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2014 (12) TMI 838 - AT - Income TaxValidity of initiation of reassessment proceedings by the AO u/s.147 Bar of limitation - Change in opinion by AO or not on same set of facts - Held that - There is no bar for the CIT(A) to pass a consolidated order - doing so will not render the initiation of reassessment proceedings illegal or void - assessee has sought to invoke the condition laid down by the proviso to reopen an assessment completed u/s.143(3) of the Act after expiry of 4 years from the end of the relevant assessment year - the AY is 2003-04 and the period of 4 years from the end of relevant AY is 31.03.2008 - The proceedings u/s 147 were initiated by issue of notice u/s 148 on 14.02.2008 which is well within the period of 4 years from the end of the relevant AY - revenue rightly contended that in CIT v. Rinku Chakraborthy 2011 (1) TMI 1160 - Karnataka High Court wherein held that the omission to form an opinion in the original assessment on the basis of existing material then, cannot be termed as change of opinion - for reopening assessment, it is not necessary that the information must be derived from external source of any kind or that there must be disclosure of new and important matters, subsequent to original assessment - Where income liable to tax has escaped in the original assessment due to oversight and inadvertence or a mistake committed by the AO, then he has jurisdiction to reopen the assessment - the argument advanced by the assessee that initiation of reassessment proceedings us/. 147 of the Act is on a change of opinion and therefore not valid, cannot be accepted Decided against assessee. Deduction on computation of income from business expenditure incurred on Employee stock option plan Held that - As decided in assessee s case wherein it has held that the expenses on account of ESOP is allowable expenses - while passing the order u/s. 143(3) of the Act, the AO has disallowed the sum and added the same to the total income of the assessee - in the assessment order u/s.147 of the Act no addition on account of ESOP expenses was made Decided against assessee. Re-computation of relief u/s 10B in respect of deduction u/s 35(2AB) Held that - When the provisions of section 10A/10B of the Act are held to be exemption provisions, the provisions of section 35(2AB) of the Act which are contained in Chapter IV of the Act will not be applicable- Resultantly, the weighted deduction at 150% u/s. 35(2AB) of the Act will not be allowed while computing income of section 10A/10B unit - The 10A/10B unit will get only 100% deduction of revenue expenditure - The excess 50% allowed as deduction u/s. 35(2AB) of the Act has to be withdrawn as it will pull down the profits of the non-10A/10B unit which is taxable - Therefore, the withdrawal of 50% deduction allowed u/s. 35(2AB) of the Act while computing income of non-10A/10B unit has to be upheld both on general principles as well as by relying on the provisions of section 14A of the Act the order of the CIT(A) is upheld Decided against assessee. Allwoability of deduction on expenses u/s 35(2AB) Whether assessee furnished concrete evidence regarding commissioning of the machine & carrying out the research activity during the year using those machines Held that - Following the decision in Belpahar Refractories Limited Versus Commissioner Of Income-Tax 1993 (11) TMI 52 - ORISSA High Court it has been held that expenditure incurred during the previous year is eligible for deduction u/s. 35 of the Act and the fact that the liability in respect of expenditure incurred during the previous year was discharged by the assessee by actual payment in a subsequent assessment year cannot be the basis to deny the claim of the assessee for deduction u/s. 35 of the Act - the aforesaid judicial pronouncements which are rendered in the context of section 35(2), the wordings of which are in pari materia to that of section 35(2AB) of the Act, there is no substance in the appeal by the revenue Decoded against revenue. Consequential relief not provided - depreciation on energy saving device disallowed Held that - The assessee seeks consequential relief in respect of depreciation on energy saving devices disallowed in the previous AY - In the A.Y. 2005-06, the assessee had claimed depreciation at 100% on energy saving devices of the value of ₹ 13,75,111. Since these machineries were purchased after 1.10.2004, depreciation was restricted to 50% - The assessee in this assessment year had claimed the remaining 50% depreciation which was not allowed by the AO - Despite a specific ground, the CIT(Appeals) did not adjudicate the issue this, the CIT(A) is directed to consider the claim of the assessee Decided in favour of assessee. Denial of carry forward of unabsorbed depreciation Eligibility for relief u/s 10B - Whether the provisions of Sec.10B of the Act are deduction provisions or exemption provisions will assume great importance - Held that - If the provisions are considered as exemption provisions then they will not enter the computation of total income and therefore the loss of the eligible unit cannot be set off against the profits of the non-eligible unit - the issue has already been decided in Commissioner of Income-tax Versus Yokogawa India Ltd. 2011 (8) TMI 845 - Karnataka High Court - the claim as made by the Assessee for carry forward of loss of the non-eligible unit had to be allowed without set off of profits of the 10A/10B unit Decided in favour of assessee.
Issues Involved:
1. Validity of initiation of reassessment proceedings under Section 147 of the Income Tax Act. 2. Disallowance of deduction claimed under Section 35(2AB) for ESOP expenses. 3. Re-computation of relief under Section 10B in respect of deduction under Section 35(2AB). 4. Denial of carry forward of unabsorbed depreciation. 5. Deduction on expenditure under Section 35(2AB) for idle assets. Issue-wise Detailed Analysis: 1. Validity of Initiation of Reassessment Proceedings under Section 147: The assessee challenged the validity of reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act, arguing that the reassessment was based on a change of opinion and was time-barred. The Tribunal held that the initiation of reassessment proceedings was valid as the notice under Section 148 was issued within the period of four years from the end of the relevant assessment year. The Tribunal also noted that the omission to form an opinion in the original assessment on the basis of existing material cannot be termed as a change of opinion, citing the decision of the Hon'ble Karnataka High Court in CIT v. Rinku Chakraborthy, which stated that the AO has jurisdiction to reopen the assessment if income liable to tax has escaped due to oversight, inadvertence, or mistake. 2. Disallowance of Deduction Claimed under Section 35(2AB) for ESOP Expenses: The Tribunal found that the expenses on account of ESOP are allowable expenses as per the Special Bench of the Bangalore Tribunal. However, in the present case, the AO had already disallowed the ESOP expenses in the original assessment order under Section 143(3), and thus, this issue could not be the subject matter of reassessment proceedings under Section 147. Consequently, the Tribunal dismissed the grounds related to ESOP expenses as not arising out of the CIT(A)'s order concerning the reassessment. 3. Re-computation of Relief under Section 10B in Respect of Deduction under Section 35(2AB): The Tribunal upheld the AO's re-computation of deduction under Section 10B by reducing the profits of the 10B unit by the amount of deduction claimed under Section 35(2AB). The Tribunal relied on the decision of the Hon'ble Karnataka High Court in the case of Yokogawa, which held that Section 10B is an exemption provision, and thus, the weighted deduction under Section 35(2AB) should not be allowed while computing the income of the 10B unit. The Tribunal also rejected the assessee's reliance on the CBDT Circular, stating that the interpretation of a provision by the High Court takes precedence over the Circular. 4. Denial of Carry Forward of Unabsorbed Depreciation: The Tribunal held that the provisions of Section 10B are exemption provisions, and therefore, the profits of the 10B units should not be set off against the losses of non-10B units. The Tribunal relied on the decision of the Hon'ble Karnataka High Court in Yokogawa India Ltd., which clarified that the income of the 10B unit should be excluded at source before arriving at the gross total income, and thus, the question of setting off the loss of the current year's or the brought forward business loss against the 10B profits does not arise. 5. Deduction on Expenditure under Section 35(2AB) for Idle Assets: The Tribunal dismissed the revenue's appeal against the CIT(A)'s order allowing deduction under Section 35(2AB) for capital expenditure on machinery that was not commissioned during the year. The Tribunal referred to the decisions of the Hon'ble Gujarat High Court in CIT v. Gujarat Aluminium Extrusions Pvt. Ltd. and the Hon'ble Orissa High Court in Belpahar Refractories Ltd., which held that the use of assets is not a condition for grant of deduction under Section 35, and the expenditure incurred for scientific research should be allowed even if the assets were not put to use during the previous year. Conclusion: The Tribunal partly allowed the assessee's appeals for statistical purposes, directing the AO to follow the directions of the Special Bench regarding ESOP expenses and to re-compute the quantum of expenses to be allowed. The revenue's appeal was dismissed, and the Tribunal upheld the CIT(A)'s orders on various grounds, including the re-computation of relief under Section 10B and the deduction on expenditure under Section 35(2AB) for idle assets. The Tribunal also directed the CIT(A) to consider the assessee's claim for depreciation on energy-saving devices in accordance with the law.
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