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D.C.I.T., Circle-11, Kolkata Versus M/s. Century Plyboards (India) Ltd.

Reopening of assessment - deduction claimed u/s 80IB - Held that:- The assessee had furnishes details and explanations which were considered by the AO and the deduction claimed in the return of income was duly accepted, the AO cannot reopen assessment for the reason that deduction u/s 80IB was wrongly allowed and doing so would amount to reopening assessment on a change of opinion. In the facts and circumstances of the present case we are of the view that the belief entertained by the AO cannot .....

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hat in respect of unit which claimed deduction earlier u/s 80IB of the Act such unit will continue to get the benefit of deduction of 80IC of the Act subject to the limitation of ten year period. The deduction for an undertaking making substantial expansion of the existing undertaking is not applicable in the case of the assessee. We are of the view that the conclusions drawn by CIT(A) on this issue are fully justified and does not call for any interference. Accordingly this appeal of the revenu .....

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ted sheets, trading of block board, plywood, particle board, adhesive chemicals etc. For A.Y.2007-08 the assessee filed return on 30.10.2007 declaring total income of ₹ 15,91,77,514/-. An order of assessment u/s 143(3) of the Income Tax Act, 1961 (Act) was passed by the AO on 30.12.2009 computing the total income of the assessee at ₹ 16,17,06,690/-. 3. The AO issued a notice u/s 148 of the Act dated 27.03.2012 for passing an order of re-assessment u/s 147 of the Act to the assessee. .....

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le 'J') under the broad head: Current Assets, Loans and Advances in the Balance Sheet as at 31.03.2007. Scrutiny of the assessment record, however revealed that the assessee should have a balance of ₹ 286.41Iacs. As such, the difference of ₹ 75.32 lacs (Rs.361. 73 lacs - ₹ 2B6.41 lacs] was thus required to be added back as income of the assessee. ii) The assessee claimed deduction u/s. 80IC of ₹ 7,41,46,812/- and the same was allowed on the basis of computation fu .....

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e as if the undertaking or the enterprise were a distinct entity. Scrutiny of assessment record revealed that neither the audit report had been furnished in Form 10CCB nor the accounts was accompanied by separate P & L account and Balance Sheet of the undertaking or enterprise Further, deduction u/s. 80IC was not mentioned in the Tax Audit Report. Hence, disallowance of deduction u/s. 80IC of ₹ 7,41,46,812/- was required to be done and the income was required to be enhanced to that ext .....

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9,8121- [Rs.75,32,000 + ₹ 7,41,46,812 + ₹ 89,01,000/.] The undersigned, therefore, has reason to believe that income of the assessee, to that extent, has escaped assessment. " 4. The AO passed an order of assessment u/s 143(3) of the Act r.w. s. 147 dated 05.03.2013 wherein the AO determined the total income of the assessee as follows :- Total Assessed Income as per Order u/s 143(3) dated 30.12.2009 ₹ 16,17,06,690/- Add : Disallowances/Additions as discussed above. 1. Bala .....

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g were the objections of the assessee in this regard :- (i) With regard to the first reason recorded by the AO for initiating reassessment proceedings u/s.147 of the Act, viz., alleged difference of ₹ 75.32 lacs on account of Central Excise Duty Receivable, the Assessee submitted that in the Balance Sheet under the head "Current, Assets', loans & Advances" the balance with Central Excise Authorities was reflected at ₹ 361.73 lacs. In the Tax Audit Report the MODVAT .....

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he categorical observations recorded by the AO while framing the original assessment u/s.143(3) of the Act: his predecessor in the original assessment order: "After examining the balance sheet, profit & loss accounts along with schedules, tax audit report and other details and documents submitted during the. course. of hearing,. following points of discussions were· revealed. " The Assessee submitted that the reason to believe that there was escapement of income was entertai .....

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he assessee through Personal Ledger Account (PLA). These were thus two different credits (the Excise Duty paid as appearing in the Balance sheet being inclusive of MODVAT Credit balance and the Excise duty paid in advance which is different from MODVAT credit on input, for which the Assessee could take credit in future) and this aspect was completely lost sight of by the AO. The Assessee therefore submitted that this reason recorded was prima facie fallacious, incorrect and emanated from reappra .....

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) along with the return of income (in the original assessment proceedings) but was filed in the course of assessment proceedings u/s.143(3) of the Act. Even in the report so filed, the deduction claimed under Section 80lC was not mentioned by the tax auditor in his tax audit report. According to the AO therefore he had reason to believe that income chargeable to tax had escaped assessment as deduction u/s.80IC of the Act was wrongly allowed by the AO. The Assessee submitted that the AO while con .....

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r had categorically stated that he had inadvertently missed out mentioning the deduction permissible to the assessee under Section 80IC amounting to ₹ 7,41 ,46,812/-. They issued a corrigendum and requested the AO to read the Point No. 26 of the Tax Audit Report to be read as rectified. The tax auditor also referred and enclosed the report in Form 10CCB in respect of the deduction claimed under Section 80-IC of the Income-tax Act, 1961. It is pertinent 'to mention that such errata were .....

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he Assessee submitted that the facts would clearly show that the deduction claimed u/s 80- IC was considered and examined by AO's predecessor and therefore reopening of assessment on this account amounted to "change of opinion:' and review of the stand already taken by his predecessor. It was argued that the AO failed to bring any new corroborative material on record to show that the deduction was wrongly claimed by the assessee. (iii) With regard to the third and last reason record .....

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nce of ₹ 11.62 lacs under Section 14A of the Income-tax Act, 1961. It was submitted that a specific query was raised in the original assessment in respect of .disallowance under Section 14A in response to which the appellant filed detailed explanation. The AO's predecessor in Point No. 4 of his assessment order passed u/s 143(3) discussed this issue in great detail and computed the disallowance of ₹ 11 .62 lacs. It was therefore submitted that reopening of assessment on this issu .....

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ew opinion disregarding his categorical findings and observations in the original assessment. Such, action was illegal and without jurisdiction. It was further submitted that the AO opined that, the disallowance under Section 14A of the Act ought to have been made in accordance with Rule 8D of the rules. It was argued that in light of the decision of the Bombay High Court in the case of Godrej & Boyce Mfg Co.Ltd Vs DCIT (328 ITR 81) it is now well settled that Rule 80 is applicable only from .....

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deserves to be quashed end declared ab initio void. 6. The Assessee placed reliance on the decision of the Supreme Court in the case of CIT Vs Kelvinator of India limited 320 ITR 561 (SC) wherein it was held that it was not permissible for the AO to initiate reassessment proceedings merely on a change of opinion without there being any tangible material which has come to his possession after completion of the original assessment proceedings based on which he comes to a conclusion that income cha .....

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ble on record. The Assessee thus submitted that the re-assessment proceedings initiated by the AO was not justifiable and the order passed u/s 143(3) 47 was bad in law and without jurisdiction and therefore needs to be quashed. 7. The CIT(A) however, upheld the initiation of re-assessment proceedings for the following reasons :- I have considered the finding of the A.O. in his assessment order dt. 05-03-2013 and the written submission .filed by the A.R. during the appellate proceeding. Appeal on .....

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made a clear cut case for reopening of the assessment as it meets both the requirements of time limit and of valid reasons for reopening of the assessment. Therefore, assessee s appeal on grounds nos.1, 2 and 3 are dismissed. 8. However, with regard to the other additions made by the AO the CIT(A) deleted the addition of ₹ 75,32,196/- on account of difference in the balance with Customs Excise and the figure of MODVAT credit available as reflected in the Tax Audit Report, the disallowance .....

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5/Kol/2013. This was presented by the assessee on 19.09.2013. Again on 24.09.2013 vide cover letter dated 19.09.2013 the assessee has presented another Cross Objection which is identical to the Cross Objection filed earlier. This Cross Objection has been numbered as 136/Kol/2013. Since both the Cross Objections raise identical grounds of appeal and are directed against the very same order of CIT(A), we are of the view that C.O.No.136/Kol/2013 has to be dismissed as infructuous and superfluous. W .....

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to the rival contentions. As far as the first reason assigned by the AO for initiation of proceedings u/s 148 of the Act is concerned it is clear that the AO has examined very same material which was available with him while completing the original assessment. The Tax Audit Report in which Modvat of ₹ 286.41 Lakhs and schedule-J of the balance sheet regarding current assets and loans and advances which showed balance with Central Excise authorities is Rs,361.73 lakhs, were available befor .....

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escaped assessment. As far as the second reason given by the AO is concerned the facts are very clear that the auditors report in Form No.10CCB was filed by the assessee in the course of assessment proceedings u/s 143(3) of the Act. The law is well settled that the requirement of filing of such audit report along with the return of income is only directory and not mandatory. Secondly it is seen that in the audit report initially the auditors had by mistake mentioned that no deduction is claimed .....

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3(3) of the Act had categorically made the disallowance u/s 14A r.w. Rule 8D of the rules. The relevant observations of the AO are found in para-4 of the order passed u/s 143(3) of the Act. 11. Thus it is seen that none of the reasons recorded by the AO could give rise to a belief regarding escapement of income. As we have already seen that the AO on the same set of facts available with him while completing the original assessment u/s 143(3) of the Act has sought to reopen the assessment purely .....

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n assessment for the reason that deduction u/s 80IB was wrongly allowed and doing so would amount to reopening assessment on a change of opinion. As submitted by the assessee before CIT(A) such a course is not available to the AO in view of the decision of the Supreme Court in the case of CIT vs Kelvinator of India Ltd. (supra). Besides the above, the decision of the Gujarat High Court Devesh Metcash Ltd. vs. JCIT 338 ITR 130(Guj) has taken a view that the belief entertained should be a honest b .....

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e grounds raised by the revenue in its appeal is called for. 12. In the result ITA No.2306/Kol/2013 is dismissed while C.O.No.135/Kol/2013 is allowed and C.O.No.136/Kol/2013 is dismissed as superfluous. ITA NO.2307/Kol/2013 A.Y.2008-09 (Revenue s Appeal): 13. As far as this appeal of the revenue is concerned the issue raised by the revenue is only with regard to the action of CIT(A) in allowing deduction u/s 80IC of the Act. As far as the deduction u/s 80IC claimed by the assessee in A.Y.2008-09 .....

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Act. According to the ClT, deduction u/s.80-IC of the Act is available to the Assessee only if the Assessee undertakes substantial expansion and since the Assessee did not undertake substantial expansion, the CIT was of the view that the AO ought not to have allowed deduction u/s.80-IC of the Act. The CIT however directed the AO to re-examine the deduction claimed under Section 80lC of the Income-tax Act, 1961. In the impugned order framed u/s 143/263, the AO disallowed the deduction claimed u/ .....

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ng in the state of Meghalaya in the AY 2002-03 for manufacture of ferro alloys. In terms of Section 80IB(4) of the Income-tax Act, 1961, the profits derived from such new undertaking Qualified for 100% deduction for a period of 10 years. For AY 2003-04, M/s Shyam Century Ferreous Ltd. was allowed the deduction claimed u/s 80lB in its return of income. However in AY 2004-05 there was a schematic change in Act, when Section 80lC was introduced by the Legislature granting deduction to industrial un .....

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rtakings situated in North Eastern States for the unexpired period of deduction, which was hitherto permissible u/s.80IB(4). Sub-Section (6) clarified this position by providing that the total period of deduction inclusive of the period of deduction under this section, or under the second proviso to sub-section (4) of section 80-IB or under section 10C, as the case may be, should not exceed ten assessment years. Meaning thereby that the undertakings which were earlier claiming deduction u/s 80IB .....

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Eastern states, in order to give boost to the economy in these states. With a view to give effect to these new packages announced by the Union Cabinet in respect of these states, it is proposed To insert a new section 80-IC to allow a deduction for ten years from the profits of new undertakings or enterprises or existing undertakings or enterprises on their substantial Expansion in the states of Himachal Pradesh, Uttaranchal, Sikkim and North- Eastern states. For this purpose, substantial expans .....

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r under section 10C as the case may be, exceeds ten assessment years. It is also proposed to provide that in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or 10B, in relation to the profits and gains of the undertaking or enterprise. It is also proposed to insert the Thirteenth Schedule and Fourteenth Schedule in the Income tax Act. The said Schedules specify the list of articles and things and the Sta .....

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pplied) On perusal of the aforesaid, it will be noted that the industrial undertakings which were situated in North Eastern States and which were claiming deduction u/s 80IB(4) till AY 2003-04 statutorily migrated to Section 80lC w.e.f AY 2004-05. 15. M/s Shyam Century Ferreous Ltd., was allowed the deduction u/s 80IC in the assessment u/s 143(3) for the A Ys 2004-05 & 2005-06. Effective from AY 2006-07 the said Shyam Century Ferreous Ltd stood amalgamated with the Assessee. In the assessmen .....

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e previous year relevant to AY 2003-04, did not undertake substantial expansion in the previous year relevant to AY 2008-09. In the impugned passed u/sI43(3)/263 the AO withdrew the deduction on the ground that apart from the fact that assessee's undertaking was new and began manufacture after 01.04.2002 it was also required to make further investment and undertake substantial expansion in the year under consideration. 16. According to the Assessee, the interpretation of the provisions of Se .....

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Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning- (i) on the 23rd day of December, 2002 and ending before the 1 st day of April, 76[2007], in the State of Sikkim; or (ii) On the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or {iii} on the 24th day of December, 1997 and ending before the 1 st day of April, 2007, in any of .....

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2.1997 out before 01.04.2007. The new undertaking should begin the manufacture of the article specified in Fourteenth Schedule or the existing undertaking already engaged in manufacture of article specified in Fourteenth Schedule undertakes substantial expansion during the period of 24th'December, 1997 to April 2007 in any of the specified North Eastern States. 18. According to the Assessee, its case squarely falls within the first part of the provisions of Section 80IC(2) of the Income-tax .....

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24th December 1997 to 1st Apri1 2007. The expression however used in Section 80IC(b) is "or" not "and" as alleged by the AO. Clause (b) is divided into two parts being (i) setting-up new industrial undertaking or (ii) undertaking substantial expansion of existing undertaking. The AO wrongly read further conditions into Section 80IC(2) which was not there nor specified by the Legislature. 19. The Assessee thus claimed that the new industrial undertaking was set-up in the Stat .....

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y succeeding year, the Assessing officer after considering the provisions of Section 80IC(2), 80IB(4) & 80IC(6) of the Income-tax Act, 1961 allowed the deduction claimed under section 80IC of the Income-tax Act 1961. In light of the amendments brought by the Finance Act, 2003 the AO held that the undertakings which were earlier covered u/s 80IB(4) had migrated to Section 80IC and the deduction in respect of the profit derived by the industrial undertaking was permissible in law. The AO furth .....

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lowing were the relevant observations of the CIT(A): I have considered the finding of the A.O. in his assessment order dt. 11-03- 2013 and the written submission filed by the A.R. during the appellate proceeding. Appeal on Ground Nos. 1 and 2 are against the withdrawal of deduction u/s. 80ICoOf the I.T. Act, 1961. The A.O. in the assessment order has given his finding that after the merger of provision of Sec. 80lB with that of Sec. 80IC, the requirements of the new section has to be complied wi .....

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the appellate proceeding the A.R. has submitted a written submission along with a copy of memorandum explaining provisions of Finance Bill 2003 in which a new section 80le was inserted. As per the memorandum explaining provisions of Finance Bill 2003 Clause-9, 34, 35 and 92 explain this provisions. New provisions allowing a ten years tax holiday in respect of certain undertakings in the State of Himachal Pradesh, Sikkim, Uttaranchal and North-Eastern States. The Union Cabinet has announced a pac .....

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sion, in States of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States." Section 80IC(2b) also reads as under: This section applies to any undertaking or enterprise which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thin, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and und .....

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u/s. 801B/801C in A.Y. 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and originally in A.Y. 2008-09 also ( which has been withdrawn in the order under this appeal). The A.R. has also 'brought on record that the assessment for A.Y. 2009-10 has been completed after the direction of CIT u/s. 263 and in A.Y. 2009-10 also deduction u/s. 80lC has been allowed to the assessee. I have considered the finding of the A.O. and the written submission filed by the A.R. during the appellate proceeding. From .....

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on. In the case under appeal from the facts put before me it is very clear that the assessee is entitled for deduction u/s 80lC for ten assessment years including deduction allowed u/s 80lB of the I.T. Act, 1961. Therefore, in my opinion A.O's .interpretations that assessee which started its operation before the introduction of Sec.80IC, is not entitled to claim deduction u/s. 80lC of the I.T. Act, 1961 without making substantial expansion is not justified. The A.O. should also have consider .....

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val submissions. The ld. DR relied on the order of AO. The ld. Counsel for the assessee relied on the order of CIT(A) and the submissions made before the CIT(A). 23. We have given a very careful consideration to the rival submissions. It is an admitted fact that M/s.Shyam Century Ferreous Ltd established a new undertaking in the state of Meghalaya in A.Y.2002-03 for manufacturing of ferro alloys. In respect of profits derived from the said undertaking that the assessee was entitled to claim dedu .....

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