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Income Tax Officer-20 (3) (1) , Mumbai Versus M/s. Unnosource Corporation

2016 (7) TMI 522 - ITAT MUMBAI

Reopening of assessment - Claim for deduction under section 10A - Held that:- As in the light of the findings rendered by the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2009-10 upholding on merits the eligibility of the assessee’s claim for deduction under section 10A of the Act for A.Y. 2009-10, the basis upon which the AO recorded the reasons for reopening the assessments for assessment years 2005-06 to 2008-09 (extracted supra), being struck down, does not now survi .....

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CIT(A) in allowing the assessee’s claim for deduction under section 10A of the Act for assessment years 2005-06 to 2008-09 on merits. It is accordingly ordered. - Decided in favour of assessee. - ITA Nos. 5656 to 5659/Mum/2014 - Dated:- 8-7-2016 - Shri Jason P. Boaz, Accountant Member And Shri Sandeep Gosain, Judicial Member For the Appellant : Shri S. Senthil Kumaran For the Respondent : Shri Pradip Kapasi ORDER Per Jason P. Boaz, A.M. These appeals by the Revenue are directed against the order .....

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declaring NIL income were processed under section 143(1) of the Income Tax Act, 1961 (in short 'the Act'). The assessments for A.Y. 2005-06 and A.Y. 2006-07 were completed under section 143(3) of the Act vide 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 is .....

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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 ₹ 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 the assessee to disclose fully and truly all material facts necessary for assessment f .....

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on (i) technical grounds, i.e. the validity of proceedings initiated under section 147 of the Act, issue of notices under section 148 of the Act on 29.30/3.2002 and the validity of the resultant orders of assessment dated 18.03.2013; and (ii) on the merits of its claim for deduction under section 10A of the Act. 2.3 In the impugned orders for assessment year 2005-06 and 2006- 07, the learned CIT(A) allowed the assessee s appeal on both the technical grounds of validity of proceedings under sect .....

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nd 2, the appellant has challenged the reopening of assessment in the present case as bad in law. It has been submitted that as per the provisions of the Act; reopening of an assessment is possible only when there is formation of belief by the AO that income has escaped assessment. Also, in cases where reopening is sought to be done after a period of 4 years from the end of the relevant assessment year, it is stated that the same can be resorted to only if the income chargeable to tax has escape .....

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at 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 inc .....

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us the sole basis for reopening the assessment in the present case is the disallowance of the appellant's claim during the assessment for A.Y. 2009 -10. 5.1.3 The notice u/s 148 was issued on 30/03/2012 i.e. more than 4 years after the end of the relevant assessment year. Thus the first proviso to section 147 would be applicable in the instant case. The said proviso reads as under: provided that where an assessment under sub-section (3) of section 143 or this section has been made for the re .....

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ear." Under section 147, the primary condition to be satisfied prior to initiation of reassessment is that the Assessing Officer must have 'reason to believe' that income chargeable to tax has escaped assessment and reopening must not be based on a mere change of opinion. In particular, the above proviso lays down that once an assessment is already completed under section 143(3), reopening can be only done in the circumstances specified in the statute i.e. on account of failure of t .....

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to initiate proceedings under section 147. The Apex Court held that "after 01.04.1989, the Assessing Officer had the power to reopen provided there is tangible material to come to a conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of belief." In the case of Aventis Pharma Ltd. vs ACIT reported at 323 ITR 570, the Hon'ble Bombay High Court dealt with a case where the revenue sought to reopen an assessment in order to wi .....

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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 opi .....

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fficer had formed an opinion in the original assessment, though he had not recorded his reasons." 5.1.5 In the decision rendered in the case of CIT v Foramer France reported at 264 ITR 566, the Apex Court upheld the decision of the Allahabad High Court wherein it had been held that reopening of assessment was not permissible after 4 years unless there had been failure on the part of the appellant to make full and true disclosure of material facts. In the said case, the appellant was a forei .....

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he appellant and reassessment was struck down. 5.1.6 In the decision rendered in the case of Voltas Ltd. v ACIT reported at 349 ITR 656, the Bombay High Court held that when a notice was issued for reopening a case after expiry of four years from end of relevant assessment year, the AO must apply his mind to the fundamental question as to whether there has been a failure to disclose all material facts on part of assessee and that where there is no failure on part of assessee to disclose all mate .....

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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 .....

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at 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 Assessing Officer is structured by the requirement that there must be a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment. Neither the reasons which have been communicated to the assessee nor for that matter the order passed on the objections r .....

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heless apply his mind to the fundamental question as to whether there has been a failure to disclose on the part of the assessee. In the present case, ex facie there is no such allegation. Moreover, the return of income and the material placed on the record by the assessee together with the return would make it abundantly clear that the assessee had set forth the basis of its claim and there was no suppression of material facts. In these circumstances, and for the reasons that are stated hereina .....

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e fully and truly all material facts. In CIT v. K. Mohan & Co. (Exports) [IT Appeal Nos. (Lodg.) 2347 of 2010 & 1263 of 2011, dated 1-7-2011], a Division Bench of this Court dealt with an appeal arising from a decision of the Tribunal cancelling reassessment proceedings initiated by the Assessing Officer beyond a period of four years from the end of the relevant Assessment Year. The assessment was sought to be reopened as a result of a retrospective amendment to Section 80HHC introduced .....

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h 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 reop .....

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O reported at 324 ITR 154 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 1 .....

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ust have reason to believe that such is the case before he proceeds to issue a notice under section 147. The reasons which are recorded by the Assessing Officer for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power. For it is on the basis of the reasons recorded .....

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ssment, must be determined with reference to the reasons recorded by the Assessing Officer. The reasons which are recorded cannot be supplemented by affidavits. The imposition of that requirement ensures 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 .....

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h 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 evidence. The AO, in the event of challenge to the reasons must be able to justify the same b .....

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ant's case was completed u/s 143(3) vide order dated 31/12/2007 after due examination and acceptance of the claim of deduction u/s 10A as is evident from the extract of the said assessment order reproduced in para 5.1.1 earlier. The time limit for reopening such an assessment, without failure on the part of the assessee as specified in the proviso to section147, was within 4 years from the end of the relevant assessment year i.e. 31/03/2010. In the present case however, the AO issued the not .....

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it evident that the AO has not brought on record anything to establish failure on the part of the appellant to disclose material facts. Accordingly, the reopening in this case cannot be held as valid and the impugned assessment is therefore quashed. The ground raised by the appellant is therefore allowed. 5.2 In Grounds No. 3 and 4, the appellant has challenged the disallowance of the claim u/s 10A on merits. As noted earlier, the assessment is re-opened purely on the basis of the denial of the .....

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er 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. 200 .....

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t appeal is filed against the said assessment order. As stated earlier, the grounds of appeal, statement of facts and written submissions made in this year are similar to those for A,Y, 2005-06. 7.1 In view of the similar facts and circumstances, the Grounds No.1 to 4 raised by the appellant for this year are allowed following the detailed reasoning given for A.Y. 2005-06. 8. In the result, both the appeals for A.Y. 2005-06 and 2006-07 are allowed. 2.4 Similarly, in the impugned order for A.Y. 2 .....

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lly considered the facts relating to the said ground as they emanate from the impugned assessment order and the submissions made during these proceedings. 5.1 In Ground Nos. 1 and 2, the appellant has challenged the reopening of assessment in the present case as bad in law. It has been submitted that as per the provisions of the Act, reopening of an assessment is possible only when there is formation of belief by the AO that income has escaped assessment. In the present case, it is submitted tha .....

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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 sole basis for reopening the assessment in the present case is the disallowance of the appellant's claim during the assessment for A.Y. 2009-10. 5.1.2 Under section 147, the primary condition to be satisfied is .....

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y 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 ap .....

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of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power. For it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits .....

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tion 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 "11. The same principle was reiterated in a judgment of the Division Bench of this Court in Hindustan Lever Ltd. V/s. R,B, Wadkar2:- "...the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No addi .....

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ssing 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 particu .....

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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 direction given by the very same Deputy Director of Income-tax (Investigation) to issue a notice under section 148 and the third sentence again comprises of a direction given by the Additional Commissioner of Income-tax to initiate proceedings under section 148 in respect of cases pertaining to the relevant ward. These t .....

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afraid that these cannot be the reasons for proceeding under section 1471148 of the said Act. The first part is only an information and the second and the third parts of the beginning paragraph of the so-called reasons are mere directions, From the so-called reasons, it is not at all discernible as to whether the Assessing Officer had app/led his mind to the in formation and independently arrived at a belief that, on the basis of the material which he had before him, income had escaped assessme .....

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subsequent year cannot by itself be held to be sufficient to show that the appellant had not fulfilled conditions required to claim deduction u/s 10A during the year under consideration and that the income has escaped assessment during the said year. The reasons recorded do not show any application of mind by the AO. Accordingly, the reopening in this case cannot be held as valid and the impugned assessment is therefore quashed. The grounds raised by the appellant are therefore allowed. 5.2 In .....

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eted 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 dat .....

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In view of the similar facts and circumstances, the Grounds No.1 to 4 raised by the appellant for this year are allowed in view of the detailed reasoning given for A.Y. 2005-06. 7. In the result, both the appeals for A.Y. 2007-08 and 2008- 09 are allowed. 3.1 Aggrieved by the order of the CIT(A)-31, Mumbai dated 21.07.2014 for assessment years 2005-06 to 2008-09, Revenue has preferred these appeals raising the following identical grounds for all the four assessment years: - 1. On the facts and i .....

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s exempt u/s 10A. 4. The appellant prays the of the learned CIT(A) on the above ground may be set as aside and allow appellant s appeal. 5. The appellant craves leave to amend or alter any ground or to submit additional new ground which may be necessary. 3.2 The learned D.R. for Revenue was heard and placed support and reliance on the grounds raised and also the finding of the AO in the orders of assessment for assessment years 2005-06 to 2008-09. 3.3.1 Per contra, the learned A.R. for the asses .....

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ent years was admittedly the finding rendered by the AO in the order of assessment for A.Y. 2009-10 that the assessee s claim for deduction under section 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 sect .....

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009-10, 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 is prayed that in these factual and legal matrix of the case, Revenue s appeals for assessment years 2005-06 to 2008-09 are liable to be dismissed. 3.4 .....

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required to be reopened for examining the assessee s claim for deduction under section 10A of the Act. It is a matter of record that the said reassessment orders for assessment years 2005-06 to 2008-09 dated 18.03.2013 were passed disallowing the assessee s claim for deduction under section 10A of the Act. On appeal, the learned CIT(A) in the impugned orders for assessment years 2005-06 to 2008-09 dated 21.07.2014 allowed the assessee s appeals both on the technical grounds challenging the vali .....

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e s claim for deduction under section 10A of the Act as the assessee satisfied the conditions of eligibility to claim the said deduction. At paras 2 to 4 of its order, the Coordinate Bench has considered this issue and held as under:- 2. The Revenue has taken the following grounds of appeal: "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing to allow exemption u/s. 10A of I.T. Act, 1961 without appreciating that neither A.O. nor CIT(A) ha .....

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ays 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 ₹ 2.34 crores as against income received of &# .....

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s. The AO also noted that as per transfer pricing report, the number of employees of the assessee concern was 80 but the salary register showed only 52 and observed that the assessee had not been able to prove the technical competence of any of the workers who provided the IT enabled services for civil engineering. The AO also took exception to the expenses incurred by the assessee towards foreign travel, partner's remuneration, depreciation on office premises, purchase of iPhone etc. The AO .....

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furnished the additional evidences as mentioned in para 4.2 of the impugned order. The Ld. CIT(A) forwarded the said evidences to the AO for verification and comments. The AO thereafter conducted the investigation in respect of the evidences submitted by the assessee and came to the following conclusion: The firm has produced voluminous data regarding drawings in paper form and softcopy in form of 9 CDs. The said CDs has been verified by me and to the best of my knowledge the same contains draw .....

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expenses the firm has produced various Internet connection bills of MTNL, TATA etc., which has been used for the business. As regards, salary to staff it is seen that the assessee has 2 units one at Mumbai and at Nasik, total strength of the firm in human resource is totaling to about 88 employees. From the details of employees and qualifications, 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) allowe .....

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