical variations, means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k tea in granule and dust form normally available for sale in the open retail market throughout India. 34. The subject for consideration under sections 10A and/or 10B of the said Act is manufacture / production of tea ; the object being grant of benefits of tax exemption to exporters carrying out their operations in FTZ, EOU, EPZ SEZ areas in accordance with the Exim Policy declared by the Government of India in Parliament and in the light of allied and governing laws; in the light of allied laws e.g. The Tea Act, 1953, The Prevention of Food Adulteration Act, 1953 read with Prevention of Food Adulteration Rules, 1955. The Tea (Marketing) Control Order, 2003, The Tea (Distribution Export) Control Order, 2005 as well as the Rules and Regulations framed by the Tea Board and also Calcutta Tea Traders Association from time to time as discussed above. 35. We find from the above facts and circumstances and case laws relied on by both the sides that the assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs. The assessee's division enjoys recognition as a 100% EOU, which is granted by the Development Commissioner, Ministry of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider the definition of the word manufacture as defined in Section 2(r) of SEZ Act, Exim Policy, Food Adulteration Rules, 1955, Tea (Marketing) Control Order, 2003, etc. We also find that the definition of 'manufacture' as per Section 2(r) of the SEZ Act, 2005 is incorporated in Section 10AA of the Income-tax act with effect from 10.02.2006. Hon'ble Kerala High Court in the case of Girnar Industries (supra) had held such amendment in Section 10AA to be of clarificatory in nature. The definition of 'manufacture' under the SEZ Act, Exim Policy, Food Adulteration Rules and Tea (Marketing) Control Order is much wider than what is the meaning of the term `manufacture under the common parlance, and it includes processing, blending, packaging etc. In view of the above and respectfully following the decision of Hon'ble Kerala High Court in the case of Girnar Industries (supra) and Tata Tea Limited (supra), we hold that the assessee is entitled for exemption under Section 10B of the Act on account of blending of tea. Similarly, in our view, the industrial units engaged in the very same activity i.e. blending, packing and export of tea in the free trade zone sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e / production. While holding so under para 12 of its order, Hon ble Supreme Court has given the same analogy for the purpose of eligibility of deduction under section 80HH and 80-I as has been given by the Kerala High Court in the case of Tata Tea discussed herein above for the purpose of section 10B, that if there was no manufacturing activity, then the question of referring to item 10 of Eleventh Schedule for the purpose of exclusion does not arise. From this judgment, thus, it is apparent that the Hon ble Apex Court accepted that manufacture/production includes processing also. 45.1 We have also gone through the decision of Hon ble Supreme Court in the case of ITO Vs. Arihant Tiles and Marbles Pvt. Ltd. 320 ITR 79(sc). In this case when the assessee was engaged in the activity of cutting and polishing of marble blocks, the question before the Supreme Court was whether the activities undertaken by the assessee would fall within the meaning of the words =manufacture or production in section 80-IA of the Income-tax Act, 1961 In this case, Hon ble Supreme Court, after discussing the definition of 'manufacture' given in section 2(29BA) of the Income-tax Act, 1961 and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions of the revenue whether this issue should be sent to Special Bench or not. We have gone through the decision of this Tribunal in ITA No. 162/PNJ/2006 dt. 12th July, 2007 read with Misc. Application in MA No. 23/PNJ/2007 dt. 19th July, 2007 in the case of Chowgule Co. In this case we noted that the coordinate Bench of the Tribunal has interpreted the decision of the Hon ble Supreme Court in the case of Sesa Goa 271 ITR 331 that extraction and processing of mining ore amounts to production; and one should read the expression =extraction and processing together (this decision was not rendered in respect of exemption available u/s 10B). Even the coordinate bench of this Tribunal further held that if section 10B provides exemption for processing also, the law would have made it very clear by apparently stating that processing is also entitled for exemption. When the expression 'processing' is omitted in section 10B, we are not supposed to fill up the omission. If something is not there we should accept as it is not there. We should not provide for the omission that amounts to judicial legislation. There is no confusion in the provision of law provided under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly on the similar issue, in view of the Article 141 of the Constitution of India that decision will be binding on us. Even this will be regarded a mistake of law in view of the decision of Hon ble Supreme Court in the case of CIT vs Saurashtra Kutch Stock Exchange 305 ITR 227 (SC).If there is no jurisdictional high court decision and subsequently any other high court has decided the similar issue, this is the settled principle of law that the decision of that high court has to be followed as the high court is always superior to the tribunal in preference to the decision of coordinate bench. The decision so pronounced subsequently if affects the issue relating to the assessee, in our opinion, these subsequent decisions are binding on us as judicial discipline require that. This Tribunal is bound to consider those decisions and the Tribunal is not bound with the decision of the coordinate Bench. The jurisdictional Bombay High Court in the case of H.A. Shah Co. Vs. CIT (1956) 30 ITR 618, 625 (Bom.) even took the view that in case fresh material facts came to the knowledge of subsequent bench, the decision of coordinate bench is not binding. In this regard, Hon ble High Court observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 10AA has already come into force after the decision of Hon ble Apex court in the case of Sesa Goa Ltd 271 ITR 331 when the decisions was rendered but was not inserted with retrospective effect. Even the provision of Section 2(29BA) was also inserted after the decision of Hon ble Supreme Court in the case of Sesa Goa Ltd(supra). Both these amendments are in the statute as on today and are to be considered for the impugned assessment year. The decision of Supreme Court in the case of Chowgule Co as cited by us earlier was also not considered by the coordinate bench as the word processing was omitted in section 10B during that year for which case was decided. Both these amendments have duly been considered by the subsequent decision of Special Bench, High Court and the Supreme Court cited by us in discussion held here in above. We noted that subsequent to the decision of this Tribunal in ITA No. 162/PNJ/2006 dt. 12th July, 2007, the Special Bench of this Tribunal in the case of Madhu Jayanti International Ltd. [2012-TIOL-424-ITAT-KOL-SB] has dealt with the issue exhaustibly whether the assessees who are in the business of blending of tea i.e processing of tea and export thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said decision has not been followed by the Supreme Court in their subsequent decisions. Even the case relate to A.Y.2002-03. No contrary decision subsequent to the decision of the Special Bench, Kerala High Court and that of the Supreme Court rendered in the case of India Cine Agency (supra) as well as Arihant Tiles Marbles (Supra) was brought to our knowledge which may have taken a different view that 100% EOU approved by the competent authority if engaged in processing activity for upgrading a commodity for the purpose of marketability for export would not be allowed exemption u/s 10B. The Ld. Special Counsel even could not bring to our knowledge any decision subsequent to the decision of the Special Bench and Arihant Tiles Marbles (SC) as well as Kerala High Court in the case of Tata Tea (Supra) which would have disallowed the claim of the assessee u/s 10B on this basis after considering the Explanation (iii) of section 10AA as well as definition given u/s 2(29BA). Thus, due to the decision rendered by the Special Bench, High Courts and Supreme Court subsequent to the date of order in the case of Chowgule Co. Ltd. Vs. ACIT in ITA No. 162/PNJ/2006 in our opinion, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y means of the mechanical ore handling plant, constituted 'manufacture' or 'processing' of ore for sale within the meaning of section 8(3)(b) and Rule 13 of Central Sales Tax Act, 1956. The Hon ble Supreme Court, in construing the expression processing allowed the appeal of the assessee, in Chowgule Co. Pvt. Ltd. (supra), holding, inter alia, that where any commodity is subjected to a process or treatment with a view to its development or preparation for the market it would amount to processing of the commodity within the meaning of Central Sales Tax Act, 1956. The Special Bench ultimately allowed exemption to the assessee on the similar issue where the assessee was engaged in the business of blending the tea for upgrading for marketing. Thus, in view of the decision of the Special Bench and other decisions discussed in the preceding paragraphs and that of Hon ble Supreme Court in the case of Chowgule co (supra) as well as definition of 'manufacture' as inserted w.e.f 1.4.2009 by way of section 2 (29AB) of the Income Tax Act as referred to by both the parties, we hold that all the three 100% EOU engaged in processing so as to make crude ore and waste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,03,82,158 (Phase-III) Total: 3,96,10,020 8,33,34,046 (All Phs) 9,00,78,574 The contention of the assessee is that it had set up all these units as new units and had also got the approval for them from the competent authority as 100% EOU units. The old machinery and part of old machineries wherever used, the value of these machineries were less than 20% in each units. The old units situated in Amona, Chitradurga and Codli were eroded, non-productive and non-economical. The revenue has strongly contended that none of these units even though 100% EOU but were setup long ago. The assessee had merely renovated these units during the period as claimed by the assessee. The revenue on the other hand accepted that the assessee had invested in Amona plant ₹ 3,96,10,020/- during the year 2002-03 and in Chitradurga unit during F.Y. 2005-06 to 2008-09 ₹ 8,33,34,046/- but the assessee had not submitted any evidence in respect of the investments made in the Codli unit and in which year. We noted that CIT(A) in his appellate order at page nos. 48-50 has given =Depreciation Chart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educed the block of assets with these amounts but this in our opinion will not change the true character of the transaction. We find force in the submission of the assessee that in the case of Amona EOU, old unit set-up in 1985 had become outdated, obsolete, even dangerous and uneconomical to run after a span of 17 years. Therefore, the assessee had to take an immediate action to either abandon it or revamp it entirely. This fact is also proved with the fact that the production capacity of this plant which was 1 MTPA earlier got doubled at 2 MTPA coupled with further flexibility created to increase it more in future after setting up new unit. The newly increased production capacity had not been denied by the revenue. The cost of new plant and machinery for all major / critical processes and civil structures for those plants amounted to ₹ 3,96,10,020/- during the FY 2002-03, whereas the WDV of the old plant used in the new undertaking was just ₹ 26,17,714/-, which is a mere 6.7% of the cost of new plant machinery, i.e., within the permissible limit of 20%. The CIT(A), in our opinion, was not correct in comparing the number of machines and equipments installed in mining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as ₹ 93,84,633/-. Thus, the value of plant machinery existing as on 01/04/2005 was merely 7.4% of the cost of new plant machinery; which is also within the permissible limit. The accounts books in that year were duly audited and were not rejected by the Assessing officer in those assessment years. Now coming to Codli UFR unit, we noted that neither the assessing officer nor the CIT (Appeals) has disputed the capital investment made in new plant machinery in the FY 1999-2000, they have merely expressed their dissatisfaction on the evidences furnished by the assessee in respect of the date of commencement of manufacturing or production, which was stated as 08/03/2000 by the assessee on the strength of documentary evidences such as the Approval from the Board of Approvals, intimation of commencement of commercial production on 08/03/2000 to the Ministry of Industries, etc., which have discussed separately in this order by us. The main contentions of the revenue before us are as under:- (i) That all old machines were not replaced since there was no deletion in the book value of the existing plant shown in the depreciation charts for the concerned years. (ii) That by c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss account for the years ended on 31/03/2003 and 31/03/2006 and also the break-up of Service and Other Proceeds provided at page nos. 1356 and 1365 of the paper book for the said two financial years respectively. Gross receipt from sale of scrap for Goa (Amona unit) amounting to ₹ 71,41,971/- was declared in the FY 2002-03; and that of ₹ 4,67,163/- was declared for the year ended on 31/03/2006 in respect of Karnataka (Chitradurga unit). We find substance in the explanation of the Ld. AR that the said contention of the Revenue does not, therefore, hold good in our opinion. Otherwise also, we have noted that the value of the existing plant was much below the threshold limit of 20% required for substantial investment for setting-up of a new unit for the purpose of section 10B. 45.13 With regard to the contention of the Revenue that in the case of Chitradurga unit, some bills were found for undertaking fabrication, erection and other such works which appear to be revenue in nature and not capital in nature. We noted the explanation of the Ld. AR that the assessments for the AYs 2006-07 and 2007-08 had been framed u/s 143(3) where depreciation vis- -vis capital expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself that the extraction division and EOU units are entirely different, and the dispute before us relate only to the EOU units whether they are new or not, therefore in our view, revenue is not correct in adding the value of the extraction division for determining 20% threshold limit of old plant and machinery for establishing the new unit. On the one side, the revenue is taking the contention that extraction division is not the part of 100% EOU, therefore the assessee s EOU units cannot be regarded to have been engaged in extraction of ore and iron ore processing, on the other hand, while determining the threshold limit of 20% of old plant and machinery, the revenue cannot be permitted to take a contrary contention. We are of the firm view that while determining the eligibility of a particular unit u/s 10B, its only the value of old plant and machinery installed in that very unit will be considered for determining the threshold limit of 20%. Thus, this contention of the revenue stand dismissed. Production date submitted by the assessee on record clearly prove that the production in each of these units got substantially increased as compared to the production in the old units di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act it is clear that the statute itself has envisaged and approved of a situation in which an old existing smaller industrial undertaking is absorbed by a new much bigger industrial undertaking. 15. In the present case, only capacity was increased and there was expansion of old business with some modifications. As for reconstruction of the business, it is nowhere evident that the old industrial unit was split up or damaged or destroyed that was supposedly reconstructed as a new unit by the assessee. What the assessee has done is to set up an industrial undertaking with latest technology and with increased capacity and of course, with a fairly good amount of fresh investment. (ii) Mettur Chemicals Industrial Corporation Ltd. Vs. CIT (1996) 217 ITR 768 (SC) 11. It is found as a fact that the appellant had begun to manufacture or produce articles in the previous year ended on 31-3-1957 with the help of thirty hooker cells. It is true that rectifier had not been installed in the year 1957-58 but it is not in dispute that with suitable adjustment being made to the power system, the thirty hooker cells which had been installed were utilised. The use of these new hooker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any manner, be said to be formed by the reconstruction or splitting up of a business already in existence. Then, the authorities below have observed that mere registration as a one hundred per cent EOU is not the sole criterion for grant of deduction under s. 10B of the Act. This observation itself amounts to an admission of the unit being registered as a one hundred per cent unit with the Development Commr., NEPZ. Explanation 2(iv) to s. 10B of the Act provides for a one hundred per cent EOU to mean an undertaking which has been approved as a one hundred per cent EOU by the board appointed in this behalf by the Central Government in exercise of the powers conferred by s. 14 of the Industries (Development and Regulation) Act, 1951 and the Rules made thereunder. For facility, the said Expln. 2(iv) to s. 10B is being reproduced as follows:- Hundred per cent export-oriented undertaking means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by s. 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the Rules made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of a new industrial undertaking expands his existing business which he certainly does, would not on that score deprive him of the benefit under Section 80-I. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is a new identifiable endeavour where substantial investment of fresh capital is made to enable earning of profit attributable to that new capital. In the circumstances, the question referred for the opinion of this Court is answered in the negative, i.e., against the Revenue and in favour of the assessee (v) Bajaj Tempo Ltd. Vs. CIT (1992) 104 CTR (SC) 116 Deduction under s. 15C of 1922 Act (s. 80J of 1961 Act) Allowability Industrial undertaking established in a building taken on lease used previously for other purpose Tools and implements worth ₹ 3,500 of the previous undertaking also transferred Relief under s. 15C is allowable Clause (i) of sub-s. (2) of s. 15C does not apply The provision granting relief was enacted to encourage industrialization and has to be construed liberally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the IT Act, 1961. We therefore, dismiss this claim of the revenue. 45.19 We noted that in respect of the Amona plant the assessee has duly informed the DC, SEZ Bombay vide his letter dated 9.3.2008 i.e., commercial production started on 8.3.2000 and copy of the said letter was duly sent to Customs Department which was not disputed by these competent authorities. 45.20 In the case of Chitradurga plant also we noted that the assessee vide its letter dated 14.7.2008 duly intimated to the DC, SEZ that the converted 100% EOU is started commercial production on 6.6.2008. The premises of the said unit was bonded and the licence no.1/2008 dated 5.6.2008 was issued u/s 58 of the Customs Act. Similarly, we noted that in the case of Codli Unit the assessee has duly intimated to the Ministry of Industry vide letter dated 9.3.2000 that the commercial production is started on 8.3.2000. None of the aforesaid Government authority has disputed that the assessee has not started commercial production on that date. 45.21 In view of the aforesaid discussion, we are of the view that the assessee is entitled for exemption u/s 10B in respect of all the three 100% Export Oriented Units, but duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submission of the assessee but in the interest of justice and fair play to both the parties, in respect of this unit also we direct the assessing officer to recompute the profit of this unit eligible for exemption after satisfying himself about the fair market value of =tailings after giving proper and sufficient opportunity to the assessee to prove the market value of the tailings used in the Codli unit and allow the assessee exemption to the assessee u/s 10B of the Income-tax Act, 1961 for Codli unit on the profit so recomputed accordingly. The assessee is directed to adduce the necessary evidence on which it may rely to prove the market value of inputs before the assessing officer. Thus, the ground nos. 7, 8 9 are partly allowed. 5.4.5 We, therefore, in view of our decision in ITA Nos.72/PNJ/2012 85/PNJ/2012 and the fact that the finding of CIT(A) in the case of the Assessee has already become final during the A.Y. 2006-07 vide its order dt. 9.12.2009, hold that the Assessee has established a new industrial undertaking. 5.4.6 So far as the question whether the said unit which is eligible for exemption and in respect of which the Assessee has claimed exemption u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is entitled for full deduction under section 10B of the Act on it s activity of purchasing, processing and exporting the iron ore. (iii) It is not open for the revenue to deny deduction under section 10B of the Act for the first time in the penultimate year of the claim by holding that the Appellant is not engaged in manufacture after 8 years. 5. (i) The CIT(A) erred in confirming the disallowance made by the AO under section 14A of the Act r.w.r. 8D of the I.T.Rules, 1962 when Rule 8D was brought into statute with effect from assessment year 2008-09. (ii) Without prejudice, the disallowance by application of Rule 8D may directed to be restricted (a) by calculating the average investment value taking into consideration only those investments on which the assessee earned exempted dividend and (b) by excluding the bank charges and commission while considering the proportionate disallowance of interest under Rule 8D(2)(ii). whereas the following common grounds of appeal have been taken by the Revenue in both the A.Ys except for the figures : 1. The Ld. Commissioner of Income-Tax (Appeals) order is opposed to law and facts of the case. 2. On the facts and circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee alongwith letter dt. 8.2.2012 in response to the letter of the Assessee dt. 6.2.2012, copy of which is available at pg. 3-4 of the paper book. The Assessee objected for the initiation of the proceedings u/s 147 vide his letter dt. 20.2.2012 by stating that the AO is factually incorrect in stating in the reasons that the claim u/s 10B was disallowed in the assessment completed for the A.Y 2002-03. The claim u/s 10B was allowed during the A.Y 2002-03 after thorough investigation. That assessment was subsequently re-opened on the premise that no new unit had been set up by the Assessee and the additional plant and machinery installed by the assessee merely amounted to expansion of the existing unit. For A.Y 2003-04 to 2005-06, assessments were completed u/s 143(3) allowing exemption to the Assessee u/s 10B of the Income Tax Act. CIT invoking the provisions of Sec. 263 set aside those orders but in appeal, this Tribunal quashed on all the three orders passed u/s 263. Against the orders passed by ITAT, the revenue has filed the appeals before High Court and matter is pending before the Hon'ble High Court. In the A.Y 2006-07, the assessing officer disallowed the claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012. 8.3 From the reading of this section, it is apparent that this section empowers the AO to assess or re-assess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. This section authorizes the AO not only to re-assess but also to assess the Assessee in respect of an income which escaped assessment. For initiating the proceedings under this section, no doubt there must be reason to believe as has been pointed out by us in the preceding paragraphs while disposing off the appeal for the A.Y. 2002-03. Reason to believe would mean cause or justification. If the AO has cause or justification to know or suppose that income has escaped assessment, it can be said that assessing officer has reason to believe that the income has escaped assessment. The Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) has categorically held that processing of the return u/s 143(1) by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Delhi High Court in the case of CIT vs. Orient Craft, 354 ITR 536 (Del.) (supra). No doubt in that decision the Hon'ble Delhi High Court under para 17 while dealing with the specific argument of the Revenue that an intimation cannot be equated to an assessment, took the view that the submission of the ld. DR acted to be self-defeating because if an intimation is not an assessment, then, it can never be subjected to Sec. 147 proceedings as the section covers only an assessment and we wonder if the Revenue would be prepared to concede that position. In our opinion, Sec. 147 authorises the AO not only to re-assess but to assess any income chargeable to tax which has escaped assessment for any assessment year. The word chargeable to tax has escaped assessment is defined under explanation 2 under sub-clause (b). Sub-clause (b) clearly states that where return has been filed but no assessment has been made and the AO notices that the Assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return, it shall be deemed to be a case where income chargeable to tax has escaped assessment. We do not find that the explanation 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down under para 17 of its decision that under the substituted Sec. 147 existence of only the first condition is sufficient. If the AO, for whatever reasons, has reason to believe that income has escaped assessment, it confers jurisdiction to re-open the assessment. It is further stated that both the conditions must be fulfilled if the case falls within the ambit of proviso to Sec. 147. No doubt the ingredients of Sec. 147 are to be fulfilled. The ingredients of Sec. 147 nowhere requires that in case a return is furnished u/s 147 there must be tangible material which should come to the possession of the AO subsequent to the issue of the intimation. In our opinion, the material which is available with the AO even alongwith the return at the time of the processing of the return can be the basis for 'reason to believe' as in view of clause (b) of explanation 2 it can be deemed that income chargeable to tax has escaped assessment. Clause (b) of explanation 2 does not require that the assessment must precede before taking any action u/s 147. We noted that the Hon'ble Supreme Court in the case of Raymond Wollen Mills Ltd vs. ITO, 236 ITR 34 when a similar question had come be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts territorial jurisdiction. (c) The position in regard to the binding nature of the decisions of a High Court on different Benches of the same court, may be summed up as follows : (i) A single judge of a High Court is bound by the decision of another single judge or a Division Bench of the same High Court. It would be judicial impropriety to ignore that decision. Judicial comity demands that a binding decision to which his attention had been drawn should neither be ignored nor overlooked. (ii) A Division Bench of a High Court should follow the decision of another Division Bench of equal strength or a Full Bench of the same High Court. If one Division Bench differs from another Division Bench of the same High Court, it should refer the case to a larger Bench. (iii) Where there are conflicting decisions of courts of co-ordinate jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decisions. (iv) the decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its territorial jurisdiction. 8.7 Although we are of the opinion that the issue is duly covered by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Sec. 34(1)(b). Sec. 34(1)(a) empowers the AO to assess or re-assess the escaped income, where the AO has reason to believe, due to the omission or failure of the Assessee to make a return of his income u/s 22 or to disclose fully and truly all the material facts necessary for his assessment. U/s 34(1)(a) reason to believe is qualified by the words omission or failure . Sub-clause (b) applies to a case where there may be no omission or failure but the AO, in consequence of information in his possession, has reason to believe about the escaped income. U/s 34(1)(b) thus the reason to believe for escapement of the income must have arisen in consequence of the information coming in the possession of the AO. The Hon'ble Supreme Court has analysed the word information as used in Sec. 34(1)(b) in the case of Kalyanji Mavji and Co. vs CIT, 102 ITR 287 (SC) and has categorically held in the following manner : The word information in section 34(1)(b) is of the widest amplitude and comprehends a variety of factors. Nevertheless, the power under section 34(1)(b), however wide it may be, is not plenary because the discretion of the Income-tax Officer is controlled by the words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). 8.11 In this section also, for the purpose of 'reason to believe' it is necessary that the 'reason to believe' must have arisen in consequence of the information in the possession of the AO. The information must precede the reasons to believe if we read the provisions of Sec.147(b). We noted that the Hon'ble Supreme Court had occasion to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Office after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the material on record, or the facts disclosed thereby, or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected. 8.12 From the provisions of Sec. 34(1)(b) and 147(b) which were under the Income Tax Act prior to 1.4.1989 it is apparent that for arriving at 'reason to believe' that income chargeable to tax has escaped assessment it was necessary that the AO must have information in his possession prior to arriving at reasons to believe that income escaped assessment. This information has been interpreted by the courts from time to time in the form of tangible fresh material or facts but when we looked into the provisions of Sec. 147 which has been substituted w.e.f. 1.4.1989, we noted that there are drastic changes in this section. Now, the only condition which requires to be fulfilled is that the AO must have 'reason to believe' that any income chargeable to tax has escaped assessment. This section does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) further held that there being no assessment u/s 143(1) of the Act, the question of change of opinion does not arise. The Hon'ble Supreme Court also held that Sec. 147 permitted the AO to assess or re-assess the income chargeable to tax when he has reason to believe income escaping assessment. The mere failure to take steps u/s 143(3) would not render the AO powerless to initiate proceedings u/s 147 of the Act even when intimation u/s 143(1) had been issued. Thus, with the amendment brought to Sec. 147 of the Act on and from 1.4.1989 and the elucidation on the scope of the authority and jurisdiction of the officer u/s 147 of the Act, we are of the firm view that the proceedings initiated by the AO u/s 147 are valid and the AO could have taken the action u/s 147 on the basis of the material available and filed alongwith the return. There is no need of any fresh tangible material for coming to the 'reason to believe' that the income has escaped assessment in view of explanation 2 clause (b) of Sec. 147. 8.13 In view of the aforesaid discussion, ground no. 2 taken by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough para 3.5, 3.6, 3.7, 3.8, 3.9, 3.10 and 3.11 of the assessment order. We noted that the AO only discussed the provisions of Sec. 14A(1) and has not made out any satisfaction whatsoever how the expenditure incurred by the Assessee during the year relate to the income not forming part of the total income of the Assessee. No whisper what to talk of the relationship of the expenditure with the exempt income is mentioned. The AO straightaway jumped to applying Rule 8D relying on the decision of the Hon'ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. vs. DCIT, 328 ITR 81 (Mum) (supra) holding that Rule 8D pertains to both direct and indirect expenditure incurred on earning tax exempt income and in the judgement it was held that no deduction shall be allowed in respect of expenditure incurred by the Assessee in relation to such income which does not form part of the total income under the Act by virtue of provisions of Sec. 14A(1) and Rule 8D of the Income Tax Rules. CIT(A), we noted, has also not dealt with the submissions of the Assessee with regard to the satisfaction being recorded by the AO before applying Rule 8D. The main contention of the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st be based on the reasons and ground as seems good to him and while making such satisfaction, the AO must give regard to the accounts of the assessee. He must record deficiency in the accounts with regards to the claim of the assessee. Sub-sec.(3) provides that provisions of sub-sec.(2) shall also apply where assessee claims that no expenditure had been incurred in relation to income not forming part of the total income. This is not the case of the assessee as in the case of the assessee, assessee himself estimated the expenses relating to the exempt income and disallowed the same. Rule 8D was inserted by gazette notification dated 24/3/2008 in view of the power conferred under sub-sec (2). This Rule prescribes the method for computing the expenditure incurred in relation to the income not forming part of the total income. This is an undisputed fact that in this case, the assessee has invested in debts mutual funds. The assessee computed disallowance u/s 14A(2) at ₹ 25,78,156/- and disallowed the same, while computing its total income. The working of the said disallowance claimed by the assessee is given herein above in the submissions made by the assessee. The AO was not sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .14A is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of the total income (page 21). 4. The insertion of sec.14A was curative and declaratory of the intent of the Parliament. The basic principle of taxation is that only net income, namely, gross income minus expenditure that is taxable. Expenses incurred can be allowed only to the extent that they are relatable to the earning of taxable income (pages 22-23). The test which has been enunciated in Wallfort for attracting the provisions of sec.14A is that there has to be a proximate cause for disallowance which has its relationship with the tax exempt income. Once the test of proximate cause, based on the relationship of the expenditure with tax exempt income is established, a disallowance would have to be effected under section 14A (page 28) 5. What merits emphasis is that the jurisdiction of the AO to determine the expenditure incurred in relation to such income which does not form part of the total income, in accordance with the prescribed method, arises if the AO is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances . The said decision of the jurisdictional High Court is binding on us. While deciding this case, the decision of the Hon'ble Supreme Court in the case of CIT Vs Wallfort Shares Stock Brokers Ltd., 233 CTR (SC) 42 was referred to. In this decision, we noted that the Hon'ble Supreme Court in that case upheld the view of the Hon'ble Mumbai High Court in the case of Wallfort Shares Stock Brokers Ltd. Vs ITO 310 ITR 421. The Hon'ble Supreme Court in this decision, at page-31 of the order held as under; To attract Sec.14A there has to be proximate cause for disallowance which has its relationship with the tax exempt. Pay back or return of investment is not such proximate cause. Hence, Sec.14A is not applicable in the present case. Thus, in the absence of such proximate cause for disallowance, Sec.14A cannot be invoked . 16. The Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs DCIT (supra) therefore at page-28 has clearly laid down that there must be proximate cause based on the relationship of the expenditure that tax exempt income is established, only then a disallowance would have to be effected u/s 14A of the IT Act. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons for arriving at such satisfaction. The assessing officer in this case, we noted is not satisfied with the correctness of the disallowance made by the assessee even though he has accepted the explanation of the assessee that no interest is incurred with regard to exempt income. He rejected the explanation of the assessee that no administrative expenditure incurred on earning dividend income considering the magnitude of the investments and dividend income received and the disallowance according to him made by the assessee u/s 14A towards administrative expenditure is very less. The assessing officer nowhere pointed out the proximate connection of other expenses not apportioned by the assessee for the earning of the dividend income. He merely observed that the administrative expenses disallowed by the assessee is very less but how they are less and how the other expenses incurred by the assessee related to the dividend income has not been brought on record. Even the AO has not pointed out the expenses excluded by the assessee for disallowance has proximate connection with dividend income. In our opinion, the assessing officer before rejecting the disallowance computed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order does not evince any such satisfaction of the AO regarding the correctness of the claim of the assessee. As such, Rule 8D of the Rules was not appropriately applied by the AO as correctly held by the CIT(A). It has not been done by the AO that any expenditure had been incurred by the assessee for earning its dividend income. Merely, an adhoc disallowance was made. The onus was on the AO to establish any such expenditure. This onus has not been discharged. In .CIT Vs. Hero Cycles. (P H) 323 ITR 518, under similar circumstances, it was held that the disallowance u/s 14A of the Act requires a clear finding of incurring of expenditure and that no disallowance can be made on the basis of presumptions. In .ACIT Vs. Eicher Ltd.., 101 TTJ (Del.) 369, that it was held that the burden is on the AO to establish nexus of expenses incurred with the earning of exempt income, before making any disallowance u/s 14A of the Act. In Maruti Udyog Vs. DCIT, 92 ITD 119 (Del.), it has been held that before making any disallowance u/s 14A of the Act, the onus to establish the nexus of the same with the exempt income, is on the revenue. In Wimco Seedlings Limited Vs. DCIT., 107 ITD 267 (Del.) (TM), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of law arises or not from the order of the Tribunal, the High Court does not exercise either the original jurisdiction or the jurisdiction to issue writs and the only jurisdiction exercised by the High Court in the first instance decides whether or not substantial question of law arises from the order of the Tribunal, it cannot be said that the High Court does not exercise the appellate powers or that there is no decision on merit when the high court dismisses an appeal holding that no substantial question of law arises from the order of the Tribunal. It was held that whenever an order of the subordinate forum is carried in appeal before the higher appellate forum/court, operative part thereof merges into the judgment, decision or order of the higher court after the confirmation, modification or reversal, as the case may be, and the decision of the lower court or forum has no independent existence thereafter in relation to the issue which was carried before the appellate court or forum. It was held that where the High Court comes to the conclusion that no substantial question of law arises on a particular issue, it cannot be stated that the subject matter of controversy between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y strategic decision and top management involve in taking the decisions. This decision relate to assessment year 2000-01 much prior to the insertion of provision of sec.14A(2) of the IT Act,1961. The decision of ACIT Vs Premium Consolidated Capital Trust 83 TTJ (Bom.) relates to assessment year 1991-92 prior to insertion of 14A(2) hence will not assist the revenue. The other decision relied on are also not applicable to the facts of the case, except the decision of jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs DC IT Another 328 ITR 81(Bom.). In view of our aforesaid discussion and respectively following the decision of the jurisdictional High Court in the case of Godrej Boyce Mfg. co. Ltd. Vs. DCIT another 328 ITR 81 (Bom), we delete the disallowance made u/s 14A r.w. Rule 8D and accordingly, the ground taken by the assessee in this regard is allowed. The finding given by this Tribunal in the aforesaid decision under para 17 are equally applicable in the case of the Assessee as in the assessment order we do not find any whisper whatsoever which proves that the AO was not satisfied with the correctness of the claim of the Assessee in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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