TMI Blog2017 (9) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings, had accepted this position and had assessed the income of the Assessee at ₹ 6,85,24,800/- after allowing the benefit under Section 10B of the Act. There was no reason for the AO to seek re-assessment on this ground. It is also held that the activities conducted by the Pune unit constitute `manufacture' and in the subsequent year, on a similar set of facts, the issue of benefit under Section 10B having attained finality, the impugned order deserves to be quashed. Accordingly, notice dated 25th March, 2014 issued under Section 148 of the Act is quashed and the order dated 11th June, 2014 passed by the Respondent, disposing of the objections of the Assessee for AY 2007-08, is set aside. - Decided in favour of assessee. - W.P.(C) 5807/2014 - - - Dated:- 30-8-2017 - S. MURALIDHAR PRATHIBA M. SINGH JJ. Petitioner Through: Mr. M. S. Syali, Senior Advocate with Mr. Mayank Nagi and Mr. Tarun Singh, Advocates. Respondent Through: Mr. Zoheb Hossain, Senior Standing Counsel. JUDGMENT Prathiba M. Singh, J. 1. The Petitioner seeks quashing of a notice dated 25th March, 2014 issued under Section 148 of the Income Tax Act, 1961 (hereafter referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10B and creating a demand of ₹ 6567190. Perusal of records revealed that the assessee company is running two units viz Delhi unit which is doing trading whereas the Pune unit is doing manufacturing activities. The assessee has shown taxable income of ₹ 47017800 from Pune unit on which exemption u/s 10B has been claimed at ₹ 46789966. The assessee has loss from Delhi unit amounting to ₹ 53924178. Over all the assessee has a negative profit in the Gross Total Income amounting to ₹ 6906378. Thus when the Gross total income of the assessee is negative, the assessee is not entitled to exemption of income from the 10B unit separately and to carry forward the loss of the not 10B unit only. The view is also supported by the Assessing Officer himself while finalizing assessment of A. Y 2008-09 and disallowed the deduction u/s 10B. This mistake resulted in incorrect allowance of deduction u/s 10B amounting to ₹ 46789966 involving tax effect of ₹ 15749503 including interest. 5. Thus, the main reason set out in the said notice under Section 153/154 was that since the gross total income in respect of both the units at Pune and Delhi was in the neg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee pointed out that its accounts for this year were examined by the AO on several occasions. In short, the Assessee contended that there was no ground for reopening the assessment. 8. The objections were disposed of by the AO on 11th June, 2014. The AO upheld the validity of the initiation of the re-assessment proceedings. The Petitioner has thus challenged, in this writ petition, the initial notice dated 25th March, 2014 issued under Section 148 of the Act as also the order dated 11th June, 2014 disposing of the objections of the Assessee. Petitioner s Submissions 9. Mr. M. S. Syali, learned Senior Advocate appearing for the Petitioner contends that the Section 148 proceedings are untenable in law, inasmuch as, the same issues that have already been examined while passing the initial assessment order under 143 (3) and the other proceedings under Section 153, are being raked up again and again by the authorities without any fresh material or facts. 10. The foundation of Mr. Syali's argument is that the very same issue relating to the entitlement of the Pune unit for deduction under Section 10B of the Act has been now adjudicated in favour of the Petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... length price. He also placed reliance upon an order passed by this Court in ITA No.1223/2011 (CIT v. Lovlesh Jain (hereafter Lovlesh Jain )) to submit that the term `manufacturing' has a wide connotation and the interpretation of the AO is wrong on this count. 10.3 Finally, on the third reason cited in the reasons to believe, i.e., the assessment order for AY 2008-09, Mr. Syali refers to the order of the CIT(A) to submit that the AO's order for the said AY 2008-09 has now been reversed and the CIT(A) has now held in favour of the Assessee. Mr. Syali specifically relies upon the order of the CIT(A) which, in turn relied upon the decision of the Supreme Court in Yokogawa (supra), and granted the benefit of exemption under Section 10B of the Act to the Assessee. 10.4. Mr. Syali, thereafter relies upon the grounds of the appeal, filed by the Revenue before the ITAT against the order of the CIT (A) to submit that the Revenue has not challenged the grant of deduction under Section 10B of the Act to the Assessee. Thus, according to Mr. Syali, the matter has attained finality insofar as the deduction under Section 10B is concerned and hence the basis for reopening the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Pvt. Ltd. v. CIT (2001) 247 ITR 818 (hereafter Ess Ess Kay 2001 ). Mr. Hossain points out that if the assessing authority discovers a fact later on, he is entitled to form an opinion that the primary facts disclosed in the previous years were untrue and in such circumstances, the AO is permitted to reopen the assessment. In support of this contention, Mr. Hossain places heavy reliance on Siemens Informations Systems Ltd. v. ACIT (2012) 343 ITR 188 (hereafter Siemens Informations Systems ) and CIT v. Ess Ess Kay Engineering Co. Pvt. Ltd. (1982) 137 ITR 446 (hereafter Ess Ess Kay 1982 ). 14. Mr. Hossain further submits that the Assessee is not bringing any sale proceeds in India and it is merely providing manufacturing services to its AEs and receiving the service charges on a cost plus basis. According to him, the Assessee is also not exporting any articles/things but merely carrying out the job work. Since the Assessee cannot purchase the goods from the AEs and cannot sell these goods to anyone else or deal with them as per its wishes, the business activities cannot be considered as exports, thus disentitling the Assessee for the benefit of Section 10B of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of subsequent years could form the basis to reopen the assessment of an earlier year, if accepted unconditionally, could lead to unending assessment proceedings. Such reopening cannot be permitted if there is no fresh material or facts discovered later on. This is clear from both the judgments cited by Mr. Hossain namely Ess Ess Kay 2001 (supra) and Siemens Informations Systems (supra). In Ess Ess Kay 2001 (supra) the Supreme Court observed that a reopening of assessment by the AO `of an earlier year on the basis of the findings of fact made on the basis of fresh materials in the course of assessment of the next assessment year' would not be precluded. Thus, this Court does not accept the proposition that in every case it would be permissible for the assessing authority to reopen the assessment of an earlier year on the basis of assessment of a subsequent year. While it is possible that on the same set of facts, the AO could, in a subsequent year, form a different opinion, that by itself would not justify the reopening of an assessment of the previous year made under Section 143 (3) of the Act. However, if fresh material is discovered or facts are discovered later on in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own and without reference to the other eligible or non-eligible units or undertakings of the Assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the Assessee . The Pune unit being an export unit is an eligible undertaking and is entitled to the benefit under Section 10B. All the material relating to the Pune and Delhi units and their respective businesses, having been filed with the AO, there being nothing new, this reason is not tenable. 24. The second reason for re-opening the assessment - that the Assessee is not bringing sale proceeds into India and only providing manufacturing services to its AEs on a cost plus basis. A perusal of the Form 3CEB specially Annexure-II (Particulars in respect of transactions in Tangible Property International Transaction (s) in respect of purchase of raw material, consumables or any other supplies for assembling/processing/manufacturing of goods/articles from associated enterprise) and Annexure-V (Particulars in respect of providing of Services International Transaction (s) in respect of services such as financial, administrative, technical commercial services, etc.) reveals that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted and applied with some moderation/clarification in several decisions, keeping in view the context in which the word manufacture has been used. ........... If an operation or process that renders a commodity or article fit for use, which it is otherwise not fit, the change/process falls within the meaning of the word manufacture . 27. It is not in dispute that Explanation 4 to Section 10B of the Act specifically describes `the cutting and polishing of precious and semi precious stones' as manufacture. The Assessee claims to be carrying out the said processes. The Assessee performs cutting and polishing beads and crystals at different stage of manufacturing processes and earns convertible foreign exchange on the sale of the same to the AEs. This process, clearly, constitutes manufacturing as contemplated under Section 10B of the Act. 28. The Assessee s Pune unit is a 100 % export oriented unit carrying on manufacturing activities. The AO, during the assessment proceedings, had accepted this position and had assessed the income of the Assessee at ₹ 6,85,24,800/- after allowing the benefit under Section 10B of the Act. There was no reason for the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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