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2015 (9) TMI 67 - ITAT AHMEDABAD

2015 (9) TMI 67 - ITAT AHMEDABAD - TMI - Validity of reopening of assessment - claim for deductions under section 80HHC and 80IA - Held that:- In the course of the original assessment proceedings the claim for deductions under section 80HHC and 80IA of the Act were discussed in length and on those issue the matter was carried in appeal before the ld. CIT(A) who had partly allowed the appeal. On these facts, in the light of the law laid down by Hon’ble jurisdictional High Court in the case of Uni .....

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at a particular aspect of the deduction was not specifically considered by the A.O. and the ld. CIT(A). That aspect of the matter is, however, not really relevant because once we come to the conclusion that order of the A.O. stood merged in the order of the ld. CIT(A) on the issue of deduction under section 80IA and 80HHC of the Act, as we are obliged to hold in the light of law laid down by Hon’ble jurisdictional High Court, these aspect of the matter are wholly academic. - Decided in favour of .....

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ion 147 of the Income Tax Act, 1961 ( the Act hereinafter), for the Assessment Years 2000-01 & 2001-02. 2. Learned counsel for the assessee submits that one of the issues raised in the assessee s appeals is assessee s grievance against ld. CIT(A) s upholding the validity of reassessment proceedings, and, that in the event of this grievance being upheld, all other issues raised in the cross appeals will be rendered infructuous. It is in this backdrop that he urges us to take up this issue fir .....

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iction. 1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as the learned CIT(A) ] erred in upholding the reassessment made u/s. 147 by the Assessing Officer as the reassessment was based on a mere change of opinion on issues which had already been considered in the original assessment framed u/s. 143(3). 1.2 The learned CIT(A) erred not considering the judicial decisions relied by the Appellant. 5. Briefly .....

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f deduction of ₹ 29,31,19,312/- under section 80IA, the Assessing Officer allowed the deduction of ₹ 28,42,65,445/-. The matter was then carried in appeal before the ld. CIT(A) who gave partial relief in the matter, vide his order dated 17th January, 2003. On 25th February 2004, however, the Assessing Officer reopened the assessment by recoding the following reasons:- I. The scrutiny assessment u/s. 143(3) was completed in this case on 27.11.02. While scrutinising the return of incom .....

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ious details submitted by the assessee are very confusing and complicate the matter pertaining to the assessment. The details filed by the assessee are such as filing of which are necessitated with the object to create confusion in the matter and frustrate quick understanding. The assessee has furnished the branches details. The statements furnished are not straight forward e.g. please refer to the profit calculation sheet/statement u/s. 80-IA (copy enclosed) for a period of April, 1999 to March .....

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The Schedule 17 of the Annual Account shows R&D expenses of ₹ 292.38 lacs, whereas in the Tax Audit Report, the assessee has claimed R&D expenses of ₹ 18,80,05,080/-. Thus, it is not clear which figure is correct. II. While completing the assessment u/s 143(3) of the Act in the case of Aditya Medisales Ltd., a sister concern of the Sun Group, it was found that the profit of the Industrial Unit of Silvasa of the assessee has been inflated because the same is exempt u/s. 80IA, .....

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ales Ltd. and at the same time it has increased the profit of Silvasa Unit because the interest income is directly added to the sales figure, on which the deduction u/s. 80IA is available. These facts are not clear from the working of deduction u/s. 80IA given by the assessee along with the return of the income. This is not permissible as per the provisions of Section 80IA(10) of the Act and the rate of interest payable to SPIL has to be restricted @ 15% to 18% which will automatically reduce th .....

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the Revenue expense shown under the head R&D to its Silvasa Unit. The assessee has claimed weighted deduction u/s.35(1) of ₹ 23,04,83,379/- in the computation of income. Hence, as per the order of CIT(A) in the case of the assessee, 10% of ₹ 23,04,83,379/- amounting to ₹ 2,30,48,338/- should have been allocated as expense to the Silvasa Units on the basis of turnover. The turnover of Silvasa I Unit and Silvasa II Unit is in the ratio of 58.6% and 41.4%. Hence, the allocati .....

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enses actually allocable ₹ 1,35,06,326/- Profit of Silvasa I Unit Rs.27,35,14,939/- Deduction u/s. 80IA allowable @ 30% ₹ 8,20,54,482/- The assessee has claimed deduction u/s. 80IA in the computation of income at ₹ 8,55,84,487/-. Hence, the assessee has claimed ₹ 8,55,84,487/- ₹ 8,20,54,482/- = ₹ 35,30,005/- as extra deduction u/s. 80IA on Silvasa Unit I, which is not allowable and should be added to the income of the assessee. Silvasa II Unit. Net Profit as c .....

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eduction u/s.80IA on Silvasa Unit II, which is not allowable and should be added to the income of the assessee. It is seen that the assessee is allocating R&D expenses on arbitrary basis. There is intermixing of R&D expenses of all the products, therefore, the best way to allocate the expense under these circumstances should be on the basis of profitability ratio of various unit. Since, the profitability of Silvasa Units I & II re very high, the allocation of R&D expense should b .....

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HC. Again, deduction u/s. 80IA has been claimed on this amount. This means that more than 100% deduction has been claimed on the export of ₹ 35.46 lacs from the Silvasa I Unit, which is not correct as per the provisions of section 80AB. b) While working out the deduction u/s. 80HHC of the Act, the assessee has taken the total profit of the business at ₹ 71,40,20,133/-. However, it is seen that this figure has been wrongly taken by the assessee because in the relevant assessment year, .....

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yka Organics Ltd. This will substantially reduce the deduction u/s. 80HHC. The assessee has claimed that it has two business viz; pharmaceutical and finance. The assessee has set off interest payment against the gross interest receipt. This netting off is not proper. The details of interest paid clearly indicates that borrowed funds for which interest has been paid were utilised for the purpose of pharmaceutical business. Therefore, interest paid has to be considered against the receipt from pha .....

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ross interest has to be excluded from the profit of the business for the purpose of 80HHC. Principle of netting off applies only when there is direct nexus between earning of the interest income and interest paid. Please refer Madras High Court decision in the case of Sough India Shipping Corporation Ltd., 240 ITR 24 and also Kerala High Court decision in the case of Vai Kundam Rao Co. 241 ITR 50 (Kerala). V. In view of the above, I have reason to believe that the above incomes chargeable to tax .....

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undertakings u/s. 80IA. (e) Reduction of brought forward depreciation of GLOL merged with the Company for computing the profits u/s. 80HHC. (f) Double deduction on exports of new industrial undertaking u/s. 80HHC (g) Netting of interest income and expenditure for computing the profits u/s. 80HHC and interest income to be considered as income from other sources for computing the profits/deduction u/s. 80HHC. 7. The assessee did object to the reopening so done by the Assessing Officer. However, t .....

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ion on exiting facts, which were fully within the knowledge of the Assessing Officer. This is not correct because the issue of inflating the deduction u/s.80IA, incorrect allocation of R&D expenses to the Units claiming deduction us/. 80IA and wrong claim of deduction u/s.80HHC was never examined by the Assessing Officer in light of the facts narrated in the Reasons recorded for issue of notice u/s. 148 of the Act. So, there is not change of opinion by the A.O. but correct appreciation of fa .....

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applicable in the case of the assessee. Hence, the objection to the notice u/s. 148 for A.Y. 2000-01 is rejected. 8. Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appal before the ld. CIT(A) but without any success. Learned CIT(A) rejected the contentions of the assessee and upheld the action of the Assessing Officer, in reopening the assessment, by observing as follows;- 4.3 The submission of the appellant is duly considered. In the light of the above .....

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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 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 . 4.5 In connection .....

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ed or found out justifying the belief required to initiate the proceedings. In our view, the words escaped assessment where the return is filed, are apt to cover the case of discovery of a mistake in the assessment caused by either an erroneous construction of the transaction or due to its non-consideration, or, caused by a mistake of law applicable to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have bee .....

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e said to have a reason to believe that such income had escaped assessment. The words reason to believe cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence. Unless the ground or the material on which his belief is based, is found to be so irrational as not to be worth of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason, cannot be overridden. If the A.O. honestly comes to conclusion that a mistake has be .....

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ssessee and his three brothers had decided to form a partnership firm with two other partners; that the assessee and his other co-owners had a bungalow and that the said property was converted by the said assessee and other co-owners on August 15, 1990, from a capital asset to stock in trade. The fair market value of the bungalow was valued at ₹ 56,00,000/- by the registered valuer and the converted property was sold on September 19, 1990 to the firm. It was found that the said transfer on .....

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the capital asset being his share in the immovable property into stock-in-trade and its consequential effect, in view of the query raised by the A.O. The A.O., therefore, clearly had a reason to believe that the income chargeable to tax in the form of capital gains in respect of the transfer that took place on September 19, 1990, had escaped assessment in the relevant assessment year 1991-92. The initiation of the proceedings u/s. 147 by notice dated March 29, 1996, could not, therefore, be assa .....

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TR 194 (Guj) • Madan Mohan Lal v/s. CIT [1935] 3 ITR 438 (Lahore) [FB] • Special Civil Applications Nos.4201 and 4203 of 1996. In view of the above, the cases of non-assessment of an item of income chargeable to tax would warrant formation of requisite belief to initiate the proceedings within four years from the end of the relevant assessment year, even where full disclosure were made and yet an income chargeable to tax had escaped from being included in the final assessment order, in .....

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the material on record and duly considered facts of the case in the light of the applicable legal position. 11. We find that in the course of the original assessment proceedings the claim for deductions under section 80HHC and 80IA of the Act were discussed in length and on those issue the matter was carried in appeal before the ld. CIT(A) who had partly allowed the appeal. On these facts, in the light of the law laid down by Hon ble jurisdictional High Court in the case of United Phosphorus Lim .....

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ction was not specifically considered by the A.O. and the ld. CIT(A). That aspect of the matter is, however, not really relevant because once we come to the conclusion that order of the A.O. stood merged in the order of the ld. CIT(A) on the issue of deduction under section 80IA and 80HHC of the Act, as we are obliged to hold in the light of law laid down by Hon ble jurisdictional High Court, these aspect of the matter are wholly academic. 12. For the reasons set out above, we hold that the reas .....

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is allowed and appeal of the Assessing Officer in ITA No.1279/Ahd/2006 for Assessment Year 2000-01 is dismissed as infructuous. ITA No.1200 and 1280 /Ahd/2006 Assessment Year: 2001-02 15. Now we will take up Cross Appeals for the Assessment Year 2001-02 i.e. ITA No.1200/Ahd/2006 by the assessee and ITA No.1280/Ahd/2006 by the Revenue. 16. Learned Representatives fairly agree that whatever we decide in Cross Appeals for the assessment year 2000-01 in assessee s own case (i.e. 1199/Ahd/2006 & .....

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Act were discussed in length and on those issue the matter was carried in appeal before the ld. CIT(A) who had partly allowed the appeal. On these facts, in the light of the law laid down by Hon ble jurisdictional High Court in the case of United Phosphorus Limited vs. ACIT [(2011) 56 DTR 193 (Guj)], the order of the A.O. stood merged with the order of the CIT(A) and had no existence of it s own, and, as such, assessment could not be reopened in respect of the said item. For this short reason al .....

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