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2004 (11) TMI 294 - AT - Income TaxValidity of initiation of reassessment proceedings u/s 147 r/w s. 148 - development and export of software - Denial of exemption u/s 10A - Free trade zone - Assessment of interest income as income from other sources instead of business income - HELD THAT - According to the Hon ble jurisdictional High Court in the case of Kelvinator of India Ltd. 2002 (4) TMI 37 - DELHI HIGH COURT an order of assessment would be passed either in terms of sub-s. (1) of s. 143 or sub-s. (3) of s. 143 of the Act. Hence it is only when an order u/s 143(3) has been passed the presumption could be raised that order has been passed on an application of mind. An opinion can be said to be formed only when there is application of mind with reference to material on record and relevant provisions of statute and therefore if in earlier proceeding no such opinion is formed and there is escapement of income then it cannot be contended that reassessment proceeding are initiated on a mere change of opinion. A mere acceptance of return in a routine manner u/s 143(1)(a) of the Act would not lead to an inference that opinion was formed by the AO in respect of issues involved in the assessment. In the instant case since the original assessment order was made u/s 143(1)(a) of the Act a notice issued u/s 148 of the Act cannot be said to have been issued on mere change of opinion. Denial of one exemption while Claiming two exemption u/s 10A as well as u/s 80HHE - Since both the sections i.e. s. 80HHE and s. 10A entitle the benefit the assessee would legitimately be entitled to the benefit of that provision of law which enables a larger benefit being earned by him. We therefore do not find any justification in the action of the learned CIT(A) to uphold that the assessee being an old unit and once having claimed deduction u/s 80HHE was not entitled to claim exemption u/s 10A from the profits of its unit. However the AO in the assessment order has not dealt with the submissions made by the appellant that it has carried out all the requisites envisaged in the scheme of s. 10A before denying the exemption. We therefore set aside the orders of the authorities below on this point and restore the matter back to the file of the AO with a direction to allow exemption u/s 10A in both the years in case the assessee is found to have satisfied all other requisites envisaged in the scheme of s. 10A of the Act. In case the exemption u/s 10A cannot be allowed for the reasons of not satisfying the requisites the claim of deduction u/s 80HHE shall be allowed after providing opportunity to meet the requisites. Assessment of interest income as income from other sources instead of claim of the assessee as income from business - The authorities below have not recorded any finding as to whether the FDRs were taken with a specific purpose to keep the same as security/margin money with the bank for availing letter of credit for the purpose of business of the assessee. We therefore set aside the orders of the authorities below and restore the matter back to the file of the AO to find out the correct facts and arrive at a decision afresh having regard to the decisions rendered in the case of Punit Commercial Ltd. 2000 (8) TMI 71 - BOMBAY HIGH COURT and Nagpur Engg. Co. Ltd 1998 (4) TMI 18 - BOMBAY HIGH COURT . In the result the appeal for the asst. yr. 2000-01 stands partly allowed and for the asst. yr. 2001-02 stands fully allowed for statistical purposes only.
Issues Involved:
1. Validity of initiation of reassessment proceedings u/s 147 r/w s. 148 of the IT Act, 1961. 2. Denial of exemption u/s 10A of the IT Act. 3. Assessment of interest income as income from other sources instead of business income. Summary: Issue 1: Validity of initiation of reassessment proceedings u/s 147 r/w s. 148 of the IT Act, 1961 The assessee challenged the validity of the notice issued u/s 148, contending that it had declared the income correctly and that the notice was based on a mere change of opinion. The CIT(A) observed that the reasons for the notice were communicated to the assessee, and any omission was a procedural infirmity. The Tribunal held that since the original assessment was made u/s 143(1)(a), the notice u/s 148 was not issued on a mere change of opinion, citing the jurisdictional High Court's decision in Kelvinator of India Ltd. Therefore, the notice issued u/s 148 was deemed legal. Issue 2: Denial of exemption u/s 10A of the IT Act The assessee claimed exemption u/s 10A for the relevant years, which was denied by the AO on the grounds that the assessee had previously claimed deduction u/s 80HHE and had not filed the required declaration u/s 10A(8). The CIT(A) upheld the AO's decision, stating that the assessee was precluded from claiming deduction under any other provision for the same profits. The Tribunal, however, held that the assessee was eligible for exemption u/s 10A, as the principle of estoppel does not apply to successive assessments. The case was remanded to the AO to verify if the assessee met all other requisites of s. 10A. If not, the AO was directed to allow the deduction u/s 80HHE. Issue 3: Assessment of interest income as income from other sources The assessee contended that the interest income earned on fixed deposit receipts kept as margin money for availing letter of credit should be assessed as business income. The authorities below had assessed it as income from other sources. The Tribunal remanded the matter back to the AO to verify if the FDRs were specifically for business purposes, referencing decisions in Punit Commercial Ltd. and Nagpur Engg. Co. Ltd. Conclusion: The appeal for the asst. yr. 2000-01 was partly allowed, and for the asst. yr. 2001-02, it was fully allowed for statistical purposes.
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