TMI Blog2016 (7) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 orders of the CIT(A)-31, Mumbai dated 21.07.2014 for assessment years 2005-06 to 2008-09. These appeals having common issues and being heard together are being disposed off by way of this combined order. 2. The facts of the case, briefly, are as under: - 2.2 The assessee is a firm engaged in providing all types of ITES work related to the field of civil engineering, M.S. structure designing and detailing of drawings. In this case the returns of income filed by the assessee for A.Y. 2005-06 to 2008-09 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10A of the Act, holding as under at paras 5 to 8 as under: - 5. In the present appeal, the appellant has challenged the validity of the reopening and the disallowance of deduction u/s 10A. I have carefully considered the facts relating to the grounds 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. 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 escaped assessment on account of failure of the assessee to disclose fully and truly all material facts. In the present case, it is submitted that the appellant had disclosed all particulars relating to the claim u/s 10A and that assessment u/s 143(3) was originally completed by the AO after due scrutiny of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the assessee to file a return under section 139 or in response to notice under section 148 or on account of the assessee's failure to disclose fully and truly all material facts necessary for assessment. 5.1.4 In the case of CIT vs Kelvinator India reported at 320 ITR 561 (SC), the Hon'ble Supreme Court had affirmed the decision of the Delhi High Court reported at 133 Taxman 433 wherein it had been held that a mere change of opinion would not confer jurisdiction upon the Assessing Officer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequently, following Tribunal's decision rendered in case of petitioner's expatriate employee, the AO issued a notice under section 148 seeking to reassess same income as fees for technical services. The Court held in favour of the 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 material facts necessary for assessment, fundamental condition for reopening assessment beyond a period of four years does not get fulfilled and, in such a case, assessment cannot be reopened. The Court held as follows: .... 9. The assessment for Assessment Year 2005-06 is sought to be reopened beyond a period of four years of the end of the relevant assessment year. Both the grounds which have been formulated by the Assessing Officer for reopening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forth the basis of its claim and there was no suppression of material facts. In these circumstances, and for the reasons that are stated hereinabove, we are of the view that the fundamental condition for reopening the assessment beyond a period of four years has not been fulfilled. 9A. In Sesa Goa Ltd. v. Jt. CIT [2007] 294 ITR 101/[2008] 168 Taxman 281 (Bom.) a Division Bench of this Court has held that a subsequent decision of a Court cannot justify the reopening of an assessment after a period of four years by itself, as the subsequent decision would not necessarily mean that there was a failure on the part of the assessee to disclose 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 by the Taxation Laws Amendment Act, 2005 with effect from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment for any assessment year. The Assessing Officer must 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 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 not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well settled that the question as to whether there was reason to believe, within the meaning of section 147 that income has escaped assessment, must be determined with reference to the reasons recorded by the Assessing Officer. The reasons which are recorded cannot be suppleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations contained in the said proviso are attracted as per which in case the original assessment has been made under section 143(3) and four years have elapsed from the end of the relevant assessment year, the assessment can be reopened only on the ground of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. The reasons recorded as provided to the appellant as discussed in para 5.1.2 earlier make 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 claim u/s 10A in a subsequent assessment year. It is also noted that the claim for deduction was duly allowed in the original assessment order passed u/s 143(3) after verification of details submitted by the appellant and the return file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that the appellant had disclosed all particulars relating to the claim 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 or that the AO was in possession of any information indicating escapement of income. 5.1.1 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason to believe, within the meaning of section 147 that income has escaped assessment, 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 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 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. Reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessment. Consequently, we find that the Tribunal has arrived at the correct conclusion on the facts. The law is well settled. There is no substantial question of law which arises for our consideration. 11. The appeal is dismissed. 5.1.5 The reasons recorded for the reopening of the assessment for the year under consideration as reproduced in para 5.1.2 are vague and do not demonstrate any nexus to escapement of income during the year under consideration. The fact of disallowance of a claim in a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erit of the case. 3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in not appreciating that the assessee has declared very high and abnormal profit and claimed it as 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 assessee supported the impugned orders of the learned CIT(A) for assessment years 2005-06 to 2008-09, on both the findings rendered on technical issues of the validity of the proceedings initiated under section 147/148 of the Act in quashing of the orders of assessment for these years, as well as on the merits of the assessee s claim for deduction under section 10A of the Act. At the outset the learned A.R. for the assessee submitted that the basis for reopening the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment years 2005-06 to 2008-09 dated 21.07.2014 allowed the assessee s appeals both on the technical grounds challenging the validity of proceedings under section 147/148 of the Act and the validity of the consequent orders of assessment by quashing them and also on merits, of the assessee s claim for deduction under section 10A of the Act being in order. 3.4.2 As submitted by the learned A.R. for the assessee, we find that a Coordinate Bench of this Tribunal in its order in ITA No. 3941/Mum/2013 dated 11.12.2015 in the assessee s own case for A.Y. 2009-10 has upheld the order of the learned CIT(A) in allowing the assessee 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) has done any comparative study about the genuineness and reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made a detailed submission in support of its claim and also 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 drawings, and work of clients of the assessee firm. The firm was registered with STPI and has produced returns filed with the STPI. The assessee firm has produced purchase of various soft-wares which are useful requirement in the line of designing like Tekla Software, CAD/CAM Software etc., The firm has filed client wise, project wise, date wise, inbound and outbound use of Internet space. The firm uses cost effective MTNL triband facility which is much cheaper than other options. As regards various expenses the firm has produced various Internet connection bills of MTNL, TATA etc., which has been used for the business. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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