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2016 (7) TMI 514 - GUJARAT HIGH COURT

2016 (7) TMI 514 - GUJARAT HIGH COURT - TMI - Reopening of assessment - reasons to believe - change of opinion - deductions under section 80IA wrongly claimed - Held that:- It does not appear to be the case of the then Assessing Officer at the time of framing the original assessment that the details were confusing, inasmuch as, the Assessing Officer at the relevant time, could have very well called upon the assessee to explain the details which were confusing. Thus, once the Assessing Officer, a .....

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med the original assessment under section 143(3) of the Act, has not found the facts to have been presented in such a manner that the same cannot be understood easily, inasmuch as, he has, after hearing the assessee, framed the assessment. Besides, if any facts are put in a manner which the Assessing Officer cannot understand, it is always permissible for the concerned Assessing Officer to call upon the assessee to explain the same. Thus, when the Assessing Officer who passed the original assess .....

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ction 80IA of the Act had been computed by the Assessing Officer and the claims of the assessee had been 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 i .....

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detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment. In the present case, the claim of deduction under section 80HHC and 80IA of the Act had been processed at length by the Assessing Officer. The mere fact that such claim was not examined from a particular angle, therefore, cannot be a ground for reopening the asse .....

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o be wiser and seek to reopen the assessment merely because according to him there is a better way of allocation of expenses. - Grant of deduction under section 80HHC and 80IA which is not correct - Held that:- As in effect and substance, the Assessing Officer wants to sit in appeal over the order passed by the predecessor Assessing Officer and seeks to disallow the deductions which have already been granted by him. - Assessee has inflated its profit and at the same time shown reduced pr .....

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made by the earlier Assessing Officer while framing the original assessment, which is nothing but a mere change of opinion. As decided in the case of Commissioner of Income Tax v. (1) Kelvinator of India Ltd., (2010 (1) TMI 11 - SUPREME COURT OF INDIA ) an assessment cannot be reopened on a mere change of opinion. - Decided in favour of assessee - Tax Appeal No. 128 of 2016, Tax Appeal No. 129 of 2016 - Dated:- 1-4-2016 - Harsha Devani And G. R. Udhwani, JJ. For the Appellant : Mr KM Parikh, Adv .....

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g the following four questions, stated to be substantial questions of law: [1] Whether the Income Tax Appellate Tribunal committed substantial error of law in treating the reassessment proceedings as vitiated in law, quashing reassessment order, and not deciding on the issues raised by the Revenue in appeal on the ground that the order of the A.O. 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 ACI .....

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ted 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 .....

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ted in law, quashing reassessment order, without considering that the Hon ble Gujarat High Court vide its order dated 31/07/2002 and 06/08/2002 upheld the validity of reassessment proceedings on the issue of recalculation of deduction u/s 80IA relating to interest on overdue bills in the assessee s case for A.Y. 1997-98 and 1999-2000, and that identical issue was involved in assessee s case for A.Y. 2000-01? [4] Whether the Income Tax Appellate Tribunal committed substantial error of law in quas .....

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er section 115JA of the Act. The return was processed under section 143(1) of the Act on 09.03.2000. The assessee Company filed a revised return of income declaring total income under section 115JA of the Act at ₹ 15,92,21,250/- on 01.06.2001. The Assessing Officer finalized the assessment under section 143(3) of the Act on 27.11.2002 under normal provisions determining total income at ₹ 11,84,80,295/- and computed income under section 115JA of the Act at ₹ 17,75,85,674/- after .....

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e 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 ₹ 17,40,70,520/- and for assessment year 2001-02 at ₹ 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 t .....

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cross appeals filed by the revenue as having been rendered infructuous and academic. Being aggrieved, the revenue has preferred these appeals. 5. Mr. Ketan Parikh, learned senior standing counsel for the appellant, assailed the impugned order by submitting that the Tribunal has erred in holding that the assessment is sought to be reopened on a mere change of opinion, inasmuch as, none of the aspects on which the assessment was reopened have been considered while framing the original assessment .....

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o. It was submitted that none of the items on which the assessment is sought to be reopened forms part of the earlier assessment order and that there is no specific discussion by the Tribunal in this regard. It was, accordingly, urged that the impugned order passed by the Tribunal is perverse to the record of the case and therefore, the appeals require consideration on the questions of law as proposed or as may be forumlated by the court. 6. Opposing the appeals, Mr. S. N. Soparkar, Senior Advoc .....

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ounsel placed reliance upon the decision of this court in the case of Cliantha Research Ltd. v. Deputy Commissioner of Income Tax, Ahmedabad Circle-I, [2013] 35 taxmann.com 61 (Gujarat), for the proposition that when a claim was processed at length and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reasses .....

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l 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 ord .....

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icer at the time of framing initial assessment order, had called for information from the assessee on various aspects and after examining the same, allowed the deductions under section 80IA and 80HHC of the Act. Now, the Assessing Officer says that he has left out certain items. It was submitted that the assessment order passed in the first round has merged with the order of the Commissioner (Appeals) and hence, the computation under section 80IA and 80HHC of the Act has merged with the order pa .....

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on the ground that a particular angle in respect of the claim of deduction under section 80IA of the Act was not examined. It was, accordingly, urged that there is no legal infirmity in the impugned order passed by the Tribunal giving rise to any question of law and therefore, the appeals being devoid of merit, deserve to be dismissed. 7. Before examining the merits of the rival submissions, it may be germane to refer to the reasons recorded by the Assessing Officer for the purpose of reopening .....

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er Statutory Reports pertaining to deductions u/s. 80HHC and 80IA, Computation of Income, Proof of payment of Advance Tax and TDS Certificates. The various 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 furnish .....

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e R&D expense are as under:- Capital Expenses ₹ 10,10,65,598/- Revenue Exp. debited Into P&L Account ₹ 8,69,39,482/- Total ₹ 18,80,05,080/- 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 si .....

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of interest in this line of business which varies from 15% to 18%. By adopting this modus operandi, the Sun Group has reduced the taxable profit of M/s. Aditya Medisales 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 permissi .....

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king out the deduction u/s. 80IA. This allocation was accepted by the assessee before the CIT(A). However, in A.Y. 2000-01 the assessee has wrongly debited only 10% of 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 allocat .....

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a I Unit Net Profit s calculated by the assessee ₹ 28,51,48,292/- Add: R&D Exp. allocated by the assessee ₹ 18,72,973/- ₹ 28,70,21,265/- Less: R&D Expenses actually allocable ₹ 1,35,06,326/- Profit of Silvasa I Unit ₹ 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/- ₹ 8,20,54,4 .....

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has claimed deduction u/s 80IA in the computation of income at ₹ 20,97,62,593/-. Hence, the assessee has claimed ₹ 20,97,62,593/- (-) ₹ 20,15,40,669/- = ₹ 82,21,924/- as extra deduction 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 expen .....

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added the following amounts. a) The assessee has shown export of ₹ 35.46 lacs out the goods produced from the Silvasa I Unit. This amount has been considered for working out the deduction u/s 80HHC. 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 Ac .....

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the profits of the business as per explanation baa to section 80HHC, the profit of the business has to be worked out after reducing the unabsorbed depreciation of ₹ 5,39,51,466/- of M/s. Gujarat Lyka 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 c .....

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ources, 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 Corporat .....

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nd complicate the matter pertaining to the assessment; (ii) The assessee has deliberately presented the facts in such a manner so that it is not understood by the Tax Authority easily; (iii) While completing the assessment under section 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 under section 80IA, by giving more interest on o .....

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he turnover of Silvasa I Unit and Silvasa II Unit is in the ratio of 58.6% and 41.4%, and accordingly, the allocation of 10% of weighted deduction under section 35(1) between the two units should be ₹ 1,35,06,326/- and ₹ 95,42,012/- respectively, the assessee has allocated ₹ 18,72,973/- and ₹ 13,20,088/- only in the two units respectively. Thus, it is the case of the Assessing Officer that the assessee had claimed extra deduction under section 80IA in the computation of i .....

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ween the profitability of a unit and R&D expenses (because a better R&D means more profit margin in pharmaceutical line) rather than allocating only 10% of the R&D expenses. The assessee had shown export of ₹ 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 t .....

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t. 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 emerging from the record, it is evident that while framing assessment under section 143(3) of the Act, the Assessing Officer had considered the deductions under sec .....

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ssee to explain the details which were confusing. Thus, once the Assessing Officer, at the relevant time while framing the assessment under section 143 of the Act, has been satisfied with the details provided by the assessee and did not find the same to be confusing, the successor Assessing Officer cannot be permitted to contend that such details were very confusing and complicated the matter. 11. The second ground for reopening the assessment is that the assessee had deliberately presented the .....

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ficer to call upon the assessee to explain the same. Thus, when the Assessing Officer who passed the original assessment order did not find the facts to be difficult to understand, it is not permissible for the successor Assessing Officer to seek to reopen the assessment on the ground that the facts were presented in a manner which could not be easily understood. 12. Insofar as the claim of deductions under section 80IA of the Act, which according to the Assessing Officer have wrongly been claim .....

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er 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 fo .....

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cessed at length and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment. In the present case, the claim of deduction under section 80HHC and 80IA of the Act had been processed at length by the Assessing Officer. The mere fact that such claim was not examined from a particular angle, therefore, can .....

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