TMI Blog2016 (1) TMI 1341X X X X Extracts X X X X X X X X Extracts X X X X ..... of income. Therefore, the entire reopening is vitiated on this count. In the present case, the ld. DR could produce before us only an order sheet dated 24.11.2011 wherein it is written by the AO that notice u/s 143(2) has been issued; other than that there is no mention of the mode of service, when it was dispatched etc.. Her assertion that the Director and GM (Taxation) has appeared before the AO on 28.11.2011 goes to show that they have appeared pursuant to the receipt of notice u/s 143(2) cannot be accepted because it is clearly written on the order sheet on 28.11.2011 by the AO that the assessee had submitted objection in respect to reopening of the assessment and this fact is stated by the AO in the impugned reassessment order. We had given time and directed the ld. DR to file affidavit, if any, of the AO to support the claim of issuance / dispatch / service of the 143(2) notice, however, we find that the ld. DR have not filed any affidavit on behalf of the Department to support their contention that AO in fact had issued the notice. The ld. DR fairly conceded that neither could she trace a copy of the notice u/s 143(2) nor could bring copy of the dispatch register to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,033/- on account of foreign travel expenses, ₹ 24,50,893/- on account of bad debts and ₹ 27,98,173/- on account of repair and maintenance. Deduction under section 80IC was also restricted to ₹ 31,10,33,397/-. 4. On an application dated 09.01.2007 filed by the assessee company before the CIT-IV, New Delhi for revision of the assessment order, the assessment order was set aside vide order dated 29.01.2007 passed under section 264 of the Act. Pursuant thereto, assessment was reframed on 28.03.2007 at an income of ₹ 3,57,82,200/ wherein claim of deduction under section 80IC was allowed at ₹ 85,59,98,358/-. In computing the income, disallowances of ₹ 2,00,000/- under section 14A, ₹ 4,31,154/- on account of foreign travel expenses and ₹ 2,50,500/- on account of ROC charges were made. In an appeal filed by the assessee, disallowance of ROC fee was deleted by the CIT(Appeals). 5. During the year under consideration, the assessee company was engaged in the business of 'manufactures and traders' in Pan Masala, Gutkha, Zarda, Perfumery Compounds Herbs, Mouth Freshener, Salt Spices, Snack foods, Natural Spring Water, Tea, Rice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble units to any other business carried out by the assessee and vice versa at the market value of such goods and in the process showing more than normal profits of the eligible undertaking and so, reassessment proceedings under section 147 of the Act were initiated. It is noted in para 8 of the impugned reassessment order of AO that he has after recording reasons and obtaining due sanction under section 151 of the Act, a notice under section 147 of the Act dated 29.03.2011 was served upon the assessee company. The AO takes note that in compliance to the said notice under section 147 / 148, the assessee company filed the same return that was originally filed under section 139(1) of the Act. The reasons recorded for reopening of the assessment proceedings was sought by the assessee company and was provided to it on 03.06.2011 (however ld. CIT DR after perusal of the assessment records has stated that the date is 24.04.2011). The AO in para 9 has noted that the assessee company filed objections to the initiation of reassessment proceedings vide its letter dated 28.11.2011 which was disposed off by the AO vide a speaking order dated 05.12.2011. Thereafter, after discussing the profile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot quashing the impugned reassessment order framed by Ld. AO is bad in law and against the facts and circumstances of the case, more so when Ld. CIT(A) himself admitted that the notice u/s 143(2) was not served. 6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in sustaining the disallowance of ₹ 3,895/- out of total disallowance of ₹ 20,54,172/- allegedly being prior period expenses, more so when such disallowance could not have been made in the proceedings u/s 147. 7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition in the value of stock of WIP and has erred in not deleting the entire addition of ₹ 2,94,83,915/- and has further erred in not giving direction to adopt enhanced closing stock as opening stock of next year, more so when such addition could not have been made in the proceedings u/s 147. 8. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the disallowance ofRs.1,71,995/- fully, as made by Ld. AO and has further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred in confirming the action of Ld. AO in loading of manufacturing expenses at the estimated rate of 37.85% and charging of profit margin @ 10% on the amount of goods called Kathha (Catechu) which gets processed through job worker and not allowing the deduction u/s 801B/801C in this regard. (c) Ld. CIT(A) has erred in confirming the action of Ld. AO in loading of manufacturing expenses at the estimated rate of 37.85% and charging of profit margin @ 10% on the amount of goods called Cardamom (Elaichi) and not allowing the deduction U/S 801B/801C in this regard. 13. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of ₹ 1,16,39,096/- on the ground that 'can pack' transferred from 'can pack' division to eligible units have not been transferred at market value and that too placing reliance on the working of special auditor and has further erred in not granting the benefit of deduction u/s 80IB/80IC in this regard, more so when the impugned addition could not have been made in the proceedings u/s 147 and more when burden to prove the addition u/s 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of natural justice and the same deserves to be quashed. 21. That in any case and in any view of the matter action of Ld. A.O in framing the impugned assessment order is contrary to law and facts, void ab initio, beyond jurisdiction and the same is not sustainable on various legal and factual grounds 22. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest 234B and 234D of the Income Tax Act, 1961. 23. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other. 12. The grounds of appeal raised by the revenue read as under :- 1. On the facts and in the circumstances of the case, the CIT (A) has erred in rejecting the reduction in eligible profit of ₹ 55,19,975/- out of total reduction of ₹ 5,49,33,1611-, made by the AO by increasing the value of goods transferred from NOIDA units to eligible units treating them processed goods and by reducing the SOIB/SOIC to that extent in spite of the fact that the CIT(A) has confirmed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 71,48,144/- made by the AO on account of 14A of the Income Tax Act, 1961. 10. The order of the CIT (A) is erroneous and is not tenable on facts and in law. 11. The appellant craves leave to add, alter or amend any of the grounds of appeal before or during the course of the hearing of the appeal. 13. First, we will deal with the assessee s appeal. The ld. AR filed the written synopsis which are reproduced below for the sake of clarity of legal issues :- 1. The original assessment in this case was completed u/s. 143(3) vide order dtd. 28/12/2006 at an income of ₹ 60,75,16,480/-. The statutory deduction u/s. 80IC claimed in the original return at ₹ 97,37,28,085/- on the basis of certificate of statutory auditor in Form No. 10CCB was restricted to ₹ 31,10,33,397/-. In support of above position, para 2 of the assessment order is extracted hereunder: 2. Assessment u/s. 143(3) of the Income Tax Act was completed on 28/12/2006 at an income of ₹ 60,75,16,480/- by making addition of ₹ 1,00,00,0007- on account of disallowance of advertisement expenses, ₹ 8,48,033/- on account of foreign travel expenses, ₹ 24,50,893/- on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocessed supari) received from Head Office, Noida and packing. All the raw materials, namely, catechu, beetle nut, cardamom and sugandhi are procured at head office situated in Noida. Catchcu (katha) is procured and processed at Noida, cardamom is procured and its seeds are extracted from the shell, beetle nut (supari) is procured at Noida, then chopped into smaller pieces processed and other materials too are procured at Noida. At Guwahati, processed supari is dried in the ovens, and mixed with various ingredients received from Head Officer at Noida. This mixture is then packed and dispatched to destination ordered by the Head Office. It appears that assessee is attributing the entire value addition to the Guwahati to claim higher amount of deduction u/s. 80IC. By doing so the assessee is contravening the provisions of sub-section (8) of section 80IA of the IT Act, 1961 which are relevant for the purpose of computation of deduction u/s. 80IC of the Act. As such the findings of the search proceedings suggests that excess quantum of deduction u7s. 80IC have been claimed by the assessee in his return of income. Thus the income chargeable to tax has escaped assessment for the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow that the issue of deduction u/s 80IC was extensively considered in original assessment passed u/s 143(3) dated 28-12-2006 (PB 177-186 at PB 178-182) and in the assessment order passed u/s 143(3)/264 dated 28.03.2007 (PB 300-310 at 303-308). It is important to submit that there was even a revision order u/s 264 dated 29- 01-2007 (PB 187-198 at 187-190) on this issue. 1. PB 59-62 at 59-60 is questionnaire dated 13.01.2006 from Learned Assessing Officer issued in original assessment u/s 143(3) asking about procurement of raw material from different units/divisions and about deduction u/s 80IC, excise duty. 2. PB 63-85 is assessee's letter dated 02/02/2006 giving details of inter unit transfers and that Delhi office has no role in procurement process and detailed explanation on section 80IC and about income from eligible and non-eligible units, excise duty paid in Guwahati and Agartala units in peculiar circumstances and about royalty payment to M/s Flosyn Fragrances (P) Ltd. Excise notifications together with annexure 'A', 'B (PB 74-76,77-81, 82- 85) 3. PB 86-93 at 86-87 is copy of letter dated 10-02-2006 submitting about excise duty refund in respect of G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r at the time of assessment proceedings pursuant to order u/s 264. As per this letter, the AO has specifically made reference to modus operandi of the assessee along with in-depth note on provisions of section 80IC. The relevant portion of the letter dated 13.03.2007 is extracted hereunder for your kind reference: MODUS OPERAND! FOR PANMASALA GUTKA Set up packaging units at Bumani Maidan Gwvahati Labour engaged for packaging - 300 (Largely contract workers) Investment in Plant Machinery in all the units which are around 8 at Bumani Maidan, Guwahati -10 crores Process adopted at Guwahati. * Cul Supari is brought from Noida which contributes 80% of raw material (Labour engaged-200) * Grinding of Catechu is also done at Noida and then brought to Guwahati (Labour engaged - 50) * Grinding of Lime is also done at Noida and then brought to Guwahati (Labour engaged - 50) * (All these processing and storage units of Supari Catechu Lime are at Sector 3, 4 58, Noida and job workers are also DS Group associate firms and companies) * Perfumery compound is from DS Limited, Perfumery unit at Okhla Industrial Estate, Phase-Ill, New Delhi (Labou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onceived and on the basis of distorted facts used selectively without taking note of detailed investigation carried out during various stages of proceedings. The issue of inter unit transfer and the justification of claim u/s 80IC was duly considered as per details of questionnaire and various submissions extracted above. 11. In addition to case laws referred to in our earlier submission, reference may also be made to the following latest decision on the issue of reopening u/s 147: M/s. Swarovski India P. Ltd, v. PCIT (Delhi High Court) [WP(O 1772/20141 (29.09.2015) 16. In the present case, this is exactly what has happened as queries and issues have been specifically raised and answered by the assessee in the original assessment proceedings. Thus, even though the Assessing Officer did not make any addition in the assessment order, it would have to be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make any addition or to reject the stand of the assessee. Consequently, it will have to be presumed that the Assessing Officer had formed an opinion which is now sought to be changed through the re-assessment notice, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osure of material of facts, as has been envisaged in first proviso to section 147. (iv) Before issuing notice u/s 148, the AO has to obtain, on the reasons recorded by him, sanction for reopening of the case, from the competent authority as envisaged u/s 151 viz. Additional Commissioner or the Commissioner of Income Tax, as the case may be. Before granting its sanction, the sanctioning authority is required to record its satisfaction based upon its independent application of mind, making out a case that as per the facts narrated and material referred to in the 'Reasons' recorded by the AO, a belief can be formed about escapement of income and case sought to be reopened is a fit case for reopening u/s 147. (v) After obtaining the sanction, the AO is required to issue and serve notice u/s 148 upon the assessee, within the time limit as prescribed u/s 149, to enable him to assume jurisdiction to reopen the assessment. (vi) The assessee is required to file to return of income, in response to notice u/s 148 and may request for the copy of reasons. (vii) The AO is bound, as per law, to provide a certified and verbatim copy of Reasons to the assessee. (viii) The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go into the other aspect i.e. whether there was change of opinion or not. This issue has been aptly clarified by Hon'ble High Court in the case of Madhukar Khosla, (supra), wherein it has been held by their lordships that external facts or material constitute the driver, or the key which enables the AO to legitimately reopen the completed assessment and in absence of this objective trigger , the AO does not possess jurisdiction to reopen the assessment. Further, most importantly, it was held by the Hon'ble High Court that it is at the next stage when the question, whether the reopening of assessment amounts to review or change of opinion arises. In other words, if there are no new tangible materials , then there would be no reasons to believe , and consequently reopening would be an impermissible review. Under these circumstances there would not arise any need to go the next stage to examine the next question, i.e., whether there was review or change of opinion . The condition with respect to availability of new tangible material is step anterior to the condition of no change of opinion or review . Pr. CIT vs. Tupperware India Pvt. Ltd (Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich were not disclosed by the assessee during the original assessment proceedings must have been emanating from the reasons recorded. And, according to ld. AR, the AO before recording the reasons must have in his possession fresh tangible material which should have been the basis on which the completed original assessment u/s 143(3) is sought to be reopened which should be clearly spelled out in the reasons recorded to reopen which is not discernible from a reading of the reasons recorded which, according to the ld. AR, the AO has miserably failed to do so vitiating the usurpation of jurisdiction by the AO; and the ld. AR pointed out that the ld. CIT (A) erred in not appreciating the fact that during the original assessment proceedings u/s 143(3), the said proceeding was also supervised under section 144A by the Addl.CIT, thereafter the CIT has also reviewed the order of the AO under section 264. Thus, according to the ld. AR, the original assessment has gone through the hands of the AO (DCIT), Addl. CIT and CIT. So, according to Shri Singhvi, the question of not disclosing full and true facts does not exist as the entire facts were already available in the files of the said author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment has gone through the hands of DCIT, Additional CIT u/s 144A and CIT u/s 264 of the Act, without even caring to ask the AO what was the material fact not disclosed by the assessee during the original assessment and the CIT and Addl. CIT did not enquire as to what was the fresh tangible material on which the reasons recorded is based upon to reopen the original assessment done u/s 143(3) of the Act. Since it is not emerging from the reasons recorded by the AO, which is for sanction before them, clearly shows that both the officers have mechanically put their signatures without application of mind and the said sanction is no sanction in the eyes of law, so resultantly the section 147/148 notice itself is vitiated on this count also. Thus, according to the ld. AR, the aforesaid legal grounds raised before the ld. CIT (A) has not been dealt with in accordance with law and well settled principles of law, thus vitiating the impugned order. In the light of the aforesaid submission, the ld. AR prayed that the reopening of the assessment is legally impermissible and, therefore, the AO lacks jurisdiction to reassess the assessee. The ld AR, emphasized that there was no fresh tangib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of assessment proceedings thereby implying in the affirmative that notice was issued and served upon the assessee. Their appearance on 28.11.2006 is clearly indicative of their compliance to notice u/s 143(2). The ld. Counsel of the assessee stated before the Hon'ble Bench that the appearance on 28.11.2011 was made to file objections to notice issued u/s 148, and in response to notice issued u/s 142(1) on 21.11.2011, and not in response to notice u/s 143(2). The above contention is rebutted by CIT(DR) on the ground that reasons for reopening the case u/s 147 were communicated to the assessee on 03/06/2011 and the assessee cannot take the plea that it came to file objections on 28.11.2011 (after more than 5 months) and that too immediately on issue of notice us 143(2) on 24.11.2011. Secondly the notice u/s 142(1) issued on 21.11.2011 had fixed the date of compliance for 29.11.2011 and not 28.11.2011 (copy of notice as obtained from the assessment records is enclosed as Annexure- 1. B. Special Audit u/s 142(2A) Special audit u/s 142(2A) was ordered in this case during the course of re-assessment proceedings under consideration. The show-cause notice to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details and books of accounts were also examined. THE ASSESSEE MADE COMPLIANCE TO THE NOTICES ISSUED AND FILED VOLUMINOUS DETAILS. The above para was read out from the original records before the Hon'ble Members during the course of hearing on 27.10.2015. Hence, again and again the assessee has been informed by the AO during the course of re-assessment/142(2A) proceedings itself, that notice u/s 143(2) has been issued to it and in its compliance the Director as well as the GM (Taxation) have appeared before the AO. But the assessee has not refuted or contested the non issue and non receipt of the said notice. The assessee has also not controverted the affirmative statement of the AO that the assessee made to the notices issued and filed voluminous details. HENCE THE ISSUE SERVICE OF NOTICE U/S 143(2) STANDS ESTABLISHED IN THIS CASE. The Assessee has accepted the order passed u/s 142(2A) for Special Audit dtd.29.12.2011, and has r: details from time to time before the special auditors. By accepting the special audit order and not challenging it, the assessee has also accepted the contents of the order that notice u/s 143(2) was issued to it and that it had mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not issued /served, the assessee is also vitiating the proceedings u/s 142(2A) which were never challenged by the assessee at any point of time on the ground of procedural infirmity. If the assessee has accepted the special audit order the assessee has very well accepted the notice u/s 143(2) as that clearly finds mention in the special audit order. Case laws relied upon : a. COMMISSIONER OF INCOME TAX vs. VISION INC., Hon'ble HIGH COURT OF DELHI, (2012) 73 DTR 0201 vide order dtd. May 25 2012, held that The Tribunal fell into an error in accepting the contention of the assessee without examining the crucial and relevant fact such as the appearance of the assessee's authorized representative before the Assessing Officer on 15.01.2005 which is the date fixed for hearing in the notice issued on 30.12.2004. The Tribunal further erred in holding that the participation of the assessee in the assessment proceedings is of no consequence because the 'provisions of Section 292BB came into force only from 01.04.2008. The participation of the assessee in the proceedings for the assessment in the present case is an important fact to be taken note of, not because o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 143(2) of the Act In the latter case, where an assessee does not controvert an affirmative statement that it had duly received the notice on a particular date, the assessee would be precluded from controverting the same at a later stage and it would not be erroneous to hold that, as a matter of fact, the assessee had duly received the notice of the proceedings. Thus in the present case, the conclusion of the CIT that the assessee had duly received the notice in question on 31.10,2001 cannot be faulted. (Para 12) In the above background it is clear that notice u/s 143(2) was issued and served upon the assessee and the assessee cannot take the plea at the appellate stage that no notice u/s 143(2) was issued and served on it. Now coming to the remaining two contentions of the assessee: 2. No basis for prima facie belief by AO that income had escaped assessment, 3. Reopening u/s 147 amounts to Change of Opinion The submissions in respect of the above contentions are made keeping in mind the settled principals/position of law laid down by the Hon'ble Apex court and Hon'ble High Courts including Jurisdictional High Court, regarding reopening of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee company follows processing of Pan masala as per Annexure A . The said annexure A, is a flow chart where the entire manufacturing process has been segregated into stage A to stage H and is part of the Satisfaction Note. The said annexure was received by the AO from Investigation wing along with information that except at stage G H, not a single stage/process is performed in Guwahati. The said annexure was also shown to the Hon'ble Members during the course of hearing on 15.10.2015 from the original records and categorization of stages was explained. On the basis of this Annexure, the AO then mentions that except at stage G H, not a single stage/process which is very crucial in the preparation of Pan masala (Rajnigandha) is performed in Guwahati. To substantiate his above finding, and on the basis of information received from Investigation wing, the AO analysed the said annexure and has discussed the various ingredients of Pan masala which include - Catechu (Katha), Beetle Nut (Supari), Cardamom {Elaichi Seed), Sugandhi and then the AO has discussed how each raw material named above is procured processed by the head office in NOIDA, and has described it in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80IC and is also contravening provisions of section 801A98) by making interunit transfers. In view of the above, it is submitted, that the reasons recorded are after due application of mind to the information received from Investigation wing which has been thoroughly analysed to form a prima facie opinion that income has escaped assessment. In the last para of the satisfaction note the AO has categorically noted that escapement has occurred due to non disclosure of truly and fully the material facts by the assessee that were necessary for assessment of A.Y.2004-05. It is further submitted that the information received from Investigation wing is in terms of the procedure followed by assessee in conducting its business, hence prima facie it will apply to all the assessment years during which such business was being carried out. It is not the assessee's case that it was not following this procedure in the relevant assessment year. The information received categorically reflects on role of Delhi / Noida unit in the manufacturing process, whereas the assessee has been showing that entire manufacturing is being done in Guwahati unit and thereby contravening the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmunicated to him the reasons which led him to initiate the proceedings under s. 34 of the Act. It was stated that a request to this effect was made by the appellant to the ITO, but the ITO declined to disclose the reasons, in our opinion, the argument of the appellant on this point is misconceived. The proceedings for assessment or assessment under s. 34(l)(a) of the IT Act start with the issue of a notice and it is only after the service of notice that the assessee, whose income is sought to be assessed or reassessed, becomes a party to proceedings. The earlier stage of the proceeding for recording the reasons of the ITO and for obtaining the sanction of the CIT are administrative in character and are not quasi-judicial. The scheme (of s. 34 of the Act is that, if the conditions of the main section are satisfied, a notice has to be issued to the assessee containing all or any of the requirements which may be included in a notice under sub s. (2) of s. 22. But before issuing the notice, the proviso requires that the officer should record his reasons for initiating action under s. 34 and obtain the sanction of the CIT who must be satisfied that the action under s. 34 was justified. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he did not apply his mind before according approval. Moreover the adequacy of the reasons for arriving at the satisfaction by the Commissioner cannot be questioned by the Courts as held above the Hon'ble Madras High Court which was approved by the Hon'ble Apex Court. 3. REOPENING U/S 147 AMOUNTS TO CHANGE OF OPINION this regard it is important to go through the assessment orders passed prior to reopening of case under consideration in order to consider whether there was any change of opinion or not. Relevant orders are discussed hereunder :- 1. ORDER u/s 143(3): Originally the case was assessed u/s 143(3) vide order dated 28.12.2006 given below: Important aspects are a. Form 10CCB: The assessee was claiming deduction u/s 80IC in respect of Guwahati unit. As part of statutory requirement, the assessee filed prescribed Form No. 10CCB in respect of all such units claiming deduction u/s 80IB/80IC. Column 20 of Form 10CCB required the assessee to give transactions of the undertaking (claiming deduction) with a related concern of the assessee or another undertaking of the assessee. However, in response to Column 20, the assessee reported only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the material is directly supplied to the unit by the Supplier and no such Inputs is being moved through the Corporate Office of the assessee company located in Noida (UP) It will not be out of place to mention that during the course of assessment proceedings the assessee had filed a reply dtd.02.02.2006 (Page 170 -187 of paper book) enclosing therewith a chart wherein, it had shown the entire manufacturing process of pan masala and chewing tobacco. It is pertinent to mention that vide the same letter the assessee also furnished a chart showing that Pan masala was being manufactured at its various units spread across India in Noida, Solan, Agartala Guwahati. In this background, and assessee's categorical denial discussed above that our Delhi office has no role to play in procurement process, and that the material is directly supplied to the unit by the Supplier and no such Inputs is being moved through the Corporate Office of the assessee company located in Noida (UP) the AO, in good faith believed that each manufacturing unit is following the process by itself. By no stretch of imagination could the AO have known that some of the stages of processing/ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the above heads is not derived from business of the industrial undertaking and therefore, the deduction u/s 801C is not admissible on this income. Accordingly, the AO disallowed deduction u/s 80IC to the extent of ₹ 66,26,94,688/-(please refer to page 6 of paper book filed by assessee). Hence the issue of procurement and processing of raw material at Delhi/Noida units before sending them to Guwahati, was NEVER examined by the AO due to blatant suppression of facts by the assessee. Inference drawn : The replies of the assessee dtd. 06.03.2006 20.11.2006 amounted to BLATANT LIES AND SUPPRESSION OF FACTS by the assessee and therefore the assessee failed to fully and truly disclose the material facts before the AO. Hence an important piece of information which had a direct bearing in this case/issue was suppressed by the assessee during the course of original assessment proceedings. The Hon'ble Supreme court in the case of Phul Chand Bajrang Lal 203 ITR 456 , has held as under: ...one has to look to the purpose and intent of the provisions. One of the purposes of Section 147 appears to be to ensure that a party cannot get away by willfully making a false or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO, shows, that in the note attached to the said letter, the assessee was asked to explain the Tax Holiday deduction, justification for Payment of Minimum Alternate Tax, and Applicability of Tax Holiday on Excise concession. Along with this, the procurement and processing of raw material by Delhi/Noida units was also brought to the notice of the assessee vide this letter dtd. 13.03.2007. and the assessee was required to furnish its reply and details in response to the same. However, in response to the above letter, the assessee filed reply on 15.03.2007 but confined its reply to only Tax Holiday deduction (page 1-3 of the reply), Payment of Minimum Alternate Tax ( page 3-4 of the reply) and Applicability of Tax Holiday on Excise concession (page 4-5 of the reply). The assessee conspicuously chose to remain silent on all other aspects of the letter issued by the AO particularly with reference to procurement and processing done in Noida/Delhi units prior to sending raw material to Guwahati for mixing, and packing. The assessee also filed another letter on 15.03.2007 (placed at paperbook page 275) but that too is silent on the relevant issue raised by the AO vide letter dtd. 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the detailed submissions above, all the conditions required for initiating proceedings u/s 147 have been fulfilled in this case and have been aptly demonstrated above. The same are summed up in line with the settled position of law: The AO has rightly reopened the assessment as he had reason to believe that the Assessee's income had escaped assessment. His reasons to believe are not based on surmises, conjectures or occasioned by change in opinion but are based on tangible and credible material received from the Investigation wing after a search was conducted in this case. The tangible material was 'Annexure A' prepared by the Investigation wing after physically verifying (as is done in searches) the various premises of the assessee and identifying each stage of procuring and processing of raw material with reference to the place where such activity was being carried out. This had a direct bearing on deduction u/s 80IA(8) and excessive deduction u/s 80IC which finds a special mention in the Satisfaction Note recorded by AO. Hence the condition of having tangible material obtained subsequent to earlier assessments, stands fulfilled in this case After sensibly an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given for this purpose. The proviso to s. 147 envisages action in the ordinary course within a period of four years from the end of the relevant assessment year. That limitation does not, however, apply to cases where income chargeable to tax has escaped assessment on account, inter alia, of the failure of the assessee to disclose fully and truly all material facts. (CONSOLIDATED PHOTO FINVEST LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX, Jan 17, 2006, (2006) 281 ITR 0394 (Del) The Apex Court also, while analyzing what amounts to 'full' and 'true' facts in the case of Sri Krishna Private Limited v. Income Tax Officer Ors., reported in 2 21 ITR 538 has held that - The power conferred upon the Income tax Officer by sections 147 and 148 is thus not a n unbridled one. It is hedged in with several safeguards conceived in the interest of eliminating room for abuse of this power by the Assessing Officers. The idea was to save the assessee from harassment resulting from mechanical reopening of assessments but this protection avails only to those assesses who disclose all material facts truly and fully. In Kantamani Venkata Narayana Sons vs. Addl. ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the validity of the notice under section 148/147, The enquiry at this stage of the only to see whether there are reasonable grounds for the Income tax Officer to believe and not whether omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind. In view of the discussions above it is prayed that the case may be decided after considering the submissions above. 16. On the other hand, ld. CIT DR, Mrs. Nandita Kanchan vehemently opposed the contentions of the ld. AR and submitted that a search and seizure took place in the assessee s premises at Noida, Guwahati and Agartala. From the search conducted on 21.01.2011 and in the course of search of the DS Group situated in the North Eastern state, namely, Guwahati and Agartala, certain facts emerged that would suggest that assessee claimed deduction under Chapter VIA was grossly inflated. According to the ld. DR, finding of the search proceedings suggests that functions performed at Guwahati are that of drying up of processed beetle nut (processed supari) received from Head Office, Noida and all the raw materials, namely, catechu, beetle nut, cardamom and sugahiare procured and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the AO on 28.11.2011. At that stage, the ld. CIT DR sought time to go through the entire record to see whether a copy of 143(2) notice can be found in the records. So, the Bench vide order dated 15.10.2015 directed the Department to submit the proof of issuance and service of the notice duly served; and if possible to the claim of the department that the notice have been issued may be supported with affidavit of the AO; and the matter was adjourned to 26.10.2015 which was again adjourned to 27.10.2015 wherein the ld. CIT DR fairly conceded before the Bench that she could not trace/find a copy of the 143(2) notice in the records and did not file any affidavit to support the issuance, even service of notice etc. However, she placed before us a copy of the order sheet dated 24.11.2011 and pointed out that the AO has recorded that he had issued 143(2) notice and she took our attention to the next entry which is dated 28.11.2011 and contended that the Director of the company, Mr.Anil Aggarwal and Sh.Siddhart Goel, GM, Taxation, appeared before the AO pursuant to the said notice under section 143(2) and filed objection regarding reopening of the assessment. She pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleaded that the legal grounds raised by the assessee against the reopening of the reassessment is not tenable and was rightly not accepted by the ld. CIT (A). Therefore, she does not want us to interfere in the order passed by the ld. CIT (A) regarding these grounds. 19. The ld. AR Shri Singhvi, in rejoinder, took our attention to the order sheet entry dated 24.11.2011 and took our attention to the fact that there is no mention of the mode of dispatch whether by speed post / registered post/ by notice server and nonproduction of the dispatch register according to him clearly indicates the fact that the notice under section 143(2) has not been issued and that the admission before the Bench by the ld. CIT DR that she could not find a copy of the same in the records and also the ld. CIT (A) s silence regarding this mixed question of fact and law, clearly shows that the notice under section 143(2) has not been issued at all and therefore, the question of serving the same on the assessee does not arise. The ld. AR also pointed out that in spite of the direction by the Bench to the Department to file an affidavit of the AO in respect to issuance of notice and proof of serving of noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us is 2004-05, the revenue cannot take the aid of section 292BB to cover this defect which is incurable as held by the Hon ble Supreme Court in the case of Hotel Blue Moon (supra). Therefore, since the Hon ble jurisdictional High Court decision in this aspect is very clear so the Tribunal is bound by it and cannot go beyond the same. He also brought to our attention to paper book page 166 which is the questionnaire raised during the original assessment dated 13.01.2006 wherein extensive questions regarding activities undertaken by units at various parts of the country including that of the role of Delhi Office was asked and also took our attention to pages 12 13 of the letter dated 13.03.2007 and also stated that no incriminating material was found during the search and seizure. He took our attention to the fact that statement given by Shri Pritam Singh during the search cannot be relied upon for the assessment year in question because the said employee was not in the services of the assessee at that relevant year and he has joined the services of the assessee only in 05.01.2009, therefore, the statement given by him cannot be a basis for what happened in assessment year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the records. Firstly, we have to decide the short question whether or not, on the basis of the reasons recorded by AO, reassessment proceedings can be lawfully initiated; secondly, we have to examine whether sanction granted under section 151 by the Addl. Commissioner of Income-tax and Commissioner of Income-tax is valid in the eyes of law; thirdly, whether nonissuance of section 143(2) notice is fatal to the impugned reassessment; and fourthly, whether section 292 BB provision can come to the rescue of revenue in respect to nonissuance of notice under section 143 (2) ; and fifthly can the whole exercise by the AO be termed as a Review of the original assessment completed by the predecessor AO under section 143(3) of the Act and can be termed as change of opinion . 23. Before we advert to the facts in this case, let us look into the well settled principles regarding reopening of assessment completed u/s 143 (3) of the Act. 24. It is well settled in law that reasons, as recorded for reopening the reassessment, are to be examined on a standalone basis. Nothing can be added to the reasons so recorded, nor anything can be deleted from the reasons so recorded. The Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h may lead to detection of an income which has escaped assessment. There has to be some kind of a cause and effect relationship between reasons recorded and the income escaping assessment. While dealing with this aspect of the matter, it is useful to bear in mind the observations made by Hon ble Supreme Court in the case of ITO Vs Lakhmani Mewal Das [(1976) 103 ITR 437] that, the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As was observed in Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1 (SC), the expression reason to believe is stronger than the expression is satisfied . The belief entertained by the Assessing Officer should not be irrational and arbitrary. To put it differently, it must be reasonable and must be based on reasons which are material. In S.Narayanappa v. CIT [1967] 63 ITR 219, it was noted by the apex court that the expression reason to believe in section 147 does not mean purely a subjective satisfaction on the part of the Assessing Officer, the belief must be held in good faith ; it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational nexus or a relevant bearing to the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To that limited extent, the action of the Assessing Officer in initiating proceedings under section 147 can be challenged in a court of law. It was further held that, We are therefore of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 years, an additional safeguard or condition that escapement of income was due to fault of the assessee, in not fully and truly disclosing the material facts at the time of original assessment. The Hon ble Supreme Court endorsing the Full Bench decision of the Hon ble Delhi High Court in CIT vs. Kelvinator of India Ltd. 256 ITR 1 held in its order reported in 320 ITR 561, ..that Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have link with the formation of belief. Therefore, if the fresh tangible material which the AO has in his possession is relevant to have nexus to the formation of belief then, of course, the AO would have the necessary jurisdiction to take action under the Act. What is required to be examined is not the adequacy or sufficiency of the grounds but the existence of belief. In our view, all that one has to examine is that whether there was some material which, gave rise to prima facie view if that income has escaped assessment and the belief was formed in good faith or was it mere pretence for initiating action u/s 147/148 of the Act. 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 giving details of inter unit transfers and that Delhi office has no role in procurement process and detailed explanation on section 80IC and about income from eligible and non-eligible units, excise duty paid in Guwahati and Agartala units in peculiar circumstances and about royalty payment to M/s Flosyn Fragrances (P) Ltd. Excise notifications together with annexure 'A' 'B . Copy of letter dated 10.02.2006 submitting about excise duty refund in respect of Guwahati Unit and its relevance for deduction u/s 80IC together with Annexure 'A B'. Copy of assessee's reply dated 22.02.2006 filed to Ld. AO explaining unit wise sales, nature of unit wise expenses and profit of various units, unit wise wastage together with all annexure of this letter Assessee s letter dated 09.03.2006 together with all its annexures showing unit wise stock, party wise details of job work. Letter dated 10.11.2006 giving detailed note on deduction u/s80IC V. Vide order sheet entry dated 16.11.2006 at point no.3, the assessee was asked details and note on movement of raw material - whether it is sent direct to the unit from the supplier or routed through Head office. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to these sales in the books of accounts. VIII. On 28.12.2006, the AO passed the assessment order u/s 143(3). IX. Thereafter, the Commissioner u/s 264 passed order on 29.01.2007 as reproduced below :- Taking into account the totality of facts and circumstance of the case, it is considered fair and reasonable to set-aside the impugned assessment and restore the matter back to the file of Assessing officer for fresh enquiry, examination and adjudication. The assessing Officer is directed to make the fresh assessment as per law keeping in view the observations made in the preceding paragraphs and after giving reasonable opportunity to the assessee company of being heard. In the fresh assessment order, the Assessing Officer shall record his categorical findings on each and every issue which should be based on the material and evidence brought on records. In order to ensure justice and fair play to both the sides, revenue as well as the assessee company X. Thereafter, the assessee filed revision application u/s 264 before the CIT and the AO vide letter dated 13.03.2007 has elaborately narrated the modus operandi of the assessee company as given below :- MODUS OPERAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared and excise benefit of 200 crores annually availed. 8. From the above, it becomes self-evident that the assessing officer has analyzed and examined the issue of inter unit transfer and manufacturing at Guwahati unit and Agartala Unit in the light of provisions of section 80IC XI. On 28.03.2007, the AO passed the de-novo assessment as per the direction of the Commissioner. XII. Thereafter, the original assessment of the relevant assessment year 2004-05 was before the CIT(A) who disposed off the appeal on 17.04.2009. XIII. Thereafter, we take note that on 21.01.2011, a search was carried out at the D.S. Group of companies u/s 132 of the Act and vide impugned notice dated 29.03.2011 u/s 147/148 to reopen the assessment for AY 2004-05 was issued. XIV. The sanction u/s 151 to reopen the original assessment u/s 143(3) after 4 years was granted by the Commissioner and Addl.CIT on 28.03.2011 which is as under :- Form for recording the reasons for initiating proceedings u/s 148 and for obtaining the approval of the Commissioner of Income Tax / Central Board of Direct Taxes. The assessee filed its return of income on 30.10.2004 after at a NIL income under norm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry for the assessment with regard to the assessment year under consideration. Asstt. CIT, Circle 10(1) New Delhi. 29. Referring to the aforesaid reasons recorded by AO, before us, the ld. AR, Mr. Singhvi pointed out that the CIT (A) has not properly appreciated the arguments before him that the AO was not having in his possession any tangible evidences while issuing notices u/s 148 and took our attention to page 27 of the CIT (A) s order wherein the said argument of the ld. AR has been considered by him and dealt casually by stating some practice followed by the DDIT (Inv.) after search without dealing with the merits of the contention raised by the AR, which according to Mr. Singhvi per-se makes the order of the CIT (A) erroneous and perverse. In order to buttress that there was no evidence i.e. no tangible material before the AO to initiate reopening as required for reopening as held by the Hon ble Supreme Court in CIT vs. Kelvinator of India Ltd. (supra), Mr. Singhvi took our attention to the letter written by the AO on 01.12.2011 to DDIT (Inv.) to furnish any material relevant to AY 2004-05 as suggested by letter dated 24.03.2011 of DDIT (Inv.) on the basis of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.2011 to DIT (Inv.) a month before limitation to complete re-assessment i.e. 31.12.2011, which the AO himself states, we discern the following facts :- 31. Facts emerging from a perusal of the AO letter to DIT (Inv.) :- (i) ADIT (Inv) had forwarded a letter dated 24.03.2011 to the AO about facts of search conducted on 21st January 2011 and about the claim of deduction u/s 80 IC was grossly incorrect. (ii) ADIT (Inv) recommended initiation of action u/s 148 of the Act for the AY 2004-05. (iii) The AO asks for copies of all materials collected during the search, which is relevant for AY 2004-05 or has a bearing on the pending re-assessment proceeding or would be useful in the exercise of power by the AO u/s 80IA (8) of the Act. Facts emerging from the finding of CIT(A), after he had perused the letter of ADIT(inv) dated 24.03.2011, which according to DR, was the basis of re-opening. But here we would like to point out that in the reasons recorded, there is no whisper about such a letter from ADIT (Inv) and we are aware that the reasons recorded to re-open has to be seen on a standalone basis, however, we would like to examine whether there was any tangible material w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfy himself before re-opening u/s 148 of the Act. What was the material the ADIT (Inv.) was referring to vide its letter dated 24.03.2011, obviously it is not any material which the ADIT (Inv.) has sent along with letter, because, CIT(A) has asserted that there was no documents forwarded with the said letter. So, when we read the letter of AO dated 01.12.2011, we find that the AO is frantically asking the DDIT (Inv.) to provide materials unearthed during AY 2004-05 or has any bearing on the pending reassessment proceeding or would be useful in the exercise of power by AO u/s 80IA (8) of the Act; which clearly shows that AO even on 01.12.2011 was not having any tangible material before him for AY 2004-05 suggesting escapement of income. So without forwarding any fresh documents along with the letter dated 24.03.2011 ADIT (Inv.) and by asking AO to satisfy himself after going through relevant material is nothing but asking the AO to go through the old records of the original assessment. So we find force in the argument of ld. AR, Shri Singhvi that there was no new tangible material with the AO from the hands of ADIT (Inv.) vide letter dated 24.03.2011, which is necessary as held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angible material filter in his reasons to believe which can uncover the undisclosed income pertaining to the assessment year of the assessee which AO proposes to reopen, without passing through the said filter which should emerge from the reasons recorded to reopen, will oust the jurisdiction of the AO and thus it is a settled law that fresh tangible material as said before constitute the jurisdictional fact which is sine-qua non to empower the AO to reopen the assessment. In the absence of the said jurisdictional fact renders the reopening coram non judice and the reassessment null in the eyes of law. 36. Now let us examine the reasons recorded by the AO dated 25.03.2011 on a standalone basis, we take note that all that the reasons recorded for reopening indicate is that search conducted on 21.01.2011 at D.S. Group companies and the processing of Pan Masala is given in Annexure A , which is flow-chart of manufacturing stage by stage i.e. A to H and only G H stages are happening at Gauhati unit. These stages we find have been filed by the assessee vide reply dated 02.02.2006 (page 170 of paper book) by filing detailed flow-chart (page 184 to 188 of paper book) before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and the assessee on 27.11.2006 has clearly replied about the transfer of materials form unit/branch in course of local movement and inter-state transfers which has been duly reflected in the profit loss account. What the AO has done while recording the reasons to reopen was to simply affix alphabets A to H over the manufacturing process shown in the flow-chart by the assessee during the original assessment and there is nothing new or the AO can claim to be fresh information before him. We find that the flow chart which AO harps upon to build his case is the very same old flow chart produced by the assessee during the original assessment. This in our humble opinion, cannot be termed as fresh tangible material. More over the Ld. AR, took our attention to the letter of AO dated 13.03.2007 (reproduced supra) at the time of assessment proceedings pursuant to order of Commissioner (CIT) Admn. u/s 264 of the Act. We find that as per this letter the AO has specifically spelled out the modus operandi adopted by the assessee along with in depth note on provision of section 80IC which we have reproduced above. 38. Here we would like to point out that the ld. DR vehemently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. As aforesaid, the stage A to H (Chart) and stated in the reasons recorded find place in pages 184 to 187 of paper book which form part of the original assessment proceedings before the AO and Commissioner. Further reliance can be placed on the detailed judgment in the case of Madhukar Khosla vs. ACIT 367 ITR 165 (Delhi) wherein it has been held by the Hon ble jurisdictional High Court that the reopening is not permitted under the law unless it is based on fresh tangible material and that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible materials , then there would be no reasons to believe , and consequently reopening would be an impermissible review. It should be kept in mind that the condition with respect to availability of new tangible material is a step anterior to the condition of no change of opinion or review . 39. However, we would like to examine other legal grounds for completeness. The next important aspect which needs to be examined whether the proviso to section 147 is applicable in this case before reopening the original assessment and to examine the contention of the ld. AR that there was no allegation in the reasons about failure on the part of the assessee in disclosure of material facts during the original assessment proceedings. Admittedly, in this matter, the reopening is done after expiry of four years and as per law, it can be done only if the AO is able to demonstrate that there was failure on the part of the assessee in disclosing the material facts. In this regard, it would be appropriate to reproduce hereunder the First Proviso to section 147 of the Act :- Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reassessment proceedings could not be initiated after expiry of four years from the end of relevant assessment year merely on the ground that in view of the retrospective amendment to provisions of section 80IA, the assessee was not entitled to deduction granted earlier under said section. Thus, even in such cases, when there was a retrospective amendment in the law, the Hon ble Supreme Court has approved the order of the Hon ble High Court, upholding the view that no reopening can be done after the expiry of four years unless there was failure on the part of the assessee in disclosure of material facts. 40. In a recent judgment of Hon ble Delhi High Court in the case of Pr.CIT v. Samcor Glass Ltd. (ITA No.768/2015 dated 12.10.2015), wherein Hon ble High Court frowned upon the Income Tax Department for reopening of the assessments of the tax payers, in a casual manner and without complying with mandatory conditions of law. Relevant portion of the judgment is reproduced below:- 4. Although the Assessees in both the appeals are different, the issue involved in both cases is similar, i.e., whether the reopening of the assessment under Section 147/148 of the Act is valid? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with each of the legal requirements. Secondly, the AOs must be directed to strictly comply with the law explained by the Supreme Court in GKN Driveshafts (India) Ltd v. Income Tax Officer (2003) 259 ITR 19 (SC) as regards the disposal of the objections raised by the Assessee to the reopening of the assessment. 41. The well settled law is that new tangible information which the AO got in his possession must have an inevitable link with escapement of income which triggers the AO to form a belief that there is an escapement of income, however, when this information is regarding an assessment year which is four years before then an additional requirement of law has to be also satisfied, i.e., even if there is an escapement of income, still it has to be seen whether the assessee has furnished true and full disclosure of the material facts before the AO during the original assessment. If the assessee has made true and full disclosure of material facts regarding the new information which is now in the hand of the AO, then the AO cannot reopen the assessment. The Apex Court has time and again underscored the necessity of fresh tangible material pertaining to proposed reopening of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of granting deduction, we find that the AO has examined the audited balance sheet and profit loss account of the company as well as certificates issued by the Chartered Accountant in Form No.10CCB for all the eligible units. Vide letter dated 13.01.2006, vide para no.1, with reference to each of the unit, assessee submitted detailed note on items manufactured and traded by it along with details of manufacturing process involved therein and the details of procurement of raw materials along with role played by Delhi office in making procurement of raw materials. In response to this, assessee vide letter dated 02.02.2006, assessee submitted the manufacturing process vide Annexure A B to that letter. Further, it was submitted that the Delhi office has no role to play in procurement process. Along with that books of account of each manufacturing unit maintained separately were also submitted. The flow chart of the process is found placed at pages 184 to 188 of the PB which were also submitted before the AO. Further, during the original assessment proceedings, based on the quantitative details of each of the undertaking eligible for deduction, vide letter dated 09.03.2006, uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the aforesaid details which was sought by him and obviously had applied his mind on each and every item which has gone into the profit derived by the industrial undertaking and after that, the AO has granted as deduction u/s 80IC of the Act. 46. On reading of the First Proviso to section 147, it is apparent that the notice u/s 148 can be issued when an assessment has been made u/s 143(3) after expiry of four years from the end of the relevant assessment year, only if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year . 47. From the above stated submissions made during the course of assessment proceedings, it is apparent that assessee has disclosed fully and truly all material facts which were necessary for the assessment of income. Now, coming to the issue that the assessee has failed to disclose flow of goods and manufacturing process of various raw materials to finished goods as allegedly have not been disclosed. We have referred to various pages of submission made u/s 143(3) by the assessee wherein a flow chart of manufacturing process is disclosed. Furthermore, regarding fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the details of inter-unit transfer were furnished by the assessee before AO at multiple times and answers to Additional CIT u/s 144 of the Act. Now, we go to examine that in spite of submitting this information whether not mentioning of these transactions in Sl.No.20 of the Form No.10CCB can it be said to be a material fact for the purpose of assessment of income of the assessee. In our view, the assessee has submitted voluminous details regarding inter unit transfer along with its valuation and disclosures. Merely because column no.20 of the Form No.10CCB was not filled properly, it cannot be said that material facts have not been fully and truly disclosed by the assessee. Form No.10CCB is an audit report which is required to be certified by a Chartered Accountant who certifies that the conditions stipulated in section 80IC and the amount of deduction claimed by the assessee meets the required conditions as per law. Perhaps, the auditor has certified only the payment made to persons specified u/s 40A (2)(b) of the Act and a perusal of the balance sheets of each unit clearly spells out in no uncertain terms the inter unit transfer which were produced before the AO during the origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sanction, he stated that at the time of the original assessments the presentations made on behalf of the company that the sales of shares were casual transactions and in the nature of mere change of investments were accepted, however, the result of the company s trading from year to year revealed that it had really been systematically carrying on a trade in the sale of investments, and that as such the company had failed to disclose the true intention of the sale of shares. On March 28, the Income-tax Officer issued notices u/s 34 of the Act calling upon the company to submit fresh returns. The company submitted the returns but applied to the High Court under Article 226 of the Constitution of India for the issue of appropriate writs or orders directing the officer not to proceed to assess on the basis of these notices, on the ground, inter alia, that the Income-tax Officer did not have reason to believe that under-assessment had occurred by reason of the omission or failure on the part of the company to disclose fully and truly all material facts necessary for assessment. The Income-tax Officer filed an affidavit in court in which he stated that in the course of assessment proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section has nothing to do with inferences and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose inferences to draw the proper inferences being the duty imposed on the Income tax Officer. We have, therefore, come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this. 52. In page 203, the Hon ble Supreme Court while reversing and disagreeing with the view of the Hon ble Calcutta High Court reported in (1953) 23 ITR 471 held as under :- The learned Chief Justice seems to have proceeded on the basis that when from certain facts inferences are to be drawn there is a duty on the assessee to state what the correct inference should be and if he has made a wrong statement as regards the inference to be drawn that also is an omission or failure to disclose a material fact. For the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment after 4 years drawing inference that assessee failed to truly and fully disclose material facts was set at naught by the Hon ble Supreme Court. It needs to be seen that the assumption by the present AO in the instant case that process from A to H were not carried out at the eligible undertaking in the instant year is merely an inference and not a fact supported by any material stated in the reason recorded. As inferences cannot be substituted for facts and also, therefore, cannot be termed as tangible material for unlocking the already completed assessment u/s 143(3). 55. We find that in this case apart from filing of Form 10CCB, audited accounts and balance sheets of each unit were filed which expressly reflected the inter unit sales, so, in these circumstances, we find that as regards inter-unit sales, full details were in fact disclosed before the AO during original assessment and specific queries about details of inter-unit sales were asked by the Additional Commissioner while supervising the original assessment in exercise of her powers u/s 144A of the Act, which ultimately was reviewed by the Commissioner u/s 264 of the Act. In the aforesaid circumstances, it m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of jurisdiction under section 147/148 of the Act did not exist and the AO had, therefore, no jurisdiction to issue the impugned notices under section 147/148 in respect of the relevant assessment i.e. AY 2004-05 after the expiry of four years on this count also. 58. Next let us look whether the impugned reassessment in the facts of this case be termed as review or change of opinion of the original assessment u/s 143(3). 59. From a perusal of the letter of AO dated 13.03.2007 (reproduced supra) and the AO s narration of unit-wise activities described by the AO, can it be now said that AO during original assessment proceedings completed u/s 143(3) of the Act was in the dark about unit-wise activities carried out by the assessee. So the argument of the Ld. DR, that flow chart which is mentioned in the reasons recorded threw light for the first time into the unit-wise transaction of the assessee is bereft of any merits and so cannot be countenanced. Moreover, as stated earlier also, we take note of the fact that the issue of deduction u/s 80IC was extensively considered in original assessment passed u/s 143(3) dated 28.12.2006 (P.B. 177-186 at P.B. 178-182) and in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , manner of computation of deduction u/s 80IC, unit wise transfers of material, impact of excise duty on the deduction u/s 80IC and royalty having bearing on the deduction u/s 80IC all have been the subject matter of assessment proceedings, revisional proceeding, reassessment proceeding on earlier occasion. We find that the assessee had explained the activities carried out at each of its units situated in different parts of India and filed balance sheets unit-wise, profit loss account, inter-unit transfer of materials local and inter-state, has been fully and truly disclosed and thus the material particulars necessary for the assessment during the scrutiny original assessment u/s 143(3) under the watchful eyes and supervision of the Additional Commissioner u/s 144; further revisional assessment under the Commissioner u/s 264 of the Act and thereafter, the AO passed the original assessment. We find from the queries poised by the authorities i.e., AO, Additional Commissioner and Commissioner during the original assessment, clearly bears the fact that the issue which the AO wish the reopen was thread bare analysed and the assessee had fully and truly disclosed the material fact be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adequacy of the reasons for arriving at the satisfaction by the Commissioner cannot be questioned by the Courts as held above by the Hon ble Madras High Court which was approved by the Hon ble Apex Court cited (supra). Let us examine the approval granted by the Commissioner u/s 151 of the Act to adjudicate whether there was application of mind by the CIT as envisaged in section 151 of the Act for that we have already reproduced the sanction granted by the Commissioner on 28.03.2011 at pages 59 60 above. 65. On 25.03.2011, when the AO recorded the reasons to reopen and Commissioner and Addl.CIT granted sanction on 28.03.2011, the previous AO s letter dated 13.03.2007 (supra) was on record wherein the AO has clearly understood and spelled out the modus-operandi followed by the assessee. The assessee had disclosed the unitwise activities, balance sheets unit wise and the details of transfer of materials between units/branches in the course of local movement and inter-state transfers and profit and loss account was duly filed before the AO and thereafter his order which was passed under the supervision of Additional Commissioner u/s 144A of the Act, even if erroneous, cannot be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition to the Guwahati Unit to claim higher amount of deduction u/s 80IC. The AO has not even come to a prima facie conclusion that the assessee is shifting profits to earn higher amount of deduction. He appears to have had only a vague feeling that the searched seizure suggest assessee s Guwahati Unit is claiming higher deduction u/s 80IC. Such a conclusion does not fulfill the requirement of section 151 (2). 68. We find that on the format which has been reproduced, the Additional CIT and Commissioner has simply written Yes I am satisfied on the same day, i.e. 28.03.2011 which does not in any manner shed any light as to whether there was any application of mind at all by the aforesaid two senior officers, who were duty bound to have looked in to carefully the reasons recorded by the AO and seen the history behind the assessment which was proposed to be reopened by the AO. When a superior authority is given power by the legislature, to grant sanction to do an act by an authority below him, then that power needs to be exercised with due care and circumspection and after due application of mind. Mechanical manner of giving sanction like in this case have not been approved by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting the DR to file an affidavit in respect to issuance and service of notice u/s 143(2), the AO, for the reasons best known to him, has not filed the affidavit, nor the DR could produce a copy of the 143(2) notice purportedly issued by the AO if any from the reassessment records. So, according to the ld. AR, the mere entry in the order sheet that 143(2) notice cannot in any manner satisfy the requirement of law and since 143(2) notice is mandatory, as per Hotel Blue Moon (supra) as laid down by the Hon ble Supreme Court, the non-issuance of notice itself vitiates the entire reassessment proceedings and, therefore, the impugned order is null in the eyes of law. 70. We find that the assessee had raised this legal ground before the CIT (A) that 143(2) notice has not been issued / received by the assessee before completion of the impugned reassessment. Once a legal issue of non-issue/ non-receipt of 143(2) notice was raised by the assessee before the CIT (A), he was bound to adjudicate this question of fact; and should have given his finding on the question of fact whether the AO had issued 143(2) notice or not; and, if so, on which date, mode of service and whether it was served ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make assessment. Absence of notice cannot be held to be curable under s 292BB of the Act. CIT Vs.Mr. Salman Khan, ITA No.508 of 2010 1. In the present case, reassessment order passed under section 143(3) r/w 147 of the Income Tax Act, 1961 is held to be bad in law in view of the fact that the assessing officer has not issued notice under section 143(2) after issuing notice under section 148 of the Income Tax Act, 1961. This Court in the case of The Commissioner of Income Tax Vis. Mr. Salman Khan [Income Tax Appeal No.2362 of 2009)decided on 1st December, 2009 has considered similar question and has held that in the absence of notice under section 143(2) (prior to the insertion of section 292BB), the reassessment order cannot be sustained. In the present case, the reassessment year involved relates to the period prior to the insertion of Section 292BB. In this view of the matter, the appeal is dismissed with no order as to costs. DCIT Vs. M/s Silver Line, ITA No.1809,1504,1505 1506/Del/2013 vii. The Hon'ble ITAT of Agra Bench, in the case of ITO v. Aligarh Auto Centre reported in 152 TTJ (Agra) 767, on an identical issue that of the present issue, has record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, do not find any infirmity in the order of the Id. CIT (A) for interference. (v) The Hon'ble Mumbai Bench of the ITAT has, in the case of Sanjeev R Arora v. ACIT [IT (SS)A No.103/Muml2004 dated 25.7.2012], recorded its findings as under: Even, the irregularity in proper service of notice which can be treated as curable under section 292B of the Income-tax Act is only in the cases where the notice under section 143(2) was issued properly and within the period of limitation and the assessee did not raise any objection regarding the service of the notice during the assessment proceedings and also participated in the assessment proceedings then at a later stage the assessee is precluded from raising such objection. Therefore, the provisions of section 292B are not applicable in the case where the assessing officer has not at all issued notice under section 143 (2) within the period as prescribed. 7.9. Taking into account the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs and also in views of the judicial pronouncements (supra), we are of the view that the reassessment's made for the assessment years under consideration h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd by merely mentioning that 143(2) notice has been issued in the show cause notice for special audit cannot substitute the mandatory requirement of law in respect to issue of notice u/s 143(2) in reassessment proceedings as held by Hon ble Supreme Court in Hotel Blue Moon (supra) and by the Hon ble jurisdictional High Court. Therefore, on this count also, the assessee succeeds and the entire reassessment proceedings is vitiated for non-issuance of 143(2) notice by the AO. 72. Viewed from another angle, It has to be kept in mind that from the reason recorded to re-open, it is manifest that the search conducted on the assessee on 21.01.2011 was the event from which the AO says he has reason to belief escapement of income. Keeping this factual background in mind, we cannot take our eyes of the mechanism which gets triggered after a search u/s 132 of the Act, wherein the provision of section 153A of the Act kicks in. Now the settled position of law in case of search is that no addition can be made without any incriminating evidence unearthed during the search as held by the Hon ble jurisdictional High Court in CIT V Kabul Chawla 61 Taxmann.com 412 (Delhi). If that is so, whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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