2014 (1) TMI 1750 - AT - Income Tax

Reopening of assessment - Eligibility for deduction u/s. 80IB - expansion of existing unit - Held that - From the reply of assessee and the documents on the record shows that Unit-II was in exists as per the order of Commissioner of Income Tax which is on page 40 of the Paper Book No.1. In Assessment Year 2002-03 wherein firstly claim of adjustment of loss of Unit-II was claimed against the profit of Unit-I. We find that Assessment Year 2002-03 is not reopened. Secondly, we find that for Assessment Year 2004-05, the assessment was completed on 08.12.2006 and it is required to be reopened before 31st March 2009, but the assessment was reopened on October 31st, 2011 by issuing the notice on 24.3.2011. Therefore, the assessment is reopened after four years. If the assessment is reopened after four years there are settled law and in this respect section 149 says that no notice u/s.148 be issued for the relevant assessment year, if the four years have lapsed from the end of relevant assessment year unless the case falls under clause-B which says that if the four years but not more than six years have been lapsed from the end of relevant assessment year unless the income chargeable to tax which has been escaped assessment amount or likely to an amount of ₹ 1 lac or more for that year. We find that this contention is satisfied and secondly if the four years but not more than 6 years if the property is located outside in India. In our opinion, this clause has been inserted w.e.f 01.07.2012. Therefore, it is not applicable of this question. Therefore, in our opinion, in this case under consideration for Assessment Year 04-05 the reopen assessment is barred by limitation, therefore, we have no hesitation to hold that the assessment for A.Y. 04-05 is barred by limitation. Similarly for A.Y. 05-06, the assessment was completed on 20.11.2007. The assessment was required to be reopened on or before 31st March 2010 and the assessment was reopened on 24 March, 2011. Therefore, the reopening of the assessment for 04-05 is bad in law as per the Decision of Hon ble Supreme Court in the case of Kelvinator of India 2010 (1) TMI 11 - SUPREME COURT OF INDIA . Therefore, we hold that the notice issued u/s. 148 of the Act for Assessment Year 2004-05 and 2005-06 is barred by limitation. - Decided in favour of assessee Whether the assessee have separate Unit but maintaining the common record of excise duty, sales tax service tax, and having common registration and no separate permission from pollution department having a common electricity connection can be granted deduction u/s. 80IB(4)? - Held that - Issue stands covered by the decision of the Hon ble Jurisdictional High Court of Jammu & Kashmir, in the case of Shree Balaji Allows v. CIT and Another (2011 (1) TMI 394 - Jammu and Kashmir High Court ) where it has been held that the Excise Duty Refund is to be treated as capital receipt and not liable to be taxed. Respectfully following the said judgment of Hon ble J & K High Court, refund of excise duty of ₹ 4,66,88,681/- is held to be as capital receipt . - Decided in favour of assessee

Issues Involved:
1. Eligibility for deduction under Section 80IB for Unit II.
2. Reopening of assessment after the lapse of the period of limitation.
3. Whether Unit II is an independent manufacturing unit or merely an extension of Unit I.
4. Requirement of separate licenses for Unit II.
5. Validity of reopening assessments based on a mere change of opinion.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IB for Unit II:
The primary issue was whether Unit II qualifies for a deduction under Section 80IB of the Income Tax Act. The department argued that Unit II was just an expansion of Unit I and not an independent unit, thus not eligible for the deduction. The assessee contended that Unit II was a separate manufacturing unit with different products and machinery, capable of functioning independently. The CIT(A) found that Unit II was indeed an independent manufacturing unit and directed the AO to allow the deduction under Section 80IB(4).

2. Reopening of Assessment After the Lapse of the Period of Limitation:
The assessee argued that the reopening of assessments for the years 2004-05 and 2005-06 was barred by limitation as it was done beyond the prescribed period of four years. The Tribunal agreed with this contention, noting that the assessments were reopened after four years without any new material evidence, thus violating the statutory limitation period. Consequently, the notices issued under Section 148 for these years were deemed invalid, and the assessments were quashed.

3. Whether Unit II is an Independent Manufacturing Unit or Merely an Extension of Unit I:
The AO's inspection revealed that Unit II operated in the same building as Unit I and did not have a separate building, leading to the conclusion that Unit II was merely an extension of Unit I. However, the CIT(A) observed that Unit II was established on a different plot, had different machinery, and manufactured different products, thereby qualifying as an independent unit. The Tribunal upheld this view, noting that the existence of common management and facilities did not negate the independent identity of Unit II.

4. Requirement of Separate Licenses for Unit II:
The AO argued that Unit II did not have a separate license from the Ministry of Small Scale Industries, which was a requirement for claiming the deduction. The Director of the company confirmed that no separate license was obtained for Unit II. However, the Tribunal found that the absence of a separate license did not disqualify Unit II from being considered an independent unit, as the requirement for such a license was not mandatory under the law.

5. Validity of Reopening Assessments Based on a Mere Change of Opinion:
The Tribunal noted that the reopening of assessments was based on the AO's change of opinion regarding the status of Unit II, without any new evidence. Citing precedents from the Supreme Court and High Courts, the Tribunal held that reopening assessments on a mere change of opinion was invalid. The Tribunal emphasized that once a deduction is allowed in the initial assessment year, it cannot be withdrawn in subsequent years unless there is a significant change in facts or law.

Conclusion:
The Tribunal allowed the assessee's cross-objections, quashed the reopening of assessments for the years 2004-05 and 2005-06, and upheld the CIT(A)'s decision to grant the deduction under Section 80IB(4) for Unit II for all the assessment years from 2004-05 to 2009-10. The department's appeals were dismissed, and the order was pronounced in open court on January 3, 2014.

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