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Deputy Commissioner of Income-Tax, Circle-1, Kolkata Versus Cheviot Co. Ltd. And Vica-Versa

2016 (3) TMI 1054 - ITAT KOLKATA

Reopening of assessment - exemption u/s. 10B of the Act and also exemption on receipts relating to EMA - Held that:- This issue is squarely covered in favour of the assessee and against revenue in the case of CIT Vs. Kelvinator India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA), wherein newly substituted provision of section 147 of the Act with effect from 01.04.1989 is interpreted by observing, that section 147 of the Act, as substituted w.e.f. 01.04.1989 does not postulates conferment of po .....

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ay be justifying the AO to initiate a proceeding u/s. 147 of the Act. When a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of section 114(e) of the Indian Evidence Act, 1872, judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly with .....

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Shri Mahavir Singh, JM Both the appeals of revenue and Cross Objections by assessee are arising out of separate orders of CIT(A)-I, Kolkata in Appeal No.376/CIT(A)-I/Circle-1/10-11 and 423/CIT(A)-I/Circle-1/09-10 both dated 16.12.2011 respectively. Assessments were framed by DCIT, Circle-1, Kolkata u/s. 143(3)/147 of the Income-tax Act, 1961 (hereinafter referred to as the "Act") for AY 2003-04 and u/s. 143(3)/251/254/147/143(3) of the Act for AY 2004-05 vide its separate orders dated .....

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his, assessee has raised identically worded ground in both the years and hence, the ground no. 2 raised in CO. No. 44/Kol/2012 for AY 2003-04 reads as under: "2 (a) That on the facts and in the circumstances of the case, Ld. CIT(A) is wrong and unjustified in upholding the reassessment and initiation of proceeding u/s. 147 of Income Tax Act, 1961. b) That the original assessment having been completed u/s. 143(3), initiation of reassessment proceeding beyond four years period was invalid in .....

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EOU) at Budge Budge. The AO while framing assessment u/s. 143(3) of the Act vide its order dated 31.03.2006 denied the claim of deduction u/s. 10B of the Act by observing as under: "The assessee company filed the copy of the letter no.242(1996)/EOA/226/96 dt. 21.5.96 issued by Govt. of India, Ministry of Industry, Department of Industrial Policy & Promotion. On perusal of the said letter (vide para -3) it is seen that this letter is merely a permission for implementation of the project .....

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.2001 issued by the Falta Export Processing Zone. From Para-3 of the said letter it is seen that it is also merely a permission to implement the project and commence commercial production. This is also not an approval for being 100% export oriented company as envisaged in explanation 2(iv) to sec. 10B." Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assessee in respect to exemption u/s. 10B of the Act but disallowed in respect to incentive received i.e. exc .....

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y letter dt. 09.5.2006, the letter dt. 21.5.2006 (as stated earlier) may be treated as an approval for 100% EOU unit". Accordingly the appellant is entitled to deduction u/s.l0B in respect of profit out of Budge Budge 100% EOU. 7.3 However in the computation of the profit for the purpose of exemption u/s.l0B, the assessee has included Incentive receipt within the definition of "export turnover". In this regard it is pertinent at this stage to clarify this issue. In the Clause-&cop .....

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means the amount of convertible foreign exchange brought into India through export of articles, things or computer software as provided sub-sec.(i) thereof. Hence on strict interpretation of this definition of the "export turnover", there is no scope of including any other item not specifically mentioned in this definition. The AO is accordingly directed to recalculate the admissible amount of exemption u/s.l0B excluding the receipt of any incentive amount in respect of such export.&qu .....

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d gains derived by a 100% EOU from export and then goes on to lay down the method of computation of such profits with reference to "the profits of the business of the undertaking". The profits of the business of the undertaking would include its entire business income. Now, it can hardly be disputed that the incentive by way of External Market Assistance was paid by the Jute Manufactures Development Council at the specified rate of the FOB value realized because of the export by the 10 .....

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to remand the matter back to the AO to verify the factual claim of the assessee that it has not included the incentive amount in the export turnover and has only taken the same into account in computing the profits of the business of the 100% EOU. If the assessee's said claim is factually correct, its computation should be accepted. Needless to mention, the AO should allow adequate opportunity of being heard to the assessee. We direct accordingly." 6. The AO while giving appeal effect t .....

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006 dated 17.01.2006. It has also been explained with reference to the record that incentive received by the assessee has not been included in the export turnover. So, as per Hon'ble ITAT's direction, assessee is to get exemption u/s. 10B on account of incentive." Subsequently, the AO issued notice u/s. 148 of the Act dated 16.03.2010 after recording the following reasons: "REASONS OF ISSUE NOTICE U/S. 148 OF THE I. T. ACT IN THE CASE OF M/S. CHEVIOT COMPANY LIMITED PAN AABCC23 .....

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tion u/s. 10B. However, exemption u/s. 10B on this amount has been claimed by the assessee and allowed in the assessment. Another important aspect that has come to notice is the determination of the quantum of exemption u/s. 10B. In form No. 56G the Chartered Accountant has certified as under: Profit as per P/L A/c 13,52,33,592/- Related income of earlier years (gross) not included in above profit and appearing below the line, now added 1,75,69,837/- Profit of the undertaking 15,28,03,429/- Expo .....

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and other expenses Sch-13 8,94,62,635/- Interest Sch-14 45,373/- Depreciation 71,27,005/- 14,07,16,980/- Profit before taxation 13,52,33,592/- It is seen that related income of ₹ 1,70,71,108/- includes an income of ₹ 1,66,74,805/- (Rs. 1,10,15,747/- relating to assessment year 2003-04 and ₹ 56,95,058/- relating to earlier years) being External Market Assistance (EMA) and exchange gain (net) ₹ 3,96,303/-. This income of ₹ 1,70,71,108/- is surely forming part of profi .....

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cle or thing outside the country. Therefore, the profit fails to satisfy the basic condition 'profits and gains from export of article or thing' as provided in sub-section (1) of section 10B. The income is also not derived and received in/brought into India in convertible foreign exchange in order to satisfy the condition of sub-section (3) of section 10B. Above all, this income is excluded by the assessee to determine the 'Export Turnover' and 'Total Turnover' for comput .....

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ofit is accordingly, to be considered at ₹ 11,85,58,787/ (Rs.13,52,33,592/- minus ₹ 1,66,74,805/-) and considering same export turnover & total turnover as reported in Form No. 56G, the eligible profit will be ₹ 11,85,58,787/- for the purpose of exemption u/s. 10B. In that case, exemption allowable to the assessee is 90% of ₹ 11,85,58,787/- which comes to ₹ 10,67,02,908/-. Thus, It is seen that in assessment, excess exemption to the extent of ₹ 1,10,89,672 .....

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assessment and which comes to the notice subsequently in the assessee of the proceedings u/s. 147 of the IT Act or recomputed the depreciation or any other allowance as the case may be for the assessment year 2003-04, a proceedings u/s. 147 of the IT Act is initiated by issue of a notice u/s 148 of the IT Act." The AO framed reassessment u/s. 143(3) r.w.s. 147 of the Act vide his order dated 24.12.2010 and disallowed the claim of exemption u/s. 10B of the Act and also excluded the receipts .....

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claim of exemption u/s. 10B of the Act was denied by the AO and the same was contested by assessee before CIT(A), who after obtaining remand report from the AO held that the assessee is entitled to deduction u/s. 10B of the Act in respect to profit from Budge Budge being a 100% EOU. But as regards quantification of exemption u/s. 10B of the Act, the CIT held that the assessee has included incentive receipts i.e. EMA within the definition of export turnover and, according to him, which is not cor .....

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xport by 100% EOU forms part of profit of the unit as business income. Therefore, the Tribunal held that EMA has to be taken into account in computing the profit of the business but the issue was restored back to the AO for verification of assessee's contention that it has not included EMA in the export turnover. The AO while giving appeal effect to the order of the Tribunal accepted the assessee's contention and allowed the exemption u/s. 10B of the Act including incentive i.e. receipts .....

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uent to that the order of CIT(A), there is no finding as such that there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year. The CIT(A) has simply confirmed the action of AO for reopening of assessment vide para 5.3 as under: "5.3. I have gone through the submissions of the appellant and the reasons for the reopening of the assessment by the AO. There are reasons for reopening the assessment .....

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relating to EMA. Accordingly, We find that this issue is squarely covered in favour of the assessee and against revenue by the judgment of Hon'ble Supreme Court in the case of CIT Vs. Kelvinator India Ltd. (2010) 310 ITR 561 (SC), wherein newly substituted provision of section 147 of the Act with effect from 01.04.1989 is interpreted by observing, that section 147 of the Act, as substituted w.e.f. 01.04.1989 does not postulates conferment of power upon the AO to initiate reassessment procee .....

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7 of the Act. When a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of section 114(e) of the Indian Evidence Act, 1872, judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction .....

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for the parties, we are of the view that these petitions deserve to be allowed. It may be mentioned that a new section substituted section 147 of the Income-tax Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The relevant part of the new section 147 is as follows: "147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may,subject to the provisions of sections 148 to 153, ass .....

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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 necessa .....

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assessment had been made under section 143(3) then in view of the proviso to section 147, the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. The same view was taken by the Gujarat High Court in Shree Tharad Jain Yuvak Mandal v. ITO [2000] 242 ITR 612. In our opinion, we have to see the law prevailing on the date of issue of the notice under section 148, i.e., November 20, 1998. Admittedly, by that date, the new section 147 .....

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the Incometax Act and submitted that there was no bar of limitation in view of the said provision. We do not agree. Section 153 relates to passing of an order of assessment and it does not relate to issuing of notice under section 147/ 148. Moreover, this is not a case where reassessment is sought to be made in consequence of or to give effect to any finding or direction contained in the order of the Tribunal in Boudier Christian's case. As already stated above, Boudier Christian's case .....

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ance to a particular assessment year. To be a necessary finding it must be directly involved in the disposal of the case. To be a direction as contemplated by section 153(3)(ii) it must be an express direction necessary for the disposal of the case before the authority or court vide Rajinder Nath v. CIT [1979] 120 ITR 14 (SC) ; Gupta Traders v. CIT [1982] 135 ITR 504 (All) ; CIT v. Tarajan Tea Co. (P.) Ltd. [1999] 236 ITR 477 (SC) and CIT v. Goel Bros. [1982] 135 ITR 511 (All), etc. The case of .....

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irectly or indirectly involved in the case of Boudier Christian. Moreover, the Tribunal in the appeal relating to the assessment of the petitioner's own case, vide Deputy CIT v. ONGC [1999] 70 ITD 468 (Delhi) has considered the decision of the Tribunal in Boudier Christian's case. It is settled law that an appeal is a continuation of the original proceedings and hence when the Tribunal in the appeal relating to the petitioner has considered the decision of the Tribunal in Boudier Christi .....

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