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2016 (7) TMI 1005 - ITAT MUMBAI

2016 (7) TMI 1005 - ITAT MUMBAI - TMI - Validity of reopening of assessment - Held that:- From the entire reading of the order of assessment we are of the considered view that the Assessing Officer has dealt with the objections in the assessment order itself in a composite manner. The Assessing Officer should have passed a speaking order before proceeding for assessment, and in this case, the Assessing Officer has not passed a well-reasoned speaking order which was required as per the principles .....

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iew that there is no need to go further in this case when once we are convinced that principles of natural justice as well as the principles laid down by the above judicial pronouncements have not been fully complied with by the Assessing Officer while passing the order of assessment u/s 143(3) r.w.s. 147 of the Act. Therefore, in our considered view the order passed by the Assessing Officer is bad in law and therefore stands quashed. - Decided in favour of assessee - ITA No. 825/MUM/2012 - Date .....

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learned CIT(A) ] erred in confirming reopening of assessment under section 147. The learned CIT(A) ought to have appreciated that reopening of the assessment is not permitted as a result of mere change of opinion. 1. (ii) The appellant objects to the reassessment order and prays that the reassessment order shall be held as bad in law and void ab initio. Addition of advance license 2. (i) The learned CIT(A) erred in confirming that the value of advance license amounting to ₹ 74.17 lakhs ca .....

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t to reduce the cost of goods to be exported and therefore, it is directly related to the activity of the industrial undertaking and hence, need to be considered for determining the profit under section 80-IB. 2. The brief facts of the case are that the assessee is a limited company and is engaged in the business of manufacture and sale of formulations and bulk drugs. Assessment u/s 143(3) was completed on 30.3.2006 assessing the total income at ₹ 58,77,06,709/- under normal provisions and .....

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sessing Officer on 30.3.2006, the assessee had filed an appeal on 28.4.2006 vide No. CIT(A)-15/IT-26/06-07 which was disposed of by order dated 29.12.2010. Case of this year, i.e., Assessment Year 2003-04 was reopened u/s 147 and notice u/s 148 dated 7.3.2008 was duly served upon the assessee by the Assessing Officer, Addl. CIT-Asst. CIT 10(1), Mumbai. The assessee vide letter dated 17.3.2008 submitted that return filed u/s 139 be considered for the purpose of Sec. 148 notice. The jurisdiction o .....

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ties has partly allowed the appeal vide order dated 28.12.2011. Aggrieved by the order of CIT(A), assessee has preferred the present appeal before us on the grounds mentioned hereinabove as per the revised summarized and alternate grounds of appeal. 3. Ground no. 1 - This ground relates to reopening of assessment wherein the assessee has challenged the order of CIT(A) confirming reopening of assessment u/s 147. The Ld. AR representing the assessee drew our attention first of all to the order of .....

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assessee includes any Profits & Gains derived from a newly established undertaking, which goes into production after 31.03.1991, the assessee is entitled to a deduction of 30% of profits subject to the fulfillment of certain conditions. For determining the quantum of deduction, profits and gains of the eligible business shall be computed as if such profits and gains were the only source of income of the assessee during the relevant previous year. In this case, assessment was completed u/s. .....

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on. In the assessement, the profit determined from Rifampicin unit was determined at ₹ 7,41,25,014/- and deduction under section 80IB was allowed on it @ 30% amounting to ₹ 2,22,37,504/-. It is seen that export benefit of ₹ 763.26 lakhs was shown under the head other income in the profit and loss account. It is also seen that the export benefits of ₹ 763.26 lakhs was allocated to different units in the following manner: (Rs. in lakhs) Total FML injections FML other Bulk o .....

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) was considered for disallowance, the export benefit (advance licence) of ₹ 60,32,80 lakhs adjusted against the cost of raw materials was remained to be considered for disallowance. Out of export benefit of ₹ 60,32.80 lakhs, the export benefit allocable to Rifampicin unit i8s hereby worked out to ₹ 2908.41 lakhs by applying the same ratio/percentage as taken by the assessee in respect of export incentive of ₹ 763.26 lakhs. (i) 368.00 lakhs (export incentive of Rifampicin .....

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xport incentive of ₹ 2908.41 lakhs, no profit would be available for claiming 80IB deductions in respect of the said unit and therefore, no deduction is allowable. The entire deduction of ₹ 2,22,37,504/-, u/s. 80 IB, was incurred and should have been disallowed. The wrong claim of the assessee resulted in escapement of ₹ 2,22,37,504/- from assessment. In view of the above, I have reason to believe that income chargeable to tax, as mentioned above, has escaped assessment within .....

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e provisions of the Act as well as the judicial pronouncements. The Ld. AR further argued that the CIT(A) has also erred in confirming the reopening of the assessment u/s 147 without appreciating that reopening of assessment is not permitted under the facts of the present case. 4. The Ld. AR relied upon the detailed submissions made by the assessee before the CIT(A) and, apart from taking other grounds, the Ld. AR challenged the order of Assessing Officer of reopening on the ground that the Asse .....

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(2008) 296 ITR 90 (Bom HC) iv) Multiplex Trading & Industrial Co. Ltd., (2015) 94 CCH 30 (Del HC) v) Gujarat Eco Textile Park Ltd., (2015) 372 ITR 584 (Guj HC) vi) Samcor Glass Limited, ITA 768 and 769/Del/2015 (Delhi HC) dated 12th October 2015 5. The Ld. AR further argued that reopening is bad in law on mere change of opinion and, in the present case, no tangible material was available, therefore, in the absence of any new tangible material reopening is bad in law. In this respect, the Ld .....

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x) Asteriods Trading & Investment P. Ltd., (2009) 308 ITR 190 (Bom HC) x) Commissioner of Income Tax vs Orient Craft Ltd., (2013) 354 ITR 536 (Delhi HC) xi) M/s. GTL Limited vs ACIT, ITA No. 6971/Mum/2010 (Mum Trib) dated 2nd January, 2015 xii) Prashant Joshi vs Income Tax Officer & Anr, (2010) (Bom HC) 324 ITR 154 6. The Ld. AR further argued that the ACIT (LTU) without first dealing with the objections and disposing of the said objections through a separate speaking order dismissed the .....

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s, the case of the appellant was transferred to LTU, Mumbai. The ACIT (LTU) without passing a speaking order dealing with the objections raised by the appellant straightaway passed reassessment order. Thus, the said reassessment order passed by the Assessing Officer without disposing of the appellant s objections through a speaking order shall be treated as bad in law and void ab initio. It was further argued by the Ld. AR that even while disposing of the objections in the reassessment order, th .....

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sufficient gap of almost a month notice has been given to the assessee on 26.11.2008 and vide this notice assessee has been told that he had not complied with the earlier notice u/s 141(1) dated 29.9.2008. It was argued by the Ld. DR that on 3.12.2008 the assessee had filed adjournment and sought time and even on 5.12.2008, the assessee did not make any compliance and instead, vide letter dated 12.12.2008, the assessee filed the objection. The Ld. DR further submitted that as per Sec. 153(2) th .....

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der disposing the objections of the assessee as part of the assessment order due to the delay on the part of the assessee in late filing of its objections. The Ld. DR, lastly, relied upon the order passed by the CIT(A). 8. We have heard the counsels of both sides, perused the material on record as well as the orders passed by the revenue authorities. The moot question before us is to analyze as to whether the order of reopening passed vide reassessment order by the Assessing Officer is correct a .....

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the noticee is to file return and if he so desires, to seek reasons for issuing notices. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the AO has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the asses .....

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ily requiring the AO to comply with the procedure laid down therein and to dispose of the objections to the reopening order with a speaking order, the CIT(A) committed an error in not quashing the reopening order and the consequent assessment. 12. At the outset it requires to be factually noticed that the reopening order of the AO only refers to the report of Statutory Auditor under Section 44AB of the Act which report was already enclosed with the return filed by the Assessee. Therefore, factua .....

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Pvt. Ltd. (supra). 15. In CIT v. Orient Craft Ltd. (supra) the Revenue sought to argue, placing reliance on Rajesh Jhaveri Stock Brokers P. Ltd. (supra) that intimation could not be equated with assessment . The Court observed that the decision in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) contrary to what the Revenue would have us believe, does not give a carte blanche to the Assessing Officer to disturb the finality of the intimation under Section 143(1) at his whims and caprice; he must ha .....

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d assessment and it does not matter that there has been no failure or omission on the part of the assessee to disclose full and true particulars at the time of the original assessment. There is nothing in the language of Section 147 to unshackle the Assessing Officer from the need to show reason to believe . The fact that the intimation issued under Section 143(1) cannot be equated to an assessment , a position which has been elaborated by the Supreme Court in the judgment cited above, cannot in .....

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o an assessment, relying upon certain observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be self-defeating, because if an intimation is not an assessment then it can never be subjected to Section 147 proceedings, for, that section covers only an assessment and we wonder if the revenue would be prepared to concede that position. It is nobody s case that an intimation cannot be subjected to Section 147 proceedings; all that is contended by the assessee, and quite righ .....

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not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under Section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements. 20. In the first place, it r .....

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the questions framed for consideration by the Full Bench in Usha International Ltd. as set out in para 1 of the said judgment did not pertain to reopening of an assessment under Section 143(1) of the Act. The four questions referred to the Full Bench were as under : (i) What is meant by the term change of opinion ? (ii) Whether assessment proceedings can be validly reopened under Section 147 of the Act, even within four year, if an assessee has furnished full and true particulars at the time of .....

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and in what circumstances Section 114(e) of the Evidence Act can be applied and it can he held that it is a case of change of opinion? 10. We have also analyzed the judgment of Hon ble Delhi High Court in the case of Multiplex Trading & Industrial Co. Ltd., (2015) 94 CCH 30 (Del HC). The relevant portion of the said judgment is at para 33 which is reproduced as under:- 33. In the present case, the objections filed by the Assessee were not disposed of by the AO and he proceeded to frame the .....

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t a deviation from the directions issued by the Supreme Court in G.K.N. Driveshafts (India) Ltd. would entail nullifying the proceedings. Although the AO is required to provide reasons, receive objections and pass a speaking order thereon, only after the notice under Section 148 has been issued; these requirements are an integral part of the safeguards which have been inbuilt for ensuring that the assessments are reopened only for lawful reasons and in a transparent manner. If the said safeguard .....

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ith the assessment and further, it has also been categorically mentioned that if the Assessing Officer fails to comply with the procedure laid down thereunder, and to dispose of the objections to the reopening order with a speaking order, then, in that eventuality, the CIT(A) is to quash the reopening order and the consequent assessment. The crux of all the aforementioned judgments leads us to the conclusion that Assessing Officer is required to receive the objections and to pass a speaking orde .....

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owed strictly in all such cases of reopening of assessment. 12. As per the factum of the aforementioned judgment of the jurisdictional High Court it is made clear that if the Assessing Officer does not accept the objections filed by the assessee against reopening of assessment, then, he is not to proceed further in the matter for a period of 4 weeks from the date of service of order rejecting the objections of the assessee. As per the aforementioned judgment, the Hon ble Court has directed that .....

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ticed that the said reasons were requested by the assessee in the month of March, 2008 vide letter dated 17.3.2008 which was filed on 19.3.2008. Therefore, calculating the date for seeking reasons from the Assessing Officer and from actually getting the reasons recorded by the Assessing Officer there is a gap of approximately 8 months. Hence, under these circumstances we are of the view that the Ld. DR was justified in arguing that after filing objections by the assessee, the Assessing Officer d .....

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ssessing Officer has violated the principles of natural justice as well as the principles laid down by the above judicial pronouncements as while passing the order of assessment u/s 143(3) r.w.s. 147 of the Act after considering the objections of the assessee, the Assessing Officer has disposed of the same in para 6 which is reproduced below : 6. The explanation offered by the assessee has been considered. The case laws cited by the assessee are also perused. The contention of assessee that as a .....

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ome chargeable to tax has escaped assessment, namely: where an assessment has been made, but- (i) income chargeable to tax has been under- assessed; or (ii) such income has been assessed at too low rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive toss or depreciation allowance or any other allowance under this Act has been computed Further, in (2007) 161 TAXMAN 316 (SC) Assistant Commissioner of Income-tax Vs. Rajesh Jhaveri Stock Brokers .....

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e to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings..." Hon'ble Delhi High Court also has held in (2006) 151 TAXMAN 41 (DELHI) Consolidated Photo & Finvest Ltd Vs Assistant Commissioner of Income-tax that "Action under section 147 was permissible even if the Assessing Officer gathered his reasons to believe from the very same record as had been the subject-matter of the completed assessment proceedings. The a .....

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may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best d .....

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s decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment, as is the position in the present case. It is in that view inconsequential whether or not the material necessary for taking a decision was available to the Assessing Officer either generally or in the form of a reply to the questionnaire served upon the assessee. What is important is whether the Assessing O .....

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t had failed to disclose truly and correctly the effect of the same on the income of the assessee. In view of the above and the fact that Assessing Officer had recorded the reasons to believe u/s 148 of the I.T.Act that income had escaped assessment, assessee's claim that all material facts were before Assessing Officer while framing assessment u/s 143(3) and therefore case can not be reopened, is not acceptable and hence rejected. 6.2 coming to the issue of facts of the case, as has been he .....

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se. Further reliance is placed on the ratio of decision of the apex court in the case of M/s. Pandian Chemicals ltd vs. CIT 262 ITR 278 (SC) and CIT vs. Sterling Foods 237 ITR 579 (SC). In both the decisions, the apex court have held that the deduction inter-alia under section 80I is available only in respect of such profits and gains which have a direct and proximate nexus with the activity of manufacture or production. Any other profit or gain which is not 'derived from' an industrial .....

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ed that to claim the benefit the assessee has to establish that the profits and gains were derived from industrial undertaking and it was just not sufficient that commercial connection between the two was established. The industrial undertaking has to be the source of profits. The business of the industrial undertaking has directly to yield the profits. The industrial undertaking should be the direct source of that profit and not a means to earn the profit. The ratio of decision of the Apex Cour .....

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ing this case the Hon'ble Supreme Court stated that:- "It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that the balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains "derived from" the conduct of the business of generation and d .....

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In view of the above, it is held that the assessee is not eligible for deduction u/s 80IB as held and computed in the reasons for reopening as in Para 5 above. Therefore, deduction u/s 80IB of ₹ 2,22,37,504/- is disallowed and added back to total income of assessee. 13. From the entire reading of the order of assessment we are of the considered view that the Assessing Officer has dealt with the objections in the assessment order itself in a composite manner. The Assessing Officer should h .....

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