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2004 (3) TMI 348 - AT - Income TaxValidity of reopening of assessment u/s 148 - Nature of compensation received - Capital receipt Or revenue receipt - business of manufacture of various pharmaceutical formulations and carried on business of rendering job works. HELD THAT - Admittedly, in the instant case, the return of income was merely processed u/s 143(1) of the Act. The Legislature in its wisdom has given two options to the Assessing Officer, i.e., (a) accepting the return of income by merely processing it u/s 143(1) of the Act without making investigation and (b) taking up the case for scrutiny and to complete assessment u/s 143(3) of the Act. The return processed u/s 143(1) of the Act cannot be equated to 'assessment'. This point was considered in great detail by the Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Ltd. 2000 (8) TMI 53 - DELHI HIGH COURT and also by the Hon'ble Gujarat High Court in the case of Bharat V. Patel 2003 (11) TMI 30 - GUJARAT HIGH COURT . Merely because the Assessing Officer has two option for reopening the matter-processed u/s 143(1), non-exercise of option u/s 143(2) to correct the assessment made u/s 143(1) does not exclude Assessing Officer's power to reopen the assessment u/s 147 of the Act, as has been held by the Hon'ble A.P. High Court in the case of A. Pusalal 1987 (7) TMI 78 - ANDHRA PRADESH HIGH COURT . Consistent with the view taken by the Hon'ble A.P. High Court and also in the light of Explanation 2 to section 147 of the Act, we are of the view that the reopening of assessment is valid in law in the circumstances of the case. We accordingly uphold the order of the CIT(A) on this issue. Nature of compensation received whether it is a capital or revenue receipt - It is not the case of the assessee-company that the assets, which were acquired for manufacture of specific formulations, were completely abandoned. On the contrary, the note by the assessee-company indicates that the assets could not be exploited to its optimum. In fact, the claim for compensation made by the assessee immediately after the termination of the contract shows that the compensation was claimed towards reimbursement of expenses of revenue nature. The claim was made for a sum of Rs. 1.53 crores and the detailed claim do not indicate that it was for sterilisation of capital assets. The claim was made within very short period from the date of the discontinuance of the project and thus the claim can be considered to be made on an analysis of actual facts. Under these circumstances, the later agreement dated 17-4-1997 cannot be accepted on its face value unless it is corroborated by some other evidence, as has been held by the Hon'ble Supreme Court in the case of Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT . As could be seen from answers to question Nos. 19 and 20, in the sworn statement of Sri Chedda, the compensation was claimed especially to recover the loss of profit. In response to question No. 23, Sri Chedda stated that there was substantial addition to the fixed assets because the company saw an opportunity in the liquid department and went ahead with updating the same. The totality of circumstances thus indicate that by cancellation of the agreement the trading structure of the assessee is not impaired and it is only a normal incidence of the business; for the loss of future profits etc., the assessee was compensated. We are therefore of the firm view that the amount of Rs. 87,33,066 received by the assessee from M/s. P G Limited is a revenue receipt liable for taxation. Conclusion The Tribunal upheld the CIT(A)'s order on all counts, confirming the validity of the reopening of assessment, the treatment of the compensation as a revenue receipt.
Issues Involved:
1. Validity of reopening of assessment u/s 148. 2. Nature of compensation received: whether it is a capital receipt or revenue receipt. 3. Levy of interest u/s 234B. Summary: 1. Validity of Reopening of Assessment u/s 148: The assessee challenged the reopening of assessment, arguing that there was full and true disclosure of particulars in the original return processed u/s 143(1)(a). The CIT(A) upheld the reopening, stating that processing a return u/s 143(1) does not equate to an assessment. The Tribunal agreed, citing Explanation 2 to section 147 and various judicial precedents, concluding that the reopening was valid as the Assessing Officer had reason to believe that income had escaped assessment. 2. Nature of Compensation Received: The main issue was whether the compensation of Rs. 87,33,056 received from M/s. P & G Ltd. was a capital receipt or revenue receipt. The assessee argued it was a capital receipt for sterilization of capital assets. However, the CIT(A) and the Tribunal found that the compensation was for loss of profit and not for sterilization of capital assets. The Tribunal noted that the assessee continued to use the assets and claim depreciation, indicating no impairment of the source of income. The Tribunal upheld the CIT(A)'s decision, concluding that the compensation was a revenue receipt. 3. Levy of Interest u/s 234B: The assessee contested the interest charged u/s 234B, citing the decision in CIT v. Sedco Forex International Drilling Co. Ltd. The Tribunal rejected this ground, referencing the Supreme Court's decision in CIT v. Anjum M.A. Ghaswala, which held that interest u/s 234B is mandatory. Conclusion: The Tribunal upheld the CIT(A)'s order on all counts, confirming the validity of the reopening of assessment, the treatment of the compensation as a revenue receipt, and the levy of interest u/s 234B. The appeal filed by the assessee was dismissed.
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