TMI Blog2016 (11) TMI 1552X X X X Extracts X X X X X X X X Extracts X X X X ..... 00% EOU and has income from exports. Besides the assessee has also earned income from the interest on the margin money deposited with the bank in order to avail the packing credit facility. There is a direct nexus between interest income and the income of the business of the undertaking. Indeed the interest income does not par take the character of a profit and gains from the export of an article, but it is the income which is derived in the course of the business. In view of the definitions of ‘Income from Profits and Gains’ incorporated in Sub-section (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated u/s. 10B of the Act. Hence the ground raised by the assessee is allowed. Disallowing the exemption u/s. 10B - addition holding tea blending activity as non-manufacturing - Held that:- As decided in assessee's own case [2012 (7) TMI 531 - ITAT KOLKATA] the blending of tea amounts to manufacture or production of tea for the purpose of exemption u/s 10B of the Act. - ITA Nos.1841/Kol /2013, 1897/Kol /2013, 2161-2162/Kol /2013 & 623/Kol /2014 - - - Dated:- 18-11-2016 - Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export of tea. The assessee, for the year under consideration has filed its return of income dated 08.10.2002 which was processed u/s. 143(1) of the Act dated 08.12.2003. Thereafter case was selected under scrutiny and accordingly assessment was framed u/s. 143(3) of the Act on 10.03.2005 wherein the exemption claimed by the assessee u/s. 10B of the Act was allowed as per the provisions of the Act. The Assessing Officer after elapsed of four years initiated the proceedings u/s. 147 of the Act on the ground that the activity of assessee i.e., blending of tea is not manufacturing activity. Therefore, the assessee was not entitled for exemption u/s. 10B of the Act. However the assessee objected on the validity of notice issued u/s 148 of the Act by stating that the initiation of re-assessment proceedings is barred by time in terms of First proviso to Sec. 147 of the Act. The AO could not discover any new facts subsequent to the completion of assessment u/s. 143(3) of the Act and therefore, the action of AO under section 147 of the Act is merely based on change of opinion . However, the AO disregarded the claim of assessee by observing that no information was provided by assessee with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed to take advantage of an oversight or mistake committed by the taxing Authority as has been held in the case of Kalyanji Mavji Co vs. CIT (SC) 102 ITR 287. In the case of Simplex Concrete piles (India) Pvt. Ltd., vs. DCIT Ors. (Cal) 255 ITR 49 reopening after four years has been held to be valid in view of subsequent decision of Supreme Court on an issue which was accepted at the time of original assessment. Given the above facts I am of the view that the appellant had failed to disclose fully and truly all materials facts necessary for the assessment and therefore, reopening beyond a period of four years with the due approval of CIT as required u/s. 151 is held to be valid. Reopening is also held to be valid in view of the Apex Court rendering its judgements subsequent to the passage of the assessment order u/s. 143(3) on 10.03.2005. On this ground the action of the AO in reopening is held to be valid and the appellant s ground of appeal is dismissed. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 6. Before us Ld. AR filed paper book which is running from pages 1 to 80 and submitted that notice was issued beyond four years from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year From the bare reading of the provisions we find that the reassessment proceedings under section 147 of the Act can be reopened beyond the period of 4 years if the assessee fails to disclose fully and truly all material facts necessary for the assessment. However on perusal of the records we find that the AO during the course of assessment proceedings has examined the details of the deduction under section 10B of the Act. On perusal of the reasons recorded by the AO before issuing notice u/s. 148 of the Act, it is also clear that the AO has not, in the reasons recorded, made an allegation that income chargeable to tax has escaped assessment by reason of the assessee's failur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it important to reproduce the provisions of Explanation 1 to Sec.147 of the Act which reads as follows: Explanation 1.-- Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. We are of the view that Explanation-1 only lays down that production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure. The expressions will not necessarily in Explanation 1 will only mean that facts and circumstances of each case will have to be seen as to whether production of books of account and other evidence before the AO will amount to full and true disclosure of material facts. In the present case, as we have already seen, evidence was produced before the AO in the course of the original assessment proceedings u/s 143(3) of the Act and the same was perused by the AO and he had not chosen to draw any conclusion that the amount claimed as deduction by the Assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd.-vs.- ACIT (2010) 329 ITR 257(Bom.) wherein the Hon'ble Bombay High Court has held as under: 6.The proviso however stipulates that where an assessment has been carried out u/s 143(3), action after the expiry of four years from the end of the relevant assessment year would stand barred unless income chargeable to tax has escaped assessment inter alia by the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year. Hence, where a reopening of assessment takes place beyond a period of four years from the end of the relevant assessment year, the test which the statute requires to be applied is based on the nature of the disclosure that is made by the assessee. If the assessee has made a full and true disclosure of all the material facts for his assessment, the action of reopening the assessment would stand barred. Contrariwise, where there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the reopening of the assessment would stand validated even if it takes place beyond the expiry of a period of four years. 8.1 We are, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed before Ld. CIT(A) has challenged the interest income by stating that the interest income was inadvertently shown as income from other sources but it is income from the business only. So the said interest income was earned on the deposit of margin money with the bank for the purpose of availing credit facility from the bank. Therefore, interest income is purely in the nature of business income and accordingly entitle for exemption u/s. 10B of the Act. However, Ld. CIT(A) rejected the plea of assessee by observing as under:- 6.1 I have examined the arguments of the Assessing Officer as well as the submissions made by the AR of the appellant. At ground no. 5 is the issu9e of treatment of interest income of ₹ 22,69,100/- as income from other sources. The AO in his assessment order for A.Y 2002-03 had specifically pointed out the Apex Court case of M/s Pandian Chemicals reported in 262 ITR 278 that interest income is not part of business income. The AR of the appellant has tried to distinguish in the case of Pandian Chemicals from the case of the appellant as the stated judgments pertain to Section 80HH. However, I am not in agreement with the reasoning of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the Ld CIT(A) disregarded the plea of the assessee by observing that the interest income is indirect profit to the assessee which cannot be regarded as arising out of the business of the assessee for the purpose of exemption under sec 10B of the Act. Now the crux of the controversy before us is as to whether this interest income is a business income or not. In the case on hand we find that the assessee has made fixed deposit with the bank as margin money for the purpose of availing the credit facility from the bank and interest income was earned thereon. Therefore we find that there is direct nexus of the interest income with the business of the assessee. Similarly, we also find that the assessee is claiming interest expenses on the credit facility from the bank as business expenditure which is directly linked with the interest income. As the assessee has claimed the interest expenses on credit facility as business expenses which have been allowed in the assessment and the interest income is directly connected with the credit facility, hence it should be eligible for deduction under section 10B of the Act. The ld. CIT(A) has relied in the judgment of Hon ble Apex Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years : Provided further that for the assessment year beginning on the 1st day of April, 2003, the deduction under this subsection shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software: Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years : Provided also that no deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in connection with carrying on business, otherwise, he would have allowed only the expenditure which was incurred in connection with earning of the interest income. Thirdly, the Tribunal found as a fact that earning of the interest income arose from the utilisation of commercial assets. The Tribunal found that the funds utilised in making the fixed deposits with the bank were the business funds temporarily lying in surplus with the assessee. On these facts, the income derived from the utilisation of the commercial assets would be income from business. Where the assessee carrying on business, invests surplus cash lying with him temporarily in bank deposits, the interest earned on such deposits is out of the commercial assets of his business and, therefore, is assessable as business income and not as income from other sources. Similarly we also relied on the judgment of Hon ble High Court of Bombay in the case of CIT Vs. Arts Craft Exports reported in 246 CTR 0463. The relevant extract of the order is reproduced below : Exemption under s. 10BA-Profits derived from export of eligible goods-DEPB-Tribunal was justified in holding DEPB as a profit derived from export business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order was passed on 20.07.2012. This is a very detailed order in course of which various earlier judicial pronouncements have been examined and then it has been held that tea blending will amount to manufacturing and therefore, the benefit of deduction u/s. 10B should be made available. Subsequent to this judgement, in the appellant s own case for A.Y 2005-06 the Hon'ble Kolkata Bench of ITAT has passed an order dated 23.11.2012, ITA No.1189/Kol/2008. The ITAT Kolkata in this order has held that they will uphold the decision of the Special Bench which has already held that blending of tea amounts to manufacture or production of tea for the purpose of exemption u/s. 10B. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 23. Before us both parties relied on the orders of Authorities Below as favourable to them. 24. We have heard both the parties and perused the records especially the impugned order and the case laws cited therein and also by the learned Counsel of the assessee. From the perusal of the case, at the outset we find that this issue is already covered in favour of the assessee in its own case in ITA No. 1189/Kol/2008. The Co-ordi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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