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Upkar International P. LTD. Versus Deputy Commissioner of Income-Tax

2016 (8) TMI 681 - ITAT DELHI

Reopening of assessment - disallow the deduction under section 80-IB - Held that:- We find that the original assessment was made by the Assessing Officer under section 143(3) on March 7, 2006, and the reasons recorded on March 26, 2008, there is not even a whisper of the original assessment order and the disallowances made therein. We also note that the deduction under section80-IB amounting to ₹ 10,13,828 had been disallowed in the original assessment itself. As per the reasons recorded u .....

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We note that the Assessing Officer in the reasons recorded has referred to the record as well as case law which were already available at the time of original assessment. No fresh or tangible material came into the hands of the Assessing Officer when reasons were recorded. In the circumstances, the reopening was sought to be made only to review the original assessment which was actuated by change of opinion by the Assessing Officer, which is clearly impermissible - Decided in favour of assesse .....

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owing grounds : "1. That the learned Commissioner of Income-tax (Appeals) erred in upholding the validity of reopening the assessment made under section 143(3) of the Income-tax Act simply because reasons had been recorded by the Assessing Officer, ignoring the fact that there was no income that had escaped assessment. The disallowance of ₹ 10,13,828 under section 80-IB of the Income-tax Act sought to be made by reopening the assessment, had already been made in the original assessmen .....

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lly examined and discussed and in fact the deduction was disallowed and, thus, the reopening was on account of a mere change in opinion and a review of the original assessment was sought to be made in the guise of reassessment. 4. That the assessment order under section 147/143(3) of the Income-tax Act is bad in law as the initiation of proceedings under section 147 itself was invalid. 5. That, in the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) er .....

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section 80-IB of ₹ 10,13,828 from the exports incentives like duty drawback, etc., the Assessing Officer examined the issue regarding the eligibility of exports incentives as deduction under section 80-IB and had made a detailed note dated March 26, 2008, and has recorded the reasons that the assessee has claimed the wrong deduction and as such the income has escaped assessment. Accordingly, the Assessing Officer completed the assessment at an income of ₹ 20,64,503 under section 147 .....

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legal issue, i.e., about the validity of the reopening. In this connection, he stated that the deduction under section 80-IB amounting to ₹ 10,13,828 had been disallowed in the original assessment itself. Thus, there was no income which escaped assessment. The learned counsel for the assessee further stated that in the original assessment, the Assessing Officer had not just formed an opinion in respect of the deduction under section 80-IB claimed by the assessee but had actually disallowe .....

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is not permissible in view of the law settled by the following decisions and, therefore, the reassessment needs to be quashed. (a) CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) ; (b) CIT v. Central Warehousing Corporation [2015] 371 ITR 81 (Delhi) ; (c) Vodafone South Ltd. v. Union of India [2014] 363 ITR 388 (Delhi) ; (d) Madhukar Khosla v. Asst. CIT [2014] 367 ITR 165 (Delhi) ; and (e) BLB Ltd. v. Asst. CIT [2012] 343 ITR 129 (Delhi). 6. On the other hand, the learned Departmental re .....

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requested that the appeal filed by the assessee may be dismissed. 7. We have heard both the parties and perused the records especially the orders of the Revenue authorities along with the paper book filed by the assessee containing pages 1 to 36 having various documentary evidences. We have also perused the case law cited by the learned counsel for the assessee, as aforesaid. We have also perused the reasons recorded by the Assessing Officer. For the sake of clarity, we are reproducing the reaso .....

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tion 143(3) for the assessment year 2003-04 at ₹ 20,64,503 on March 7, 2006. The assessee has claimed deduction of ₹ 10,13,828 under section 80-IB at 25 per cent. of the eligible profits which have been worked out at ₹ 40,55,313. In Form 3CCB dated August 1, 2003, appended to the return of income. Perusal of the details of income reveal that the assessee has also shown other income which has been taken for the purpose of eligible profits. The details of the other income are as .....

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er section 80-IB is provided on the profits and gains derived from an industrial undertaking as specified therein. It is not an omnibus benefit available to the entire income of the assessee. The term "derived from" used in the section cannot have a wide import so as to include any income which can in some manner be attributable to the business. The derivation of income must be directly connected with the business in the sense that the income is generated by the business. It would not .....

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v. Raja Bahadur Kama khaya Narayan Singh [1948] 16 ITR 325 (PC). In that case, it was pointed out that the word 'derived' is not a term of art. Its use in the definition demanded an inquiry into the genealogy of the product. The question in that case was whether interest in respect of arrears of rent payable for land which was used for agricultural purposes would also be agriculture. The claim on behalf of the assessee was that since the rent was payable for agricultural land, the intere .....

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e income derived from agricultural activity in Hindustan Lever Ltd. v. CIT [1999] 239 ITR 297 (SC) while dismissing the appeal held that the High Court was clearly right in holding that the asses see's profit from sale of its goods in India cannot be said to have been derived from export sales. In English Electric Co. of India Ltd. v. CIT [1987] 168 ITR 513 (Mad) the Madras High Court had held that where the interest is earned on deposits kept in normal course by the industry, such income ca .....

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oning given by the hon'ble Supreme Court is reproduced hereunder : 'The source of the import entitlements cannot be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government whereunder the export entitlements become available. There must be, for the application of the words "derived from", a direct nexus between the profits and gains and the ind .....

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'derived' from an industrial undertaking an enquiry should be made into the source of the income and the enquiry should end at the first step otherwise enquiry will ultimately lead to business connection in every case. For instance, in the case of Sterling Foods the enquiry ended at the scheme of the Government for duty draw back and did not continue to reach the fact that DDBK arose out of the exports made by the assessee. In the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 .....

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egarded as the profit or gain "derived" from the industrial undertaking. It may constitute profit or gain of the business by virtue of section 28 but it cannot be construed as profits or gains derived from the industrial undertaking since its immediate and proximate source is not the industrial undertaking but the scheme of duty draw back. The judgment in this case also referred was the decision of apex court in the case of CIT v. Sterling Foods [1999] 237 ITR 579 (SC). The verdict of .....

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ly claim deduction under section 80-IB. In the circumstances of the case to bring the escaped income to the tax provisions as contained in section 147 read with Explanation 2 are clearly attracted. The facts explained above shows the circumstances leading to the wrong claim under section 80-IB made by the assessee and the facts indicating that there was failure on the part of the assessee to comply with the provisions of the Income-tax Act and also the law enunciated by the hon'ble Supreme C .....

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61. Therefore, on the above reasons I am satisfied that the income to the tune of ₹ 10,13,828 has escaped assessment within the meaning of section147 of the Income-tax Act. Issue notice under section 148 of the Income-tax Act for income escaping tax. Sd/- (Virender Singh) Dy. Commissioner of Income-tax Circle-18(1), New Delhi." 7.1 After going through all the records available with us, we find that the original assessment was made by the Assessing Officer under section 143(3) on March .....

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ere was no income which has escaped assessment. This is also evident from the fact that the total income determined in the original assessment as well as the reassessment is the same, i.e., ₹ 20,64,503. It is a settled law that in the absence of any income escaping assessment, no reassessment can be made. 7.2 We further find that in this case the reassessment seeks to review the original assessment without any fresh or tangible material and was actuated by change of opinion in the original .....

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of original assessment. No fresh or tangible material came into the hands of the Assessing Officer when reasons were recorded. In the circumstances, the reopening was sought to be made only to review the original assessment which was actuated by change of opinion by the Assessing Officer, which is clearly impermissible in view of the law settled by the hon'ble Supreme Court of India in the case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). The hon'ble apex court in the afor .....

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h has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).' On-going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, re .....

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. However, one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment ha .....

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on that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147 of the Act. However, on receipt of representations from the companies against omission of the words 'reason .....

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