2016 (2) TMI 790 - AT - Income Tax

Reopening of assessment - Eligibility for deduction u/s 10A - Held that - The proceedings u/s. 147 and 148 of the Act initiated against the assessee company need to be dropped as the same was not validly initiated and is merely a change of opinion by the AO based upon the audit objections and AO has not independently applied his mind before re-opening the proceedings u/s 147/148 of the Act against the assessee company while there is no failure on the part of the assessee company in truly and fully disclosing all material and relevant facts concerning the Mumbai unit, as the proceedings have been initiated after four years from the end of the relevant assessment year and the proviso to Section 147 of the Act is applicable, the original assessment having being processed u/s. 143(3) of the Act culminating into an assessment order dated 28-11-2008. The assessee company is not hit by the Section 10A(2) of the Act as it could not be said that it is formed by splitting up or reconstruction of business already in existence nor it is brought on records that there is transfer to a new business of machineries or plant previously used for any purpose. The circular no 1 of 2005 issued in context of Section 10B of the Act which is reproduced below supports the stand of the assessee company. Thus, we hold that assessee company is duly entitled for exemption u/s. 10A of the Act and in our considered view, the assessee company has rightly claimed deduction of ₹ 47,13,192/- u/s. 10A of the Act w.e.f. 1st October , 2005 which the assessee company is duly entitled for the said deduction of ₹ 47,13,192/- u/s 10 A of the Act. Hence, we set aside the orders of the CIT(A) and hold that the assessee company is entitled for the deduction of ₹ 47,13,192/- u/s.10A of the Act w.e.f. 1st October, 2005 which has been rightly claimed by the assessee company in the return of income filed with the Revenue - Decided in favour of assessee

Issues Involved:
1. Validity of initiation of proceedings under Section 147 of the Income Tax Act for alleged escapement of income.
2. Denial of deduction under Section 10A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 147:

The assessee company challenged the validity of the initiation of proceedings under Section 147 of the Income Tax Act, arguing that the reasons recorded for reopening the assessment did not allege that the assessee had failed to disclose fully and truly all material facts necessary for the assessment. The assessee contended that the reassessment was a result of a mere change of opinion and that no new tangible material had surfaced after the original assessment. The assessee also argued that the approval for reopening was granted in a mechanical manner without application of mind by the CIT, as it was granted on the same date the proposal was sent by the AO.

The Tribunal observed that the original assessment was completed under Section 143(3) of the Act, and the assessee had fully disclosed all material facts necessary for the assessment. The Tribunal noted that the reopening of the assessment was based on audit objections and that there was no independent application of mind by the AO. The Tribunal held that the proceedings under Section 147 and 148 were not validly initiated as they were based on a mere change of opinion and not on any new tangible material. Therefore, the Tribunal concluded that the reassessment proceedings were invalid and needed to be dropped.

2. Denial of Deduction under Section 10A:

The assessee company claimed deduction under Section 10A of the Act for its Mumbai unit, which was set up in April 2005 and obtained approval from the Software Technology Parks of India (STPI) on 19th September 2005. The AO disallowed the deduction on the grounds that the manufacturing and export activity from the Mumbai unit was already in existence since April 2005, before the STPI approval was obtained, and hence, it did not qualify as a new undertaking.

The Tribunal noted that the assessee had set up a new undertaking at Mumbai in April 2005 and obtained STPI approval in September 2005. The Tribunal referred to Circular No. 1 of 2005, which clarified that an undertaking set up in the Domestic Tariff Area (DTA) and subsequently converted into a 100% Export Oriented Unit (EOU) is eligible for deduction under Section 10B (similar to Section 10A) from the year in which it gets the approval as a 100% EOU. The Tribunal observed that the assessee had claimed deduction under Section 10A from 1st October 2005, after obtaining the STPI approval, and had fully disclosed all material facts.

The Tribunal held that the assessee was entitled to the deduction under Section 10A as it had set up a new undertaking and obtained the necessary STPI approval. The Tribunal found that the AO's disallowance was not justified, and the assessee had rightly claimed the deduction of Rs. 47,13,192 under Section 10A. Consequently, the Tribunal set aside the orders of the CIT(A) and allowed the appeal of the assessee company, granting the deduction under Section 10A.

Conclusion:

The Tribunal concluded that the reassessment proceedings under Section 147 were invalid and that the assessee was entitled to the deduction under Section 10A for its Mumbai unit. The appeal of the assessee company was allowed, and the orders of the CIT(A) were set aside.

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