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2016 (9) TMI 1038 - GUJARAT HIGH COURT

2016 (9) TMI 1038 - GUJARAT HIGH COURT - [2016] 389 ITR 541 - Reopening of assessment - deduction under Section 80IB - Held that:- The claim of deduction under Section 80IB of the Act was examined by the Assessing Officer. The matter was verified from the records and only thereafter the claim was accepted as it is. It may be that in the process, the Assessing Officer committed an error in allowing deduction with respect to several amounts which may not be eligible for such deduction. The erroneo .....

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tand. In the case of Indian and Eastern Newspaper Society V/s Commissioner of Income-Tax, New Delhi [1979 (8) TMI 1 - SUPREME Court] held that the opinion of the audit party on a point of law cannot be regarded as information enabling the income tax officer to initiate reassessment proceedings. In the same judgment, however, it was clarified that the audit party does not possess the power to pronounce on the law, it nevertheless may draw the attention of ITO to it. In case of Commissioner of Inc .....

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re the audit party not only brought a certain issue to the notice of the Assessing Officer but compelled her to issue notice of reopening despite her clear opinion that the issue was not valid and that there has been no escapement of income on the grounds so urged by the audit party. - Decided in favour of assessee. - SPECIAL CIVIL APPLICATION NO. 24746 of 2006 - Dated:- 20-9-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR MANISH J SHAH, ADVOCATE FOR THE RESPONDENT : MR .....

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unded off). Said return was taken in scrutiny by the Assessing Officer who framed assessment under Section 143(3) of the Act on 30.3.2004 accepting the declaration of income made by the petitioner in the return. One of the main claims of the petitioner under such return was deduction under Section 80IB of the Act of ₹ 3.20 crores (rounded off) which was also accepted. To reopen the said assessment, the Assessing Officer issued impugned notice within a period of four years from the reign of .....

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computing such income, other income of ₹ 2,13,60,088/- was considered (though it is not permissible under the Act) which consists of following: Sr.No. Particulars Rupees 1 Misc.Income 84,22,473 2 Dividend Income 2,90,800 3 Insurance recovered 62,39,855 4 Interest income from others/bank 16,05,662 5 Office rent income 3,00,000 6 Bad debt recovered 1,20,000 7 Insurance claim received 1,39,573 8 Profit on sale of shares 29,55,000 9 Hire charges 6,78,562 10 Soda settlement 2,13,60,088 Out of s .....

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ng deduction of ₹ 53,44,286/- (30% of ₹ 1,78,44,288/-) u/s.80IB. 3. The Company has granted interest free loans of ₹ 104 lacs to the companies under the same management. The loanee companies' net worth was negative and there was no stipulation of repayment. The auditors' of the company was not able to express their opinion on recoverability of the said loan. As the company had obtained interest bearing loan and given interest free loan to the company under the same mana .....

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ions were however rejected by an order dated 14.11.2006. Hence, this petition. 2.3. Taking us through the material on the record, learned counsel for the petitioner made submissions based on two grounds - one is regarding excess deduction of 80IB of the Act and the second is regarding disallowance of interest paid by the assessee. Counsel submitted that both the issues were examined during the assessment. Such issues cannot be reopened even within four years within the reign of the relevant asse .....

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uction under Section 80IB of the Act, the Assessing Officer had agreed with the suggestion of the audit party. Merely because this issue was brought to his notice by the audit party would not mean that he could not reopen the assessment. 4. As noted, the reasons for reopening of the assessment are based on two grounds - first is according to the Assessing Officer, the company was allowed deduction under Section 80IB of the Act of ₹ 3.20 crores at 30% of its gross total income of ₹ 10 .....

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sallowed. 5. In this context, if we peruse the order of assessment, major claim of the petitioner was deduction under Section 80IB of the Act on income of ₹ 10.43 crores. In this context, the Assessing Officer in the order of assessment observed as under: xxxxx 3. The assessee company is engaged in the refining and filtering of edible oils. The accounts are audited and report u/s.44AB is filed. The assessee company has done bare trade in groundnut oil and Palmolein. Some of the purchases m .....

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rom manufacturing activity has been worked out after excluding all other incomes and loss. The matter is verified from records. 4. After discussion, the total income of the assessee company is determined as under.... 6. It can thus be seen that the claim of deduction under Section 80IB of the Act was examined by the Assessing Officer. The matter was verified from the records and only thereafter the claim was accepted as it is. It may be that in the process, the Assessing Officer committed an err .....

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he assessment. There is nothing in the order of assessment suggesting that it was so done. Even in the letter of objection by the petitioner after being supplied the copies of the reasons recorded, it was contended as under: xxxx Secondly, as regards interest free loan, the company could not charge interest since the amount is doubtful of recovery. The auditors also gave a suitable note in the report. The learned AO considered the note of the auditor's report at the time of assessment and he .....

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itors report at the time of assessment but did not disallow the interest. However, there is nothing on record to establish this. Counsel for the petitioner, however, referred to a letter dated 4.12.2003 written by the petitioner to the Assessing Officer furnishing certain details for the assessment year 2001-02, one of them being details of interest paid. Without any further background as to in which context the information was being asked for and being supplied, it would not be possible to hold .....

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iture. In a letter dated 29.7.2005, one Deepshikha Sharma, the then Assessment Commissioner of Income Tax noted the two audit objections with respect to the interest expenditure. She clearly indicated that the objection is not acceptable. Since a loan was given to revive a sick company and also formed only 10% of a reserve fund of ₹ 2594 lacs, such loan did not have any direct nexus with the loan taken by the assessee company. Thus, she not only opposed the audit party suggestion but she g .....

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