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TMI Blog2021 (4) TMI 1115X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax (Appeals) erred in restricting the deduction of section 80-IC to only Rs. 10,85,588 against the claim of Rs. 45,23,863 made by the assessee-company. 3. The learned Assessing Officer and the worthy Commissioner of Income-tax (Appeals) erred in interpreting the provisions of section 80-IC in true spirit, as the assessee-company had complied with all the provisions mentioned under section 80-IC. 4. The appellant craves leave to add to or amend the aforesaid grounds before disposal of the appeal." 2. Briefly stated, the assessee-company which is engaged in the business of manufacturing of plywood, block board, flush door and mica, etc., had filed its return of income for the assessment year 2008-09 on September 30, 2008, declaring an income of Rs. 34,90,960. Subsequently, the return of income was revised by the assessee on October 1, 2008 at the same income. On the basis of information received from the Deputy Director of Income-tax (Investigation), Chandigarh, that the assessee had booked bogus purchases of Rs. 2,23,77,935, its case was reopened under section 147 of the Act. Notice under section 148 was issued and duly served on the assessee on March 23, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n amount of Rs. 10,85,588. In reply, it was submitted by the assessee that its claim for deduction of Rs. 45,23,863 under section 80-IC was as per the mandate of law. Rebutting the observations of the Assessing Officer, it was submitted by the assessee that as stated by its chartered accountant in his report in "form 10CCB" at serial No. 9 the initial assessment year was the assessment year 2008-09. In order to dispel any doubts as regards its aforesaid claim, it was stated by the assessee that as the claim for deduction under section 80-IC was raised for the very first time in the assessment year 2008-09, the question of "set off" of loss of the assessment year 2007-08 for the purpose of quantifying its claim for deduction under section 80-IC during the year in question did not arise. In order to buttress its aforesaid claim the assessee relied on the following judicial pronouncements : (i) Mohan Breweries and Distilleries Ltd. v. Asst. CIT [2009] 311 ITR (A.T.) 346 (Chennai) ; [2009] 116 ITD 241 (Chennai). (ii) Velayudhaswamy Spinning Mills (P.) Ltd. v. Asst. CIT [2012] 340 ITR 477 (Mad) ; [2010] 38 DTR 57 (Mad). (iii) Patankar Wind Farm P. Ltd. v. Dy. CIT (I. T. A. Nos. 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner of Income-tax (Appeals) was of the view that the Assessing Officer had rightly observed that as per section 80-IA(5) read with section 80-IC(7) of the Act, for the purpose of quantifying the assessee's deduction under section 80-IC its eligible business was to be isolated and taken as the only source of income. Accordingly, the Commissioner of Income-tax (Appeals) subscribed to the view taken by the Assessing Officer that the losses suffered by the assessee in its eligible business in the initial assessment year could not have been diverted elsewhere and were liable to be adjusted against the profits of the said eligible business during the year under consideration. On the basis of his aforesaid observations the Commissioner of Income-tax (Appeals) upheld the view taken by the Assessing Officer in the context of the aforesaid issue. 6. The assessee being aggrieved with the order of the Commissioner of Income-tax (Appeals) has carried the matter in appeal before us. The learned authorised representative (for short "AR") for the assessee at the very outset of the hearing of the appeal assailed the validity of the jurisdiction assumed by the Assessing Officer for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avir Spinning Mills Ltd. v. CIT [2004] 270 ITR 290 (P&H). Lastly, the learned authorised representative assailed the reassessment proceedings, on the ground, that the same were backed by a mere "change of opinion" by the successor Assessing Officer, dehors any fresh material which would justify the same. It was submitted by the learned authorised representative that acting upon the "material" available on record, the Assessing Officer was divested of his jurisdiction to take recourse to reassessment proceedings only on the basis of a "change of opinion". In support of his aforesaid claim the learned authorised representative had relied on the judgment of the hon'ble High Court of Delhi in Carlton Overseas P. Ltd. v. ITO [2009] 318 ITR 295 (Delhi). Adverting to the merits of the case, it was submitted by the learned authorised representative that the lower authorities had gravely erred in law and the facts of the case in dislodging the assessee's well founded claim for deduction of Rs. 45,23,863 under section 80-IC. It was submitted by the learned authorised representative that as the assessee-company had opted the year under consideration, i. e., the assessment year 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (ii) that recourse to reassessment proceedings on the basis of a "change of opinion" of the successor Assessing Officer on the issue pertaining to quantification of the assessee's entitlement for deduction under section 80-IC was impermissible as per the mandate of law ; and (iii) that in the absence of any fresh tangible material the Assessing Officer was divested of his jurisdiction to reopen the case of the assessee under section 147 of the Act. 9. As regards the claim of the learned authorised representative that as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the year in question, its case could not have been reopened after an expiry of a period of four years from the end of the relevant assessment year, we are afraid that the same does not find-favour with us. Admittedly, as provided in the "first proviso" to section 147, where any assessment under sub-section (3) of section 143 or section 147 had been made for the relevant assessment year, then, inter alia, unless any income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to disclose fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... devoid of any logic cannot be accepted, and is accordingly rejected. 11. We shall now deal with the claim of the learned authorised representative that despite the fact that the case of the assessee was originally processed under section 143(1) of the Act, the Assessing Officer in the absence of any fresh tangible material could not have resorted to proceedings under section 147 of the Act. In other words, it was the claim of the learned authorised representative, that in the absence of any fresh tangible material coming to the notice of the Assessing Officer after issuing of the intimation under section 143(1), the reopening of the assessee's case could not have been validly done. 12. Before adverting any further as regards the aforesaid claim of the learned authorised representative, we think it apt to cull out the "reasons to believe" on the basis of which the case of the assessee was reopened under section 147 of the Act, which reads as under : "Reasons for reopening the case under section 147/148 of the Income-tax Act, 1961 Name of the assessee M/s. Samrat Plywood Ltd. 182/11, Ind. Area, Phase-l Chandigarh Assessment year 2008-09 PAN AACCS0259L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . . (B) Rs. 45,23,863 Deduction under section 80-IC for the assessment year 2008-09 . . . Rs. 10,85,588 In view of the above, deduction under section 80-IC for the assessment year 2008-09 is to be restricted to Rs. 10,85,588 instead of Rs. 45,23,863. The balance amount of deduction claimed amounting to Rs. 34,38,275 is to be added to the income of the assessee and should be taxed. Scrutiny assessment under section 143(3) was not done in the case of the assessee for the assessment year 2008-09. That there was a loss of Rs. 34,38,275 from the eligible unit was not disclosed along with the return filed by the assessee for the assessment year 2008-09. In view of the above, I have reasons to believe that the income of the assessee chargeable to tax of more than Rs. 1 lakhs has escaped assessment for the assessment year 2008-09 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year 2008-09. Thus, notice under section 148 is being issued with the approval of the Joint Commissioner of Income-tax, Range-11, Chandigarh. Sd/- (Garima Sharma) Assistant Commissioner of Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitial assessment year) which was "set-off" by it against its other incomes for that year. Observing, that for the purpose of calculating the deduction under section 80-IC the assessee as per the mandate of section 80-IA(5) was obligated to "set off" the loss of its eligible unit for the assessment year 2007-08 against the profit of the said eligible unit for the year in question, i. e., the assessment year 2008-09, the Assessing Officer was of the view that the assessee by failing to do so had claimed an excess deduction of Rs. 34,38,275 under section 80-IC. It was, thus, in the backdrop of the aforesaid view that was arrived at by the Assessing Officer on the basis of "material" already available on her record, dehors any fresh tangible material coming to her notice, that she had reopened the assessee's case for the purpose of withdrawing the excess claim of deduction under section 80-IC that as per her was claimed by the assessee on the basis of a wrong quantification. 13. We have deliberated at length on the aforesaid issue in the backdrop of the contentions advanced by the authorised representatives for both the parties. On a perusal of the aforesaid "reasons to believe", ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). Accordingly, though the argument of "change of opinion" would not be available to an assessee in a case where an intimation was earlier issued under section 143(1), it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax had escaped assessment. As observed by us hereinabove, the Assessing Officer in the case before us had formed the belief that there was escapement of income by merely referring to the quantification of the deduction under section 80-IC by the assessee in its return of income for the year under consideration, i. e., the assessment year 2008-09 coupled with that for the preceding year, i. e., the assessment year 2007-08, after having accepted the same under section 143(1) without scrutiny, and nothing more. In fact, there is no whisper in the reasons recorded of any tangible material which came to the possession of the Assessing Officer subsequent to the issuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147." Still further, we find that a similar view had been arrived at by the Tribunal in Amit Engineers v. Asst. CIT [2016] 156 ITD 556 (Chand). In its aforesaid order, it was observed by the Tribunal that though in case of section 143(1)(a) of the Act, any argument of it being illegal because of change of opinion is not sustainable, however, there has to be some tangible material in possession of the Assessing Officer to reopen such case. In the backdrop of our aforesaid deliberations, we are of the considered view that in the case of the assessee before us, in the absence of any tangible material coming to the possession of the Assessing Officer after issuing of the intimation under section 143(1), it was not justified on her part to have reopened the case of the assessee. Resultantly, in terms of the aforesaid observations we are unable to persuade ourselves to subscribe to the validity of the jurisdiction assumed by the Assessing Officer for reopening the assessee's case under section 147 of the Act. The ground of appeal No. 1 is partly allowed in terms of our aforesaid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under : "(3) The deduction referred to in sub-section (1) shall be- (i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of clause (a) or sub-clauses (i) and (iii) of clause (b), of sub-section (2), one hundred per cent. of such profits and gains for ten assessment year commencing with the initial assessment year ; (ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred per cent. of such profits and gains for five assessment years commencing with the initial assessment year and there after, twenty five per cent. (or thirty per cent. where the assessee is a company) of the profits and gains." On a perusal of the aforesaid definition of the "initial assessment year" as provided in section 80-IC(8)(v) of the Act, we find that the previous year in which an undertaking or the enterprise begins to manufacture or produce articles or things, or commences operations or completes substantial expansion, has to be taken as the initial assessment year within the meaning of section 80-IC of the Act. The assessee had not been provided with any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 2007-08 were liable to be "set-off" against the profits of the said eligible unit for the year in question, i. e., the assessment year 2008-09, as a result whereof the assessee's entitlement for deduction under section 80-IC was to be restricted to an amount of Rs. 10,85,588. On a perusal of sub-section (7) to section 80-IC, we find that the same as an enabling section imports the provisions of sub-section (5) of section 80-IA, which, thus, are to be read for the purpose of quantifying the assessee's entitlement for deduction under section 80-IC of the Act. On a perusal of sub-section (5) of section 80-IA, we find that the same reads, as under : "(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of deter mining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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