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2014 (10) TMI 357 - AT - Income TaxValidity off notice for reopening of assessment u/s 147 No failure to disclose material on part of assessee - Change of opinion Held that - Notice u/s 148 was issued on 1.4.2008 i.e. after the expiry of 4 years from the end of the AY - The original return was filed by the assessee on 31.10.2002 while the assessment u/s 143(3) was completed by the AO on 31.3.2005 - Since the assessment u/s 143(3) was completed in this case, therefore, the assessment u/s 147 cannot be re-opened unless and until either of the conditions stated under the proviso to Sec. 147 is complied with in addition to the conditions stated u/s 147 i.e. the reason to believe - Except notice u/s 148 dt. 1.4.2008, no other notice u/s 148 prior to this notice has been issued in the case of the Assessee so that it can be said that there is a failure on the part of the Assessee to file the return in response to notice issued u/s 148 - the only condition remains which must be fulfilled by the AO before issuing the notice u/s 148 is that the Assessee has failed to disclose fully and truly all the material facts necessary for his assessment for the impugned assessment year - there is no allegation levelled by the AO on the Assessee that there is a failure on the part of the Assessee to disclose fully and truly any material fact relating to the income for which he believes that there is an escapement of income by the Assessee - The AO did not allege that there is a failure on the part of the Assessee to disclose fully and truly all the material facts necessary for his assessment Decision in the case of Grindwell Norton Ltd. vs. ACIT 2003 (12) TMI 31 - BOMBAY High Court followed. Reasons to believe bona fide or not Evidences submitted to prove claim u/s 10B - Held that - The reason to believe must be bona fide - Under the garb of reason to believe , the AO cannot be empowered to review its own order - Sec. 147 does not empower the AO to review his decision relying upon CIT vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA - the AO took a particular view and allowed deduction to the Assessee u/s 10B and did not disallow any expenditure u/s 40(a)(i) - on the basis of the same material the AO cannot take a different view by taking shelter of Sec. 147 that there is an escapement of income - No fresh or tangible material has come to the knowledge of the AO - On the basis of the material which was available at the time of the assessment, re-opening of the assessment, will not be permissible as the reasons cannot be regarded to be a bona fide one and it will tantamount to be change of opinion - Re-opening cannot be permitted in the garb of review thus, the reassessment proceedings set aside Decided in favour of assessee. Service of the notice u/s 143(2) on the Assessee Held that - The evidences produced by the revenue do not prove that any notice has been sent to the Assessee through speed post on 21.8.2009 or through notice server prior to 30.9.2009 revenue was not able to produce any evidence except the copy of the notice issued u/s 143(2) which may prove that the notice has been served on the Assessee u/s 143(2) prior to 30.9.2009 - Until and unless there is evidence to prove that the notice has been sent to the Assessee either through speed post or through notice server prior to 30.9.2009 for the AY, the onus cannot be said to have been discharged by the revenue and shifted on the Assessee to prove that the Assessee has not been served with the notice u/s 143(2) Relying upon Assistant Commissioner Of Income-Tax. Versus Vindhya Telelinks Limited 2006 (9) TMI 228 - ITAT JABALPUR - the notice was not served on the assessee within the permissible time as stipulated u/s 143(2) Decided in favour of assessee. Computation of profit u/s 10B - Exclusion of the miscellaneous income, interest from bank, dispatch earned and sundry creditors written back Held that - The assessee is a 100% EOU, which has exported software and earned the income - A portion of that income is included in EEFC account - Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law - There is a direct nexus between this income and the income of the business of the undertaking - Though it does not par take the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles - in case the Assessee is eligible for deduction u/s 10B, which is the ground taken by the Revenue in its appeal, the AO will compute the exemption to the Assessee u/s 10B in accordance with the formula laid down u/s 10B(4) - The exemption under this section has to be based on the basis of the formula thus, the matter is to be remitted back to the AO for fresh adjduciation Decided in favour of assessee. Eligibility for claim of deduction u/s 10B 100% Export Oriented Units - Held that - New units had actually been established by the assessee in the FY 1999-2000 at Codli; in the FY 2002-03 at Amona; and in the FY 2005-06 at Chitradurga - there is no requirement that the assessee should maintain separate books of accounts in respect of 100% EOU Unit for claiming deduction following the decision in DCIT Vs Arabian Exports Ltd. 2007 (3) TMI 287 - ITAT BOMBAY-G - in respect of the Amona plant the assessee has duly informed the DC, SEZ Bombay vide his letter dated 9.3.2008 i.e., commercial production started on 8.3.2000 and copy of the said letter was duly sent to Customs Department which was not disputed by these competent authorities - In the case of Chitradurga plant also, the assessee vide its letter dated 14.7.2008 duly intimated to the DC, SEZ that the converted 100% EOU is started commercial production on 6.6.2008 - The premises of the unit was bonded and the licence no.1/2008 dated 5.6.2008 was issued u/s 58 of the Customs Act - in the case of Codli Unit the assessee has duly intimated to the Ministry of Industry vide letter dated 9.3.2000 that the commercial production is started on 8.3.2000 - None of the Government authority has disputed that the assessee has not started commercial production on that date - the assessee is entitled for exemption u/s 10B in respect of all the three 100% Export Oriented Units thus, the matter is remitted back to the limited purpose of the determination of the market value of the crude ore consumed by the assessee on the basis of the value paid by the assessee for the crude ore to the outside parties during the year and thereby recomputing the profit derived by the assessee from the 100% EOU units eligible for exemption u/s 10B Decided partly in favour of revenue. Disallowance u/s 14A Held that - Following the decision in Sociedade De Fomento Industrial Pvt. Ltd. Versus Deputy Commissioner of Income Tax 2014 (4) TMI 517 - ITAT PANAJI - the AO only discussed the provisions of Sec. 14A(1) and has not made out any satisfaction whatsoever how the expenditure incurred by the Assessee during the year relate to the income not forming part of the total income of the Assessee Relying upon GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER 2010 (8) TMI 77 - BOMBAY HIGH COURT - there must be proximate cause based on the relationship of the expenditure that tax exempt income is established, only then a disallowance would have to be effected u/s 14A of the IT Act - sec.14A cannot be applied unless there is a proximate cause for disallowance - The onus to establish that there is proximate cause based on the relationship of the expenditure with the exempt income in our opinion is on the Revenue - Thus, the application of the provisions of sec. (2) & (3) of Sec.14A and Rule 8D is not automatic in each and every case, where there is income not forming part of the total income thus, the disallowance made u/s 14A r.w. Rule 8D is to be set aside Decided in favour of assessee.
Issues Involved:
1. Validity of reassessment proceedings under Section 147. 2. Service of notice under Section 143(2). 3. Eligibility for deduction under Section 10B. 4. Computation of eligible profit under Section 10B. 5. Disallowance under Section 14A read with Rule 8D. Issue-wise Detailed Analysis: 1. Validity of Reassessment Proceedings under Section 147: The Assessee challenged the reassessment proceedings initiated by the AO under Section 147, arguing that there was no fresh tangible material justifying the reopening. The Tribunal referred to the Supreme Court's decision in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., which clarified that processing a return under Section 143(1) is not an assessment, and the AO can initiate reassessment if he has "reason to believe" that income has escaped assessment. The Tribunal held that the AO's action was valid as the return had only been processed under Section 143(1), and there was no need for fresh tangible material for reopening under Section 147. 2. Service of Notice under Section 143(2): The Assessee argued that the reassessment was invalid due to non-service of notice under Section 143(2) within the prescribed time. The Tribunal emphasized that the issuance and service of notice under Section 143(2) are mandatory before making an assessment under Section 147. The Tribunal found no evidence that the notice was served on the Assessee within the stipulated time, thus quashing the reassessment on this ground. 3. Eligibility for Deduction under Section 10B: The Assessee claimed deduction under Section 10B for its 100% Export Oriented Unit (EOU). The AO denied the exemption, arguing that the new unit was merely an expansion of the existing unit. The Tribunal referred to the CIT(A)'s order for A.Y. 2006-07, which had become final as the Revenue did not appeal against it. The CIT(A) had held that the Assessee established a new industrial undertaking. The Tribunal also referred to its decision in the case of Sesa Goa Ltd., which held that a 100% EOU engaged in processing activities is eligible for exemption under Section 10B. The Tribunal concluded that the Assessee's unit was a new industrial undertaking and eligible for exemption under Section 10B. 4. Computation of Eligible Profit under Section 10B: The Assessee argued that the CIT(A) erred in excluding certain incomes (miscellaneous income, interest from banks, dispatch earned, and sundry creditors written back) from the computation of eligible profit under Section 10B. The Tribunal referred to the formula given under Section 10B(4), which includes all profits of the business of the undertaking. The Tribunal directed the AO to compute the exemption under Section 10B in accordance with the formula, including the disputed incomes if they are assessed under the head 'income from business' and relate to the business of the eligible undertaking. 5. Disallowance under Section 14A Read with Rule 8D: The Assessee challenged the disallowance made under Section 14A read with Rule 8D, arguing that the AO did not record satisfaction regarding the correctness of the Assessee's claim. The Tribunal emphasized that the AO must record satisfaction and provide reasons for not accepting the Assessee's claim before applying Rule 8D. The Tribunal found that the AO did not record any such satisfaction and directly applied Rule 8D, which was not permissible. The Tribunal deleted the disallowance made under Section 14A. Conclusion: The Tribunal quashed the reassessment proceedings due to non-service of notice under Section 143(2) and allowed the Assessee's claim for deduction under Section 10B, directing the AO to compute the eligible profit as per the formula given under Section 10B(4). The Tribunal also deleted the disallowance made under Section 14A read with Rule 8D.
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