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TMI Blog2016 (7) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... orders dated 06.12.2007 and 17.02.2008 respectively wherein the income was assessed at NIL after accepting the assessee's claim for deduction under section 10A of the Act. Subsequently, proceedings under section 147 of the Act were initiated and notices under 148 of the Act were issued to the assessee after recording almost similar reasons for these assessment years, basically relating to the view that the assessee's claim for deduction under section 10A in these years was not genuine since the similar claim for A.Y. 2009-10 was found to be not genuine. For the purpose of clarity, we extract hereunder the reasons recorded by the Assessing Officer (AO) for A.Y. 2005-06: - "The reasons for reopening are as under: In this case the original return of income was filed on 30.10.2005 showing total income at Rs.NIL. Assessee has claimed exemption u/s. 10 but during assessment proceedings for A.Y. 2009-10, it was noticed that the claim is not genuine. 2. In view of this facts and circumstances of the case, I am satisfied that income of Rs. 39,32,001/- chargeable to tax has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961 for the failure on the part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant's claim of deduction u/s 10A. It is further stated that the re-opening of the assessment has been done only on the basis of the denial of the claim u/s 10A for A.Y. 2009-10 and that there is nothing to show that the appellant had not made a full or complete disclosure of the material facts. 5.1.1 As per the facts of the case, the original assessment for A.Y. 2005 - 06 was completed u/s 143(3) vide order dated 06/12/2007 accepting the returned income of Rs. Nil. In the said order the AO discussed the requirements for claim u/s 10A, observing as follows: "On verification of detailed submitted by the assessee during the course of assessment proceeding and return of income filed, the firm has fulfilled the above conditions laid down by the Act. Hence exemption claimed u/s 10A of the I.T. Act is allowed. " 5.1.2 In the impugned assessment order, the reasons recorded for reopening of assessment are as follows: "In this case the original return of income was filed on 30.10.2005 showing total income at Rs. Nil. Assessee has claimed exemption u/s 10 but during assessment proceedings for A. Y. 2009-10, it was noticed that the claim is not genuine." Thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court dealt with a case where the revenue sought to reopen an assessment in order to withdraw a deduction allowed while computing long term capital loss and also to revise the rate of depreciation disallowed earlier. The Court held that where the material facts relating to these issues were already before the Assessing Officer at the time of the completion of the original assessment, such reopening would amount only to a change in opinion. In its decision in the case of CIT vs Usha International ITA 2026/2010 dated 21.09.2012, the Hon'ble Delhi High Court held as follows: "13. It is, therefore, clear from the aforesaid position that: (1) Reassessment proceedings can be validly initiated iin case return of income is processes under section 143(1) and no scrutiny assessment is undertaken. In such case there is no change of opinion. (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour or the assessee. Reassessment proceedings in the said case will be hit by principle of - change of opinion. (3) Reassessment proceedings will be invalid in case an issue or query is raised and answe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve taken place after the order of assessment was passed. The first of those is the judgment of the Special Bench of the Tribunal which was delivered on 30 June 2010, according to which unabsorbed depreciation for the period up to 1996-97 could be carried forward and set off against the income under any head for a maximum period of eight assessment years. Consequently according to the Assessing Officer unabsorbed depreciation pertaining to Assessment Year 1994-95 could not have been set off against the income for Assessment Year 2005-06. The second of those events is a legislative amendment brought about by the Finance Act of 2009 with retrospective effect from 1 April 2001. According to the Assessing Officer income was computed under section 115JB without any addition being made on account of provision for diminution in the value of investment and provision for doubtful debts and advances. Both the reasons which have been indicated by the Assessing Officer may be reflective of the fact that there is an escapement of income. But, that in itself is not sufficient to validate the reopening of assessment beyond a period of four years. Beyond a period of four years, the power of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Legislature amends the provisions of the Act with retrospective effect, it cannot be said that there was a failure on the part of the assessee to disclose fully and truly all material facts relevant for the purposes of assessment. A similar view was taken by the Division Bench in its recent judgment dated 24 January 2012 in DIL Ltd. v. Asstt. CIT [2012] 18 taxman.com 290 (Bom.) dealing with the retrospective amendment of Section 115JB by the Finance Act of 2009 with effect from 1 April 2001. The Division Bench noted that clause (i) of Explanation 1 was introduced to include the amount or amounts set aside as provision for diminution in the value of investment. In view of the retrospective amendment of law by Parliament, the Court held that the Assessing Officer may have reason to believe that income has escaped assessment. But that in itself was not held to be sufficient for reopening an assessment beyond a period of four years unless there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. 10. Rule is accordingly made absolute by setting aside the impugned notice dated 30 March 2011." Thus it was emphasise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sures against an arbitrary exercise of powers under section 148." In this judgment, the Hon'ble Court also referred to the observations in the decision rendered in the case of in Hindustan Lever Ltd. V/s. R.B. Wadkar, elaborating that the reasons should be clear and unambiguous. The relevant extract is as follows: "11. The same principle was reiterated in a judgment of the Division Bench of this R Court in Hindustan Lever Ltd. V/s. ,B, Wadkar2 :- "...the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose an open his mind through reasons recorded by him. He has to speak through his reasons.... 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 manifestation of mind of the AO. The reasons recorded should be self- explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant's claim for deduction u/s 10A for A.Y. 2009-10, has been allowed vide appeal order no. CIT(A)-31/IT-371/ITO-20(3)(1)/11-12 dated 07/03/2013 and that the impugned order reflects no other reason for the reopening of the assessment than the disallowance of the claim u/s 10A for A.Y. 2009-10, the disallowance made is deleted on merits also and the ground raised by the appellant is allowed. 6. In the result the appeal is allowed. A.Y. 2006-07 7. The common grounds raised by the appellant have already been reproduced in para 2 of this common order earlier. The facts of the case for the year under consideration are that the appellant, a firm, filed its return of income for A.Y. 2006- 07 on 31/10/2006 declaring total income of Rs. Nil after claiming deduction of 46,03,760/- u/s 10a. The return was processed and selected for scrutiny and assessment was completed u/s 143 (3) vide order dated 17/12/2008 accepting the returned income. Subsequently the assessment was reopened by issue of notice u/s 148 on 30/03/2012 and assessment was completed vice order 18/03/2013 u/s 144 r.w.s 147 withdrawing the exemption u/s 10A and assessing total income at Rs. 46,03,760/-. The presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s claim during the assessment for A.Y. 2009-10. 5.1.2 Under section 147, the primary condition to be satisfied is that the Assessing Officer must have 'reason to believe' that income chargeable to tax has escaped assessment and it must not be a mere change of opinion on which re-assessment is initiated. 5.1.3 In the case of Prashant S. Joshi v ITO reported at 324 ITR 154 the Bombay High Court held that even if there is no assessment u/s 143(3), reopening u/s 147 is bad if there are no proper 'reasons to believe' and that the only reasons that can be considered for reopening are the reasons recorded by the AO. The Court held as follows: "9. Section 147 provides that 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 163, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The first proviso to section 147 has no application in the facts of this case. The basic postulate which underlines sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The AO, in the event of challenge to the reasons must be able to justify the same based on material available on record.... That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the AO cannot be supplemented by filing affidavit of making oral submission, otherwise, the reasons which are lacking in material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced." 5.1.4 In the decision rendered in the case of CIT v Sfil Stock Broking Ltd. reported at 325 ITR 285, the Hon'ble Delhi High Court adjudicated upon a case where reopening of an assessment was held to be unjustified since the reasons recorded did not show any application of mind by the AO. The Court held as follows: "9. In the present case, we find that the first sentence of the so-called reasons recorded by the Assessing Officer is mere information received from the Deputy Director of Income-tax (Investigation). The second sentence is a dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 10A on merits. As noted earlier, the assessment is re-opened purely on the basis of the denial of the claim u/s 10A in a subsequent assessment year. In view of the fact that the appellant's claim for deduction u/s 10A for A.Y. 2009-10, has been allowed vide appeal order CIT(A)-31/IT-371/ITO-20(3)(1)/11-12 dated 07.03.2013 and that the impugned order does not contain any new facts, the disallowance made is deleted on merits also and the grounds raised by the appellant is allowed. A.Y. 2008-09 6. The common grounds raised by the appellant have already been reproduced in para 2 of this common order earlier. The facts of the case are that the appellant a firm, filed its return of income for A.Y. 2006-07 on 31/10/2006 declaring total income of Rs. Nil after claiming deduction of 46,03,760/- u/s 10A. The return was processed and selected for scrutiny and assessment was completed u/s 143 (3) vide order dated 17/12/2008 accepting the returned income. Subsequently the assessment was reopened by the issue of notice u/s 148 on 30/03/2012 and assessment was completed vide order dated 18/03/2013 u/s 144 r.w.s 147 withdrawing the exemption u/s 10A and assessing total income at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 10A of the Act was not genuine. In this regard, the learned A.R. for the assessee brought to the notice of the Bench that a Coordinate Bench of this Tribunal in the assessee's case for A.Y. 2009-10, in its order in ITA No. 3941/Mum/2013 dated 11.12.2015, has upheld the order of the CIT(A) granting the assessee its claim for deduction under section 10A of the Act. Contending that the activities of the assessee firm for assessment years 2005-06 to 2008-09 were similar to the activities carried on in A.Y. 2009-10 wherein the assessee's claim for deduction under section 10A of the Act is now held to be in order by the order of the ITAT for A.Y. 2009-10 (supra), the learned A.R. argued that the basis for reopening of the impugned assessment years, i.e. the denial of the assessee's claim for deduction under section 10A of the Act for A.Y. 2009-10, being struck down, Revenue's appeals have no legs to stand on; both on the technical grounds of the validity of reopening the assessment for assessment years 2005-06 to 2008-09 and the validly of the resultant orders of assessments plus on merits also, as the assessee's claim for deduction under section 10A of the Act is to be allowed. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery high and abnormal profit and claimed it as exempt u/s 10A, this aspects needs detailed investigation especially in view of the fact that USA firm and the assessee has common direct control jointly by one individual and his relatives. 3. The appellant prays that the order of Ld.CIT(A) on the above ground be set aside and matter be restored to the Assessing Officer. 4. The appellant craves leave to amend or to alter, any ground or add a new ground, which may be necessary." 3. The brief facts of the case are that during the assessment proceedings, the Assessing Officer (hereinafter referred to as the AO) observed that the total expenses of the assessee for the year under consideration were Rs. 2.34 crores as against income received of Rs. 7.04 crores and thus the assessee showed a high net profit ratio. The AO further noted that the assessee had only one client M/s Unno Source Corporation USA which was owned by Mr. Pranav Gundaria and his wife and Mr. Janak Bhalaria and his wife. On examining the monthly usage of telephone/internet by the assessee, the A.O concluded that the assessee had incurred paltry expenses and that it was not possible to generate a turnover of Rs. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, it is seen that the employees are all qualified to do the requisite firms work." Relying upon the remand report of the AO, the Ld. CIT(A) allowed the claim of the assessee observing that the assessee had satisfied the conditions for eligibility to claim exemption under section 10A of the Act. He has observed that the assessee's claim has also been allowed for the two assessment years following its inception. The assessee has duly proved by various evidences that the business was actually carried out by the assessee and that there were 88 employees employed by the assessee and they were having the requisite expertise and qualification required for the work of the assessee and that the assessee had actually carried out the business during the relevant financial year. All the claims have been duly verified by the AO and in view of this, he deleted the addition. 4. We do not find any infirmity in the order of the Ld. CIT(A) arrived at after consideration of the relevant facts and the evidences submitted which is also based on the verifications conducted by the AO during the remand proceedings. The order of the Ld. CIT(A) is therefore upheld." 3.4.3 In our view, in the light o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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