2011 (4) TMI 1421 - AT - Income Tax

Summary

Issues Involved:
1. Validity of initiation of reassessment u/s 147 of the Income Tax Act, 1961.
2. Merits of the deduction u/s 80 HHC of the Act.
3. Genuineness of purchases from Salbha Garments.

Summary:

1. Validity of initiation of reassessment u/s 147 of the Income Tax Act, 1961:
The assessee challenged the validity of the reassessment proceedings initiated by the AO under section 147 of the Act. The first reassessment notice was issued on 10/1/2005, based on the AO's observation that the assessee had incurred losses in the business of export, thus wrongly claiming deduction u/s 80 HHC. The CIT(A) held the initiation of reassessment proceedings as invalid, and the ITAT and Hon'ble High Court upheld this decision. Subsequently, a second reassessment notice was issued on 29/3/2006, citing different reasons, including the inter-laced business activities of the Koramangala unit and the genuineness of purchases from Salbha Garments. The Tribunal held that successive reassessments on the same deduction issue amounted to a mere change of opinion, which is not permissible. However, the second reassessment was upheld concerning the genuineness of purchases from Salbha Garments, as it was based on subsequent developments in another assessment year.

2. Merits of the deduction u/s 80 HHC of the Act:
The AO and CIT(A) did not express any opinion on the total turnover and the inclusion of the Koramangala unit's turnover in the total turnover of the manufacturing export unit. The Tribunal remanded the issues to the AO for fresh consideration, directing the AO to determine whether the turnover of the Koramangala unit of Rs. 2,79,81,165/- should be included in the total turnover for the calculation of deduction u/s 80 HHC and whether the assessee is entitled to add 90% of the loss of the Koramangala unit of Rs. 12,69,654/- from the calculation of the profits of the business under clause (baa) of explanation after 80 HHC (4C).

3. Genuineness of purchases from Salbha Garments:
The Tribunal noted that the disallowance of purchases from Salbha Garments in AY 2002-03 was deleted by the Tribunal. Since the assessment in the current year was based on the AO's decision in AY 2002-03, which was already deleted, the Tribunal directed that the addition for the current year could not be sustained and should be deleted.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the validity of the second reassessment proceedings concerning the genuineness of purchases and remanding the issues related to the deduction u/s 80 HHC to the AO for fresh consideration. The Tribunal directed the deletion of the addition related to purchases from Salbha Garments. The other grounds of appeal were deemed consequential, and the AO was directed to provide consequential relief.