2012 (5) TMI 389 - AT - Income Tax

Reassessment - Deduction u/s 10B - period of ten consecutive Assessment Years - During the course of reassessment proceedings, the validity of notice issued by the Assessing Officer u/s 148 was challenged by the assessee by raising certain objections - Held that Tribunal vide its order dated 30.9.2011 passed in ITA No.2544/Mum/2006 has upheld the order of the learned CIT (A) for Assessment Year 2002-03 deciding the similar issue in favour of the assessee - Decided in favor of the assessee. Regarding deduction u/s 80HHC - this issue is squarely covered in favour of the Revenue and against the assessee by the decision of the Hon ble Bombay High Court in the case of CIT vs Dresser Rand India P. Ltd (2010 -TMI - 76637 - BOMBAY HIGH COURT) wherein it was held that service charges received by the assessee which constitutes independent income has no element of export turnover and the same is consequently liable to be excluded to the extent that is stipulated in Explanation (baa) to Section 80HHC - Appeal is dismissed

Summary

Issues Involved:
1. Validity of reassessment under Section 147 read with Section 143(3).
2. Eligibility for deduction under Section 10B.
3. Computation of deduction under Section 80HHC.
4. Treatment of stitching charges for deduction under Section 80HHC.

Detailed Analysis:

1. Validity of Reassessment under Section 147 read with Section 143(3):
The assessee challenged the validity of the reassessment initiated by the Assessing Officer (AO) under Section 148, arguing that it was based on a mere change of opinion. The CIT (A) upheld the reassessment, stating that the AO had prima facie satisfaction that excessive relief had been granted initially. The Tribunal found this reasoning valid, as the reopening was justified due to apparent excessive relief granted under Section 10B.

2. Eligibility for Deduction under Section 10B:
The main issue was whether the assessee was entitled to a deduction under Section 10B for ten years instead of five. The CIT (A) allowed the deduction for ten years based on an amendment made in 1999, aligning with a previous decision in the assessee's case for Assessment Year 2002-03. The Tribunal upheld this decision, referencing its earlier rulings in similar cases, which established that the amendment extended the deduction period to ten years, including the initial five years.

3. Computation of Deduction under Section 80HHC:
The AO had disallowed certain incomes (interest, foreign exchange gain, stitching charges) from the profits of the business for computing the deduction under Section 80HHC. The CIT (A) ruled that foreign exchange gains and stitching charges should be included in the profits for deduction purposes, while interest income should be excluded as it was categorized under "income from other sources." The Tribunal did not address this issue further, as the primary issue of Section 10B deduction was resolved in favor of the assessee, making the alternative claim under Section 80HHC redundant.

4. Treatment of Stitching Charges for Deduction under Section 80HHC (Assessment Year 2004-05):
For Assessment Year 2004-05, the CIT (A) directed the AO to include stitching charges in the profits for computing the deduction under Section 80HHC. The Tribunal overturned this decision, citing the Bombay High Court ruling in CIT vs. Dresser Rand India P. Ltd., which excluded independent income like service charges from export turnover. The Tribunal instructed the AO to exclude stitching charges from the profits but allowed for the assessment of the actual profit from stitching activities instead of the entire receipts.

Conclusion:
The Tribunal dismissed the Revenue's appeal for Assessment Year 2001-02, upholding the CIT (A)'s decision to allow the Section 10B deduction for ten years. For Assessment Year 2004-05, the Tribunal partly allowed the Revenue's appeal, directing the AO to exclude stitching charges from the profits for Section 80HHC deduction computation, but to consider the actual profit from stitching activities.