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2016 (6) TMI 637 - ITAT JAIPUR

2016 (6) TMI 637 - ITAT JAIPUR - TMI - Reopening of assessment - reasons to believe - whether the proceedings under sec. 147 of the Act were initiated merely on the change of opinion? - Deduction u/s 10B wrongly claimed - Held that:- AO has not applied his mind at all. The order passed by the AO is flimsy and one page order which shows total non application of mind and the assessment order (original) dated 9.10.2009 has not discussed any issue much less the issue under sec. 10B and the basis of .....

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itlement and quantum of the assessee for the deduction under section 10B of the IT Act on the basis of complete information.

In our view though the information were supplied but that was not sufficient for the AO for completing the assessment u/s 143(3) by applying his mind and form his opinion. In our view, there was no opinion formed, therefore, we do not find any merit in the submission of the ld. A/R that there is a change of opinion. In view thereof, we reject the ground of the a .....

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required to be applied, as per the formula accepted in terms of section 10B(4) of the IT Act. AO has correctly applied the formula but has applied wrong figure. In view thereof, we have no option but to remand the matter to the file of the AO to recalculate the deduction after applying the correct formula as mentioned under section 10B(4) of the IT Act. - Decided partly in favour of assessee for statistical purposes. - ITA Nos. 976/JP/2013 - Dated:- 27-5-2016 - Shri Vikram Singh Yadav, AM And S .....

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ssment proceedings u/s 147 of the Income Tax Act, 1961 as illegal and without authority of law. 2. Under the facts & circumstances of the case and in law, ld. CIT (A)- II, Jaipur has erred in upholding the disallowance of the deduction claimed by the assessee u/s 10B of ₹ 26,40,342/- and reassessed by ld. AO at ₹ 3,48,584/- under assessment proceedings u/s 147/143(3) of the Income Tax Act, 1961. 2. The assessee filed the return of income on 29.10.2007 declaring total income of &# .....

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o tax for the assessment year 2007-08 has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. After receipt of the notice, the assessee has requested the AO to provide the reasons to believe. The AO vide letter dated 09.10.2012 has provided the reasons to believe as under :- The assessee has claimed exemption u/s 10B of ₹ 26,40,362/- in respect of STPI unit however, no separate profit and loss have been filed by assessee claim u/s 10B was made on the basis of .....

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he notice, the ld. A/R of the assessee has filed his written submission and has raised the issue of legality of the notice under section 148 because as per the assessee there is a change of opinion. Besides that, on merits, it was submitted that as per the reasons supplied, section 10B has wrongly been applied and the formula given by the revenue in the reasons to believe was incorrect. The reasoning given by the assessee in the reply is reproduced as under :- 5) It is submitted that the assesse .....

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f export sale under STPI and expenses thereon are duly disclosed separately on face of P & L A/c. Copy of relevant extracts of audited P & L is enclosed as per Annexure-2 for your kind perusal & records. It is also submitted that total expenses were to the tune of ₹ 17,65,264/- and sum of ₹ 17,32,117/- has been duly disclosed in schedule O of financial statement and balance amount of ₹ 33,147/- is on account of depreciation for which also a suitable note has been ma .....

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re shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software b ears to the total turnover of the business carried on by the undertaking. Prior to the amendment made on 01.04.2001 in this section the profit meant the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such articles or things or computer software bear .....

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eduction of the profit of the undertaking at ₹ 26,40,362/- i.e. the only profit of the 100% EOU to total business carried on by the undertaking. Extract of relevant amendment in the IT Act in form of notes on clauses and memorandum explaining the provision of Act duly clarifying the position are also enclosed as per Annexure-3 for your kind perusal & records. 7) It is submitted that the theory of proportion would be applicable only if the local sales were made from the STPI unit. The p .....

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rial relationship with the other business of the assessee outside these zones or units for the purpose of this provision. Copy of relevant extract at page 35 & 36 of circulars are enclosed for your kind perusal & records as per Annexure-4. The AO has considered the reply and after considering the reply has held that the objection of the assessee for reopening was not sustainable and on merit it was held that the assessee has wrongly claimed the deduction of ₹ 22,91,778/- in the ret .....

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written submission. Assessing Officer reopened the assessment on the ground that appellant claimed excess deduction u/s 10B. It is not in dispute that reopening is done within four years and therefore proviso to section 147 is not applicable. Assessing Officer recorded reasons for reopening the assessment clearly mentioning the fact of income escaping assessment. Appellant argued that on the same facts assessing officer reopened the assessment which amounts to change of opinion which is not perm .....

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lly following this decision which is clearly applicable in the facts of the appellant s case, reopening made by the assessing officer is held to be as per law and accordingly this ground is dismissed. On merits the ld. CIT (A) has upheld the order passed by the AO and has concluded that the AO was justified in re-computing the eligible deduction under section 10B by applying the formula given in sub-section (4) to section 10B. 4. Feeling aggrieved by the order passed by ld. CIT (A), the assessee .....

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w which was substituted by the new law in the year 2001 and it was submitted that the calculation given by the AO and confirmed by ld. CIT (A) were not valid. Feeling aggrieved by the above said illegality of the AO and ld. CIT (A) submitted that the orders of the lower authorities were required to be set aside. 6. On the other hand, the ld. D/R has submitted that the reopening has been done by the AO on the basis of income escaped as stipulated under section 147 of the Act and, therefore, the A .....

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ng Officer has concluded in favour of the petitioner and again on the same material, it is not appropriate for the Assessing Officer to proceed with the reassessment proceedings which would amount to change of opinion . In such circumstances, the concept highlighted in the above decision would squarely apply to the version of the petitioner, that having willfully made false or untrue statements at the time of original assessment and when that falsity comes to notice, it is not fair on the part o .....

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de as per new law and not as per the old law. 7. We have heard the rival arguments and perused the material available on record. The first ground of appeal challenged before us was the legality of the reopening by the AO pursuant to the notice dated 23.3.2012. For that purpose, the ld. A/R has drawn our attention to the reply submitted by the assessee in response to assessment proceedings u/s 143(3) as under :- (9) The details of export expenses under STPI have been provided at Schedule - O of t .....

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India Ltd, 329 UTR 561 (Delhi), CIT vs.Gabriel India Ltd., 203 ITR 1089 (Bom.) and Hindustan Lever Ltd. vs. ACIT, 268 ITR 332 (Bom.) and also the judgment of Hon ble Delhi High Court in the matter of Eicher Ltd. (2007) 294 ITR 310 and Hon ble Mumbai High Court in the matter of GKN Sinter Metals Ltd Vs. Ms Ramapriya Raghavan, ACIT {2015} 55 Taxmann.com 438( Bombay). All the judgments referred herein above were referred by the Hon ble Mumbai High court in the matter of GKN Sinter Metals Ltd. (supr .....

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stan Lever Ltd vs ACIT 268 ITR 332(BOM). In the case of Hindustan Lever Ltd (supra), the Hon. High Court has elaborately discussed the scope and ambit of sections 147 & 148 and has concluded in the following manner: The reasons recorded by the Assessing Officer nowhere stated therewas failure on the part of the assessee to disclose fully and truly allmaterial facts necessary for the assessment of that assessment year. The reasons are required to be read as they were recorded by the Assessing .....

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he concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestations of mind of the Assessing Officer. The reasons recorded should be selfexplanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and .....

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ssessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise the reasons which were lacking in material particulars would get supplemented, by the time the matter reaches the Court, on the strength of affidavit or oral submission advanced . The Ld A.R also relied upon the judgment of the Bombay High Court in the case of Bhor Industries Ltd vs ACIT 267 ITR 161 (Bom) wherein the Hon.Bombay High Court has held as under: By .....

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artment reopens the assessment within a period of four years, it can do so on the round of income having escaped assessment. However, in cases of reopening after four years, the Assessing Officer must have reason to believe that income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts. Explanation 2 cannot be read without reading the proviso to section 147. Explanation 2( c) has to be read with section 147 including the proviso .....

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section 147 and 148 of the Act. In this regard, the Ld A.R relied upon the judgement of the Delhi High Court in the matter of Eicher Ltd (2007)294 ITR 310 wherein, the Delhi High Court after referring to the judgement passed by the Division Bench of the Punjab & Haryana High Court has laid down the ratio in the following manner: Applying the principles laid down by the Full Bench of this court as well as the observations of the Punjab and Haryana High Court, we find that if the entire mater .....

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ind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse. He further submitted that identical views have been expressed by Hon ble jurisdictional Bombay High Court in the case of Idea Cellular Ltd (301 ITR 407) and also in the case of Aroni Chemicals Ltd Vs. ACIT (367 ITR 405). 15. The ld.AR for the Assessee further relied upon the Judgment of GKN Sinter Metals Ltd Vs. Ms Ramapriya Raghavan, ACIT {2015}55 Taxmann.com 438( Bombay) and .....

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observations made by Hon ble Bombay High Court are extracted below:- 13. In the present facts, the Petitioner had along with its Return of Income filed its Computation of Income wherein claim for deduction under Section 801A/IB of the Act was made. Besides the Auditor's certificate as required under Section 80IA(8) of the Act to claim to deduction was also filed along with a note indicating the basis of allocation of expenditure amongst its three manufacturing units was also filed. These wer .....

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5 submitted various details of allocation of expenses supporting its note filed along with the Return of Income that the expenditure had been allocated actual basis, turn over basis and time spent basis amongst the three manufacturing units. The aforesaid allocation of expenses on different basis was on the basis of the nature of expenditure. The Assessing Officer was satisfied with the Petitioner's response and consequently in the assessment order dated 9th March, 2005 under Section 143(3) .....

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nufacturing units by the Assessing Officer as the Assessment Order dated 9th March, 2005 passed under Section 143(3) of the Act contains no discussion on the same. According to the Revenue, it could only be when the assessment order contains discussion with regard to particular claim can it be said that the Assessing Officer had formed an opinion with regard to the claim made by the assessee. This Court in Idea Cellular Ltd. v. Deputy Commissioner of Income Tax MANU/MH/0169/2008 : 301 ITR 407 ha .....

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ining the reasons recorded for issuing the impugned notice also record the fact that during the regular assessment proceedings, the Petitioner has been asked to furnish details in support of the claim for exemption under Section 80lAtlS of the Act. The letter further records that the details sought for were furnished and it is now observed that there has been a dis-proportionate distribution of expenses between various units belonging to the Petitioner for claiming deduction under Section 80lA/l .....

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aiming deduction under Section 80lA/IB of the Act. All this would indicate that Assessing Officer had formed an opinion while passing the order dated 9th March, 2005. This Court in Aroni Commercials Ltd. v. Assistant Commissioner of Income Tax MANU/MH/1838/20140: 367 ITR 405 had occasion to consider somewhat similar submission made by the Revenue and negatived the same by holding that when a query has been raised with regard to a particular issue during the regular assessment proceedings, it mus .....

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nto an epic tome. Besides, it would be impossible for the Assessing Officer to complete all the assessments which have to under gone scrutiny at its hand. In the above view, it is clear that once a query has been raised during the assessment proceedings and the Petitioner has responded to the query to the satisfaction of the Assessing Officer as is evident from the fact that the Assessment Order dated 9th March, 2005 accepts the Petitioner's claim for deduction under Section 80lA/IB of the A .....

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n order of assessment passed under section 143(3) of the Act. 7.1. Now in the light of the law laid down by the Hon ble Mumbai High Court after considering the various judgments, we have to decide whether the reassessment proceedings initiated by the AO are liable to be cancelled for the reason that the proceedings under sec. 147 of the Act were initiated merely on the change of opinion. We noticed, though there are specific reply given as reproduced herein above in respect of the question no. 9 .....

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ssessee, as per question no. 9 & 25 of the paper book , then also this information was not correct and complete information i.e was not a sufficient disclosure. In our view the assessee has wrongly claimed the deduction of ₹ 22,91,771/- as mentioned by the AO. In our view the AO is required to form his opinion one way or the other and also required to adjudicate on the entitlement and quantum of the assessee for the deduction under section 10B of the IT Act on the basis of complete inf .....

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