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2015 (5) TMI 388 - ITAT MUMBAI

2015 (5) TMI 388 - ITAT MUMBAI - TMI - Validity of reopening of the assessment - AO in the reopened assessment proceedings determined taxable income at NIL under the normal provisions of Act and book profit at ₹ 1321.27 crores under the provisions of section 115JB - Held that:- Once the reassessment proceedings is initiated validly on compliance with various conditions prescribed in the Act, the same cannot be held to be invalid merely because the assessment order ultimately did not disclo .....

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of satisfaction note/opportunity and the assessee is raising these contentions merely on presumptions. Thus the Ld CIT has rightly upheld the validity of initiation of reassessment proceedings.

Computation of deduction u/s 80HHC for the purpose of excluding the same from the Net profit for the purpose of computation of “Book Profit” u/s 115JB - Held that:- In view of the subsequent decision of the Hon’ble Supreme Court in the case of ACG Associated Capsules P Ltd Vs. CIT [2012 (2) TMI .....

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erest income in terms of the decision rendered by the Hon’ble Supreme Court in the case of ACG Associated Capsules P Ltd (supra).

Exclusion of 90% of the following Miscellaneous income while computing “Profits of business” for the purpose of computing deduction u/s 80HHC - Held that:- Ld CIT(A) was justified in holding that the Income - Deployment of P&M - Hire charges, Income from Time charter,Income - commission & Rent received represents independent source of income unconnected wit .....

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compute “Profits of business” in terms of Explanation (baa) to Sec. 80HHC of the Act. The remaining two items are Miscellaneous recoveries and Miscellaneous Income do not find the details relating to these two receipts accordingly we restore examination of these two items to the file of the assessing officer.

Commission/surcharge paid to State Oil marketing Organisation (SOMO) of Iraqi Government Agency - CIT(A) deleted the addition - Held that:- The facts prevailing in the instant ca .....

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Iraqi Government or their agency for procuring the crude oil. Hence, we are of the view that the Ld CIT(A) was justified in deleting this addition by holding that there is no material to support this addition. - Decided in favour of assessee. - I.T.A. No.1347/Mum/2011, I.T.A. No.1426/Mum/2011 - Dated:- 24-4-2015 - S/Shri B.R.Baskaran And Amit Shukla JJ. For the Appellant : Shri Arvind Sonde For the Respondent : Shri Santosh Kumar ORDER Per Bench:- These cross-appeals are directed against the or .....

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pening of the assessment; b) Computation of deduction under section 80HHC of the Act; and c) Interest chargeable u/s 234D of the Act. 3. The assessee company is engaged in the business of refining of crude oil. The original assessment u/s 143(3) of the Act was completed in the hands of the assessee for the assessment year 2001-02 on 30.1.2004 determining loss of ₹ 996.74 crores under the normal provisions of Act and book profit of ₹ 1580.09 crores under the provisions of section 115J .....

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for reopening of the assessment are recorded as under: Assessee company filed its return of income on 31.10.01 declaring a total of Rs.NIL under the normal provisions and ₹ 12,13,78,86,516 under the provisions of section 115JB of the Income Tax Act, 1961. The assessment was completed under section 143(3) of the Income Tax Act, 1961 on 30.1.2004 at a total loss of ₹ 996,74,68,008 under the normal provisions and ₹ 15,80,09,05,914 under the provisions of section 115JB of the Inco .....

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or period income of ₹ 16,62,80,901/-. This amount of prior period income is said to be consisting of ₹ 10,29,25,483/- in respect of Reliance Petroleum Ltd for the AY 2001-02 prior to the merger with M/s Reliance Industries Ltd. 3. As there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, I have reason to believe that income chargeable to tax has escaped assessment for this assessment year, coming within the meaning .....

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l provisions of Act and book profit at ₹ 1321.27 crores under the provisions of section 115JB of the Act. 6. The appeal filed by the assessee before the ld.CIT(A) against the reassessment order was partly allowed and hence both the parties are in appeal before us. 7. The first issue contested by the assessee relates to validity of reopening of the assessment. The ld. AR submitted that the AO has computed the income at NIL in the impugned reassessment proceedings also. In the order passed t .....

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capement of tax in order to hold the reassessment proceedings to be valid. Accordingly, he submitted that the impugned reassessment proceeding is not valid since the same has not resulted in escapement of tax. The Ld. AR further submitted that the AO has stated that he has sought necessary approval from the Commissioner of Income Tax before issuing the notice u/s 148 of the Act. The ld. AR, by placing reliance on the decision of Hon ble Supreme Court in the case of Chhugamal Rajpal V/s S. P. Cha .....

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AR further submitted that the AO has not furnished the copy of satisfaction recorded by the ld.CIT to the assessee. The ld. AR submitted that, in the absence of satisfaction note of Ld CIT, it is possible to presume that the ld.CIT has given the approval in a mechanical manner, in which case also the impugned notice issued u/s 148 of the Act is liable to be quashed. 8. The ld. D.R, however, submitted that the assessee has incurred loss and hence the tax payable was NIL under both the proceedings .....

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d. 9. We heard the parties on these both issues and perused the record. We have noticed earlier that the assessee has returned NIL income under the normal provisions of Act and book profit of ₹ 1213.78 crores under the provisions of section 115JB of the Act. In the assessment order dated 06.07.2004 passed to give effect to the order of Ld CIT(A), the total income was determined at NIL under normal provisions of the Act and at ₹ 1214 crores u/s 115JB of the Act. Consequent to the pass .....

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.e., the assessee itself has accepted that its income for AY 2001-02 has escaped the assessment to the tune of ₹ 5.60 crores. It is a well settled proposition that the assessing officer, at the time of issuing notice u/s 148 of the Act, should have reason to believe about the escapement of income. In the instant case, the belief formed by the assessing officer got vindicated by the fact that the assessee itself has offered additional income in the return of income filed in response to the .....

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ssee therein and its sister concerns about trading transactions. According to the department, the said arrangement resulted in escapement of income in view of the failure on the part of the assessee to disclose material facts. The Hon ble High Court noticed that the revenue could not show that the said arrangement resulted in reduction of aggregate tax payable by the assessee therein and its sister concern. Further, the High Court held that there was no failure on the part of the assessee to dis .....

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escribed in the Act, the same cannot be held to be invalid merely because the assessment order ultimately did not disclose about any escaped income. Further, under the present provisions of section 147, re-computation of loss is also brought within the scope of Income escaping assessment . 11. The other contentions of the assessee that the Satisfaction note of Ld CIT was not supplied to it; the Ld CIT might have given approval in a mechanical manner; the Ld CIT should have given opportunity to t .....

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these contentions merely on presumptions. 12. In view of the foregoing discussions, we are of the view that the Ld CIT has rightly upheld the validity of initiation of reassessment proceedings. 13. The next issue relates to the computation of deduction u/s 80HHC of the Act for the purpose of excluding the same from the Net profit for the purpose of computation of Book Profit u/s 115JB of the Act. The assessing officer, while computing the Profits of Business for the purpose of determining the d .....

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tion u/s 80HHC for computing income under section 115JB of the Act. The Ld CIT(A) rejected the said contentions, since he held that the Explanation (baa) to section 80HHC is equally applicable while computing income under section 115JB. 14. Before us the assessee reiterated the same contentions. However, in the absence of any case law to support the view taken by the assessee, we are of the view that the Ld CIT(A) is justified in applying the provisions of Explanation (baa) while computing deduc .....

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n of the Hon ble Supreme Court rendered in the case of ACG Associated Capsules P Ltd Vs. CIT (343 ITR 89). We notice that the ld CIT(A) has followed the decision of jurisdictional Bombay High Court rendered in the case of CIT Vs. Asian star co. Ltd (326 ITR 56). However, the Hon ble Supreme Court has also considered the decision rendered by the Hon ble Bombay High Court referred supra in the case of ACG Associated Capsules P Ltd and expressed its view as under:- In other words, ninety percent of .....

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er with the direction to determine the interest income in terms of the decision rendered by the Hon ble Supreme Court in the case of ACG Associated Capsules P Ltd (supra). 16. The next issue relates to the exclusion of 90% of the following Miscellaneous income while computing Profits of business for the purpose of computing deduction u/s 80HHC of the Act. S. No. Particulars Amount 1 Income-Deployment of P&M-Hire Charges 3,79,21,888 2 Income from Time Charter 2,24,18,334 3 Income-Commission 6 .....

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e not in the nature of business income, meaning thereby the assessee does not object to exclusion of 90% of the same. 17. We heard the parties on this issue. We are of the view that the Ld CIT(A) was justified in holding that the following income also represents independent source of income unconnected with the business activity of the assessee and hence 90% of the same is required to be excluded for arriving at the Profits of Business:- a. Income - Deployment of P&M - Hire charges - 3,79,21 .....

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cise duty recovered (Scrap Sales), Sales tax recovered (Scrap sales). The scrap sales is held to be part of business activities carried on by the assessee by Hon ble Kerala High Court in the case of CIT Vs. Kar Mobiles Ltd (Laws (Ker) 2010-1-134). (b) The penalty recovered from Contractors, Insurance claim received, Cash discount received, in our view, cannot be considered as independent sources of income, since they arise out of business operations carried on by the assessee. In respect of insu .....

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s activities, then they cannot be considered to be an independent source of income warranting exclusion of 90% thereof. Hence, these two receipts require fresh examination in the light of above said discussion. Accordingly we restore examination of these two items to the file of the assessing officer. 20. The order of Ld CIT(A) on the above said issue stands modified accordingly. 21. The next issue urged by the assessee relates to charging of interest u/s 234D of the Act. The Ld A.R admitted tha .....

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sed economic sanctions on Iraq Government. However, on humanitarian grounds, a scheme called Oil for Food Programme (OFFP) was introduced, whereby the Iraq was permitted to export oil and use the proceeds thereof to buy basic goods from other countries. The Iraq Government ordered its Ministry to collect Surcharge on the sale price of the Oil. The Iraqi State Oil Marketing Organisation (SOMO) ran a highly organized system to collect oil surcharges and maintained an extensive data base to keep tr .....

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um Ltd figured as one of the beneficiaries in Volcker committee Report. It was stated that 19 million barrels of oil was allotted, of which 15.7 million barrels were lifted by Alcon Petroleum Ltd, a Liechtenstein based energy trading company. Accordingly, the AO took the view that the assessee would have paid commission/surcharge during the year under consideration and estimated the same at ₹ 8,89,36,380/-. Accordingly he added the same to the total income of the assessee. 24. The Ld CIT(A .....

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mittee Report is the only material or evidence for making the addition in the assessment order to the effect that assessee is a non-contractual beneficiary and paid part of the purchase consideration as surcharge to Iraqi Government in violation of UN Resolution. There is no other material/evidence/ reason mentioned by the AO for addition. Such general observation by an outside agency, how much respectable it may be, cannot in itself be sole reason for disallowance/addition to the income under I .....

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yment of illicit commission/surcharge to Iraqi government. The AO has also not brought on record any evidence or material in support of the alleged payment of illicit commission forming part of the purchase price. Even the Volcker Committee has not referred the appellant as payer of illicit commission. iii). Assessee purchased .lraqi crude oil from Alcon Petroleum Ltd. (Alcon), Leichtenstein company based in Europe, a UN approved company for dealing in crude in "oil and food-programme . The .....

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