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2014 (7) TMI 959 - AT - Income TaxReopening of assessment u/s 147 Power to review by AO Held that - The AO reached the belief that there was escapement of income, on the basis of return filed by the assessee, after he accepted the return under section 143(1) without scrutiny, and nothing more - This was nothing but a review of the earlier proceedings and an abuse of power by the AO - There was nothing in the reasons recorded to show that any tangible material had come into the possession of the AO subsequent to the issue of the intimation - The notice reflected an arbitrary exercise of the power conferred u/s 147 of the Act - relying upon CIT-vs- Orient Craft Ltd. 2013 (1) TMI 177 - DELHI HIGH COURT - reassessment proceedings initiated u/s. 147 of the Act by issuing notice u/s. 148 of the Act is set aside Decided in favour of Assessee. Profit from sales of DEPB taxable u/s 28(iiib) instead of entire sale consideration of DEPB Held that - Only the net of sale consideration and face value of DEPB will be taxable under section 28(iiib) of the Act Relying upon Avani Exports Vs. CIT 2012 (7) TMI 190 - GUJARAT HIGH COURT - assessee is eligible for deduction u/s 80HHC of the Act irrespective of any restriction of the export turnover Following the decision in Topman Exports Vs. CIT 2012 (2) TMI 100 - SUPREME COURT OF INDIA - the face value of DEPB will fall under clause (iiib) of Section 28 of the Act and hence, the same is eligible for deduction u/s 80 HHC of the Act irrespective of any restriction of export turnover - the CIT(A) has rightly allowed the claim of the assessee Decided against Revenue.
Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act. 2. Taxability of the profit element or entire sale consideration under section 28(iiib) of the Income Tax Act. 3. Re-computation of deduction under section 80HHC of the Income Tax Act. Detailed Analysis: 1. Reopening of Assessment under Section 147: The primary issue in the Cross-Objections of the assessee was the order of the CIT(A) confirming the reopening of assessment under section 147 of the Income Tax Act. The assessee contended that the reopening was based on mere suspicion and not on any concrete belief. The returns for the assessment years 1999-2000, 2000-01, and 2002-03 were processed under section 143(1) before reopening under section 147. For the assessment year 2001-02, the assessment was completed under section 143(3). The reasons for reopening were identically worded across all four years, focusing on the receipt of export incentives in the form of DEPB and the subsequent amendment in section 80HHC by the Taxation Laws (Amendment) Act, 2005. The Tribunal found that the Assessing Officer (AO) reached the belief of income escapement based solely on the material available at the time of processing the return under section 143(1). This was deemed a review of earlier proceedings and an abuse of power, as no tangible material had come into possession of the AO post the initial intimation. The Tribunal quashed the reassessment proceedings initiated under section 147, citing the decision of the Hon'ble Delhi High Court in CIT vs. Orient Craft Ltd., which emphasized that mere review of earlier proceedings without new tangible material is not a valid reason for reopening assessments. 2. Taxability under Section 28(iiib): The second issue was whether the profit element or the entire sale consideration of DEPB would fall under clause (iiib) of section 28 of the Income Tax Act. The Revenue argued that the entire sale consideration should be assessed under section 28(iiib). However, the Tribunal referred to the decision of the Hon'ble Supreme Court in Topman Exports vs. CIT, which held that only the face value of DEPB falls under clause (iiib) and is eligible for deduction under section 80HHC, irrespective of any restriction on export turnover. 3. Re-computation of Deduction under Section 80HHC: The Tribunal also addressed the recomputation of deduction under section 80HHC concerning the sale consideration of DEPB licenses. The CIT(A) had allowed the assessee's claim based on the Supreme Court's decision in Topman Exports and the Gujarat High Court's decision in Avani Exports vs. CIT. The Gujarat High Court quashed the retrospective amendment to section 80HHC(3) that imposed restrictions on export turnover, declaring it ultra vires. Consequently, the assessee was eligible for deduction under section 80HHC on both the face value and the profit on transfer of DEPB. Conclusion: The Tribunal allowed the Cross-Objections of the assessee, quashing the reassessment proceedings under section 147 and confirming the CIT(A)'s decision that only the net profit from DEPB sales is taxable under section 28(iiib). Additionally, the assessee was entitled to deductions under section 80HHC without the retrospective restrictions on export turnover. The appeals of the Revenue were dismissed, and the reassessment proceedings were deemed invalid.
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