9911796707
TMI Blog2016 (7) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... stood merged with the order of C.I.T. (A), following the ratio of judgment of Hon'ble Gujarat High Court in the case of United Phosphorus Ltd. v/s ACIT (2011) 56 DTR 196 (Gujarat) without deliberating on the issues involved on merits, when excepting the issue of gross interest for computing profit for the purpose of deduction u/s 80HHC of the Act, none of the issues referred to in order u/s. 143(3) r.w.s. 147 of the Act were subject matter of assessment u/s 143(3) of the Act and CIT (A)'s order on assessee's appeal against order u/s 143(3) of the Act, whereas the Hon'ble Gujarat High Court in the case of United Phosphorus Ltd. (supra) elaborated in detail as to how the A.O.'s order u/s 143(3) r.w.s. 147 of the Act got merged with order of CIT (A)? [2] Whether the Income Tax Appellate Tribunal committed substantial error of law in treating the reassessment proceedings as vitiated in law, quashing reassessment order, ignoring that the A.O. had reason to believe that income chargeable to tax has escaped assessment, and all the issues excepting the issue of consideration of gross interest for computing profit for deduction u/s 80IA were validly reopened in accordance with the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the assessment years under consideration. The Assessing Officer framed assessment under section 143(3) read with section 147 of the Act on 31.03.2005 computing the total income of the assessee for assessment year 2000-2001 at Rs. 17,40,70,520/- and for assessment year 2001-02 at Rs. 3,77,36,480/-. The assessee carried the matters in appeal before Commissioner of Income-tax (Appeals), who, by an order dated 28.02.2006 partly allowed the appeal. Against the said order, both, the assessee as well as the revenue filed appeals before the Tribunal. Before the Tribunal, it was the case of the assessee that the reopening of assessment by issuance of notice under section 148 of the Act was bad in law as the same was based upon a mere change of opinion. The Tribunal accepted the contention of the assessee and held that the reassessment proceedings were vitiated in law and, accordingly, set aside the reassessment orders. Having quashed the reassessment order for the technical reasons set out in the order, the Tribunal dismissed the cross appeals filed by the revenue as having been rendered infructuous and academic. Being aggrieved, the revenue has preferred these appeals. 5. Mr. Ketan P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er passed by the Assessing Officer in the assessment framed under section 143(3) of the Act, the respondent - assessee had preferred appeal before the Commissioner (Appeals), who had considered the aspect of deductions under sections 80IA and 80HHC of the Act and hence, the assessment order having merged with the order passed by the Commissioner (Appeals), the issue cannot be reopened again. In support of such submission, the learned counsel placed reliance upon an unreported decision of this court in the case of United Phosphorus Ltd. v. Additional Commissioner of Income Tax rendered on 08.03.2011 in Special Civil Application No.3352 of 2001 wherein, the court had observed that when the Assessing Officer while framing the assessment had examined the taxability of certain items and such order was subject matter of challenge before the Commissioner (Appeals), qua such items in respect of which the appeal had been preferred, the order of the Assessing Officer stood merged with the order of Commissioner (Appeals) and had no independent existence of its own, and hence, the assessment could not have been reopened in respect of such items. The learned counsel further submitted that insof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous 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, 2000. Though the name of the statement is profit calculation u/s 80-IA, but I do not find anywhere figure of the profit which has been determined for the purpose of 80-IA. Thus, the assessee has deliberately presented the facts in such a manner so that it is not understood by the Tax Authority easily. For example, as per the Tax Audit Report, the R&D expense are as under:- Capital Expenses Rs. 10,10,65,598/- Revenue Exp. debited Into P&L Account Rs. 8,69,39,482/- Total Rs. 18,80,05,080/- The Schedule 17 of the Annual Account shows R&D expenses of Rs. 292.38 lacs, whereas in the Tax Audit Report, the assessee has claimed R&D expenses of Rs. 18,80,05,080/-. Thus, it is not clear w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively. However, the assessee has allocated Rs. 18,72,973/- and Rs. 13,20,088/- only in the two units respectively. Hence, the correct working of 80IA deduction of the two units is as under :- Silvasa I Unit Net Profit s calculated by the assessee Rs. 28,51,48,292/- Add: R&D Exp. allocated by the assessee Rs. 18,72,973/- Rs. 28,70,21,265/- Less: R&D Expenses actually allocable Rs. 1,35,06,326/- Profit of Silvasa I Unit Rs. 27,35,14,939/- Deduction u/s. 80IA allowable @ 30% Rs. 8,20,54,482/- The assessee has claimed deduction u/s. 80IA in the computation of income at Rs. 8,55,84,487/-. Hence, the assessee has claimed Rs. 8,55,84,487/- - Rs. 8,20,54,482/- = Rs. 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 calculated by the assessee Rs. 20,97,62,593/- Add: R&D Exp. allocated by the assessee Rs. 13,20,088/- Rs. 21,10,82,681/- Less: R&D Expenses actually allocable Rs. 95,42,012/- Profit of Silvasa I Unit Rs. 20,15,40,669/- Deduction u/s. 80IA allowable @ 100% Rs. 20,15,40,669/- The assessee has claimed deduction u/s 80IA in the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est 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 pharmaceutical business and gross interest has to be taxed under the head "income from other sources". Please refer ACIT v. Sough India Produce Co. - 262 ITR 20 (Ker.); CIT vs. Rain Ratan Exports (P) Ltd. - 246 ITR 443 (Bom.). If gross interest received is taxable under the head of income from other sources, the same has to be excluded from the business profit for the purpose of 80HHC - South India Produce Co. 262 ITR 20 (Ker) & CIT vs. AS Nizar Ahmed & Co.259 ITR 244 (Madras). Thus, whole gross 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 chargeabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... line) rather than allocating only 10% of the R&D expenses. The assessee had shown export of Rs. 35.46 lacs out the goods produced from the Silvasa I Unit. This amount has been considered for working out the deduction under section 80HHC. Again, deduction under section 80IA has been claimed on this amount. This means that more than 100% deduction has been claimed on the export of Rs. 35.46 lacs from the Silvasa I Unit, which is not correct as per the provisions of section 80AB; (vii) While working out the deduction under section 80HHC of the Act, the assessee has taken the total profit of the business at Rs. 71,40,20,133/-. Therefore, the business has to be worked out after reducing the unabsorbed depreciation of Rs. 5,39,51,466/- of M/s. Gujarat Lyka Organics Ltd. (viii) The assessee has set off interest payment against the gross interest receipt. This netting off is not proper. Accordingly, if gross interest received is taxable under the head of income from other sources, the same has to be excluded from the business profit for the purpose of 80HHC. 9. On the aforesaid grounds, the Assessing Officer has sought to reopen the assessment of the assessee. 10. From the facts as e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en partly allowed, against which, the assessee had approached the Commissioner (Appeals), who had partly granted the reliefs. Under the circumstances, as rightly submitted by the learned counsel for the respondent - assessee, the order passed by the Assessing Officer stood merged with the order passed by the Commissioner (Appeals) insofar as the claim of deduction under section 80IA of the Act is concerned and hence, it did not have any independent existence in the eyes of law. It was, therefore, not permissible for the Assessing Officer to reopen the assessment in respect of those items which had already been examined by the Assessing Officer while framing the assessment under section 143(3) of the Act. 13. It has been contended by the learned counsel for the revenue that deductions under section 80HHC and 80IA of the Act involve various aspects and hence, even if some aspects thereof has been examined at the time of framing the original assessment order, if on some other aspects it has not been examined, it is always open for the Assessing Officer to reopen the assessment in respect thereof. In this regard it may be noted that this court in Cliantha Research Ltd. v. Deputy Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
