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2011 (2) TMI 978 - AT - Income TaxReopening Assessment u/s 147 - Deduction u/s 80HHC denied - whether the deduction u/s 80HHC can be computed with reference to 90 per cent of the export incentives ignoring the trading loss - Held that - The show-cause notice issued by the Assessing Officer and the replies given by the assessee vide letter dated 27-1-2003, all the facts are placed before the Assessing Officer and detailed explanation was given why negative profits of the business are ignored and deduction available to the extent of incentives - The Assessing Officer also discussed the same issue in the assessment order passed on 27-2-2003 and vide para 4.3 considered the decision of IPCA Laboratories Ltd. (2001 (7) TMI 99 - BOMBAY High Court) and set off the trading losses to the incentives - This indicates application of mind by the Assessing Officer at the time of original assessment and subsequent belief by the Assessing Officer can only be considered as change of opinion on the same set of facts. The Hon ble Bombay High Court in the case of Asteroids Trading & Investments (P.) Ltd. (2008 (7) TMI 238 - BOMBAY HIGH COURT) considered the issue on similar facts and held that power conferred under section 147 cannot be used like the power of review to reopen the assessment under section 147 of the Act - the reassessment proceedings are considered bad in law and the Assessing Officer has no jurisdiction to reopen under section 147 - Accordingly the orders of the Assessing Officer and CIT(A) are set aside - Decided in favour of assessee.
Issues involved:
1. Legality of reopening the assessment under section 147 of the Income-tax Act, 1961. 2. Deduction under section 80HHC and its applicability to export incentives of DEPB. 3. Levy of interest under section 234B. 4. Levy of interest under section 234D. Issue-wise detailed analysis: 1. Legality of reopening the assessment under section 147: The assessee argued that the reopening of the assessment under section 147 was illegal, bad in law, and void. The Assessing Officer (AO) had reopened the assessment within four years, invoking Explanation 2(c) to section 147, based on the belief that income had escaped assessment due to an error in allowing excess deduction under section 80HHC. The AO relied on the decision of the Bombay High Court in the case of Rohan Dyes & Intermediates Ltd. The CIT(A) upheld the reopening, agreeing with the AO that the reassessment was within the legal ambit as per the amended provisions of section 147. However, the Tribunal found that the issue was already under appeal before the ITAT, making the reassessment bad in law. The Tribunal also noted that the AO had considered all facts during the original assessment, and the reopening was merely a change of opinion, which is not permissible as per the Supreme Court's ruling in CIT v. Kelvinator of India Ltd. 2. Deduction under section 80HHC and its applicability to export incentives of DEPB: The assessee's claim for deduction under section 80HHC was initially restricted by the AO due to trading losses. The AO had adjusted the trading losses against the profits from export incentives, resulting in a reduced deduction. The matter was contested before the ITAT, which remitted the issue back to the AO for fresh adjudication in light of retrospective amendments by the Taxation Laws (Amendment) Act, 2005. The CIT(A) confirmed the AO's action, but the Tribunal noted that the amendments supported the assessee's contention that trading losses should be adjusted against incentive income. The Tribunal allowed the assessee's grounds on merits, stating that the subsequent amendments upheld the assessee's method of computation. 3. Levy of interest under section 234B: The assessee contended that the interest charged under section 234B was excessive and should be reduced substantially. The CIT(A) held that section 234B was not appealable and did not follow the CBDT's Circular No. 2/2006, which stated that interest under section 234B cannot be levied in the given circumstances. The Tribunal did not provide a detailed analysis on this issue but implied that the grounds on merits were allowed, which would include the consideration of interest levied under section 234B. 4. Levy of interest under section 234D: The assessee argued that the interest charged under section 234D was incorrect and should be computed as per the provisions of the section. The CIT(A) confirmed the AO's action of charging interest under section 234D. The Tribunal, referencing the Special Bench decision in ITO v. Ekta Promoters (P.) Ltd., indicated that the levy of interest under section 234D for earlier years was not correct. Consequently, the Tribunal allowed the assessee's grounds on this issue as well. Conclusion: The Tribunal concluded that the reassessment proceedings were bad in law due to the issue being under appeal and the reopening being based on a mere change of opinion. The Tribunal also found no merit in the Revenue's case regarding the deduction under section 80HHC, as subsequent amendments supported the assessee's computation. The Tribunal allowed the appeal, setting aside the orders of the AO and CIT(A).
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