2007 (11) TMI 454 - AT - Income Tax

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147.
2. Deduction under Section 80-IB concerning DEPB and duty drawback.
3. Deduction under Section 80HHC and its relation to Section 80-IB.

Issue-Wise Detailed Analysis:

1. Validity of Reopening Assessment under Section 147:
The appeal revolves around whether the Assessing Officer (AO) was justified in reopening the assessment under Section 147. The AO initiated proceedings on the basis that the deduction under Section 80HHC should be computed after reducing the deduction allowed under Section 80-IB, as per Section 80-IB(13) read with Section 80-IA(9). The assessee argued that reopening was based on a mere change of opinion, which is not permissible. The CIT(A) held that the AO's action amounted to a change of opinion, as the AO had earlier accepted that DEPB and duty drawback were attributable to the business of the undertaking. However, the Tribunal held that since the original return was processed under Section 143(1) and no assessment was made under Section 143(3), the AO was justified in forming a "reason to believe" that income chargeable to tax had escaped assessment. The Tribunal emphasized that under the amended provisions of Section 147, the AO can initiate proceedings if there is a reason to believe that income has escaped assessment, without the need to prove omission or failure by the assessee to disclose material facts.

2. Deduction under Section 80-IB Concerning DEPB and Duty Drawback:
The AO disallowed the deduction under Section 80-IB for DEPB and duty drawback receipts, relying on the Supreme Court judgments in Sterling Foods and Pandian Chemicals, which held that such receipts are not profits derived from industrial activities. The CIT(A) found that the AO's action to exclude these receipts was based on a change of opinion, as the AO had previously accepted the assessee's claim in response to an audit query. However, the Tribunal concluded that the AO's action was justified, as the fact that DEPB and duty drawback receipts were not eligible for deduction under Section 80-IB came to the AO's notice during the reassessment proceedings. The Tribunal upheld the AO's action, noting that the jurisdictional High Court in Liberty India had confirmed that DEPB and duty drawback are not eligible for deduction under Section 80-IB.

3. Deduction under Section 80HHC and its Relation to Section 80-IB:
The AO computed the deduction under Section 80HHC after reducing the amount of deduction allowed under Section 80-IB, as mandated by Section 80-IB(13) read with Section 80-IA(9). The CIT(A) allowed the assessee's claim, relying on earlier Tribunal decisions that held deductions under Sections 80HHC and 80-IB should not be reduced from the profits of the business. However, the Tribunal referred to the Special Bench decision in Rogini Garments, which held that the deduction under Section 80-IA/80-IB must be deducted from the profits before computing the deduction under Section 80HHC. The Tribunal thus set aside the CIT(A)'s order and restored the AO's decision.

Conclusion:
The Tribunal allowed the Revenue's appeal, upholding the AO's actions on all grounds. The reassessment under Section 147 was deemed valid, the exclusion of DEPB and duty drawback receipts from the deduction under Section 80-IB was justified, and the computation of deduction under Section 80HHC after reducing the deduction allowed under Section 80-IB was correct. The cross-objections filed by the assessee were dismissed.