2012 (2) TMI 560 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessment u/s 147.
2. Treatment of interest on FDR as income from other sources.
3. Eligibility of interest on FDR for deduction u/s 80HHC.
4. Treatment of premium on sale of quota and DEPB income under explanation (baa) to section 80HHC.
5. Deduction u/s 10B and disallowance u/s 40(a)(i).

Summary:

1. Reopening of Assessment u/s 147:
The assessee challenged the reopening of the assessment u/s 147, arguing it was without jurisdiction, void, and not based on evidence. The AO had issued notice u/s 148 within four years, claiming excess allowance of deduction u/s 80HHC due to non-consideration of premium on sale of quota. The CIT(A) upheld the reopening, stating it was within the permissible period and based on discrepancies in deductions claimed. The Tribunal, however, found no tangible material justifying the reopening and held it as bad in law, citing the Supreme Court's decision in "CIT v. Kelvinator of India Ltd." which requires tangible material for reopening.

2. Treatment of Interest on FDR as Income from Other Sources:
The CIT(A) and AO treated the interest on FDR amounting to Rs. 9,98,245/- as income from other sources, arguing that surplus funds parked in FDR had no nexus with the export business of the assessee. The Tribunal did not explicitly address this issue due to the cancellation of the reopening of the assessment.

3. Eligibility of Interest on FDR for Deduction u/s 80HHC:
The CIT(A) held that interest on FDR is not eligible for deduction u/s 80HHC. The Tribunal's decision on the reopening of the assessment rendered this issue moot, as the entire reassessment was cancelled.

4. Treatment of Premium on Sale of Quota and DEPB Income:
The Department's appeal challenged the CIT(A)'s direction to treat the premium on sale of quota and DEPB income as other receipts under explanation (baa) to section 80HHC. The Tribunal found that the issue had been previously decided in favor of the assessee in its own case for earlier years and upheld the assessee's treatment of these items, referencing CBDT Instruction No. 133/137/97-TCL dated 23.2.98 and relevant judicial precedents.

5. Deduction u/s 10B and Disallowance u/s 40(a)(i):
The Department contended that the assessee was not entitled to deduction u/s 10B due to non-filing of Form No. 56G and challenged the deletion of addition u/s 40(a)(i) for foreign agency commission. The assessee argued that the form was filed with the original return and that the provisions of section 195 were not applicable. The Tribunal did not address these issues due to the cancellation of the reassessment order, rendering these appeals infructuous.

Conclusion:
The Tribunal cancelled the reopening of the completed assessment as bad in law due to the absence of tangible material, rendering the remaining grounds and appeals moot or infructuous. The appeal of the assessee was partly allowed, and the Department's appeal was dismissed.