2016 (3) TMI 1054 - AT - Income Tax

Reopening of assessment - exemption u/s. 10B of the Act and also exemption on receipts relating to EMA - Held that - This issue is squarely covered in favour of the assessee and against revenue in the case of CIT Vs. Kelvinator India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA), wherein newly substituted provision of section 147 of the Act with effect from 01.04.1989 is interpreted by observing, that section 147 of the Act, as substituted w.e.f. 01.04.1989 does not postulates conferment of power upon the AO to initiate reassessment proceeding upon his mere change of opinion. Further, if reason to believe of the AO is founded on an information which might have been received by the AO after the completion of assessment, it may be a sound foundation for exercising the power under section 147 r.w.s. 148 of the Act. It cannot be accepted that only because in the assessment order, detailed reasons have not been recorded, an analysis of the materials on the record by itself may be justifying the AO to initiate a proceeding u/s. 147 of the Act. When a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of section 114(e) of the Indian Evidence Act, 1872, judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without any thing further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong. - Decided in favour of assessee

Summary

Issues Involved:
1. Assumption of jurisdiction by the AO for reopening of assessment u/s. 147 r.w.s. 148 of the Act.
2. Denial and subsequent allowance of exemption u/s. 10B of the Act.
3. Exclusion of External Market Assistance (EMA) receipts from exemption u/s. 10B.

Detailed Analysis:

1. Assumption of Jurisdiction by the AO for Reopening of Assessment u/s. 147 r.w.s. 148 of the Act:

The assessee raised a jurisdictional issue regarding the reopening of assessment under section 147 read with section 148 of the Act, which was considered a fundamental issue. The original assessments for AY 2003-04 and AY 2004-05 were completed under section 143(3). The AO issued a notice u/s. 148 on 16.03.2010, recording reasons related to the inclusion of EMA in the profit eligible for exemption u/s. 10B. The Tribunal found that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. The CIT(A) upheld the reopening of the assessment, but the Tribunal referred to the Supreme Court's judgment in CIT Vs. Kelvinator India Ltd. (2010) 310 ITR 561 (SC), which stated that section 147 does not allow the AO to initiate reassessment based on a mere change of opinion. The Tribunal concluded that the reopening was bad in law and quashed it.

2. Denial and Subsequent Allowance of Exemption u/s. 10B of the Act:

The assessee, engaged in manufacturing and sale of jute goods, claimed deduction u/s. 10B for its 100% Export Oriented Unit (EOU). The AO initially denied this claim, stating that the letters provided were mere permissions for implementation and commencement of production, not approvals for 100% EOU status. The CIT(A) later allowed the deduction u/s. 10B, recognizing the clarificatory letter from the Competent Authority as an approval for 100% EOU. The Tribunal upheld this decision, stating that the profits of the business of the undertaking include its entire business income, including EMA, as part of the profits of the unit.

3. Exclusion of External Market Assistance (EMA) Receipts from Exemption u/s. 10B:

The CIT(A) disallowed the inclusion of EMA receipts in the export turnover for the purpose of calculating exemption u/s. 10B, based on a strict interpretation of the definition of "export turnover." The Tribunal, however, remanded the matter back to the AO to verify whether the assessee included EMA in the export turnover. The AO later accepted the assessee's claim and allowed the exemption including EMA. Upon reassessment, the AO disallowed the exemption on EMA receipts again, but the CIT(A) upheld the exclusion of EMA from the exemption. The Tribunal found that the issue had already been deliberated upon in the first round by the AO, CIT(A), and Tribunal, and thus, reopening the assessment on the same set of facts was not justified.

Conclusion:

The Tribunal quashed the reopening of the assessment u/s. 147 r.w.s. 148 of the Act, finding it bad in law due to the absence of any failure on the part of the assessee to disclose material facts. Consequently, the appeals of the revenue were dismissed, and the cross objections of the assessee were allowed. The Tribunal did not delve into the merits of the case further, as the reassessment proceedings were already quashed. The order was pronounced in the open court on 20.01.2016.