TMI Blog2011 (4) TMI 1421X X X X Extracts X X X X X X X X Extracts X X X X ..... 90% of the business centre receipts , interest expenses and motor car expenses disallowed from the income from business under Explanation (baa) to section 80 HHC of the Act. 3. The Assessee had a separate unit at Koramangala, Bangalore, which was carrying on exclusive activity of stitching of garments for which it earned labour charges. Separate books of accounts are maintained for the Koramangala Unit. As per the profit and loss account as on 31.3.2001, the labour charges received by the Koramangala unit was ₹ 2,79,81,165. The unit incurred a loss of ₹ 12,96,655. While working the deduction u/s.80- HHC of the Act, the Assessee had added 90% of the loss of ₹ 12,96,655 to the profits of the business in view of clause(a) of expln. (baa) to Section 80HHC of the Act. This computation was not disturbed by the AO when he completed the Assessment u/s.143(3) of the Act. 4. On 10/1/2005 the AO issued a notice under section 147 of the Act. We will refer to this as the 1st reassessment notice. The reasons for issue of notice under section 148 of the Act for making the assessment under section 147 of the Act was that the AO noticed that the assessee has incurred losses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of clause(a) of expln. (baa) to Section 80HHC of the Act. 7. In fact in assessment year 1999-2000 the assessee was treating the Koramangala unit as part of export unit and was including in the total turnover and profits of the business the turnover and income of the Koramangala units also. The AO while completing the assessment under section 143(3) of the Act for A.Y 1999-2000 treated the Kormangala unit as separate unit. The assessee accepted this view of the AO and from A.Y 2000-01 started treating the Koramangala unit as a separate unit. 8. In the 1st reassessment, the AO excluded 90% of the service charges received by the Koramangala unit clause(a) of expln-(baa) to Section 80HHC of the Act from the profits of the business thus considering Koramangala unit and the 80-HHC unit as one and the same unit. The AO did so in his order dated 21/2/2005 and following the ruling of the Hon ble Supreme Court in the case of IPCA Laboratories, 251 ITR 401(SC) held that no deduction under section 80 HHC was to be allowed. 9. Against that order of the AO the assessee preferred an appeal before the CIT(A) who by an order dated 20/11/2006 held that the initiation of reassessment proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved loss of this unit of ₹ 12,69,654/- from the calculation of the profits of the business under clause (baa) of explanation after 80 HHC (4C) . However, it is seen that the net from this Koramangala unit has shown to be a loss as the assessee is charging very nominal rate from its sister concerns and also for its exports, transfer price of shirts has been set at a very low figure. The assessee is treating the profits / loss of the business of Koramangala unit as other income as it is treating the Koramangala unit as unit not connected with the main work of the assessee. However, this is not the case if the actual business pattern of the assessee is seen. The assessee is manufacturing and exporting shirts. The assessee is getting the goods manufactured at Koramangala unit. For all practical purposes, the Koramangala unit is manufacturing the shirts being exported. This unit can not be said to be engaged in other activities not connected with main business of the assessee of export of shirts. It has been held in several court decisions that if the activity is intimately connected with the main business of export of the assessee, the same cannot be treated as other income. Henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions that if the activity is intimately connected with the main business of export of the assessee, the same can not e treated as other income. Accordingly the assessee s claim of exclusion of 90% of loss of the Koramangala unit from the profits and gains of the business and profession by the assessee was nto correct. (ii) During the course of assessment proceedings for A.Y 2002-03, while verifying the purchases, it was found that notices sent / enquiry letter issued u/s. 133(6) of the Act to M/s. Salbha Garments were returned back unserved with the remark Not found . The assessee was asked to furnish the PAN or furnish the confirmations of transactions. However, assessee failed to furnish PAN or confirmed a copy of ledger account and the genuineness of the purchases / party was not established. The CIT(A) on the above observations, upheld the initiation of the 2nd reassessment proceedings. Against the order of CIT(A), the Assessee has raised ground No.1 before the Tribunal. 12. Before us ld. D.R relied on the order of the CIT(A). The ld. Counsel for the assessee submitted that the Hon ble Bombay High Court in the case of Metro Auto Corporation vs. ITO, 286 ITR 618( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. The reopening of assessment for the 2nd time on this aspect, if permitted would amount to allowing the AO to review his own orders on a mere change of opinion. In the 1st reassessment the AO was not precluded from going into the question of what should be the total turnover for allowing deduction u/s.80-HHC of the Act. Therefore 2nd reassessment on this aspect should be held to be a initiation of reassessment on a mere change of opinion, which is not permissible. It can also be said that the reasons recorded on 28.3.2006 for the 2nd reassessment notice did not survive after the order dated 21.2.2005 passed by the AO u/s.143(3) read with Sec.147 of the Act pursuant to the 1st reassessment notice. Therefore it cannot be said that the AO entertained belief regarding escapement of income chargeable to tax. The existence of reason to believe being a condition precedent for initiation of reassessment proceedings, the initiation of reassessment proceedings on this ground was certainly not valid. 14. The second part of the reasons recorded is with regard to the genuineness of purchases by the Assessee from Salbha Garments. It is clear from the reasons recorded that the developme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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