2015 (9) TMI 604 - AT - Income Tax

Reopning of assessment - basis of reopening of the assessment order was lesser figure of total turnover - Held that - It is undisputed fact that AO had not borrowed the satisfaction from the audit party as nowhere in the satisfaction he has mentioned the audit objection. As per his working in reasons recorded excess deduction had been calculated at ₹ 27,66,386/- on the basis of total turnover of ₹ 16,82,67,037/- whereas the assessee has taken total turnover in computation made by the CA in prescribed form at ₹ 15,39,35,866/- but this issue has not been considered by the AO at the time of completing the assessment. He simply reduced the other income from total income ₹ 1,43,31,171/- which includes interest at ₹ 12,14,227/-, dividend income of ₹ 32,550/- and brokerage and commission income of ₹ 12,736/- and business profit has been calculated at ₹ 3,12,21,537/- in place of ₹ 3,24,81,050/- shown by the assessee. It is clear that ld. AO had not made any addition on the basis of reopening or satisfaction recorded. AO has not made any addition on the basis of formation of believe under section 147 of the IT Act. The AO has power as per Explanation 3 to include the items of income which came to his notice subsequently in the course of proceedings under this section for which no separate reopening is required, but in final out come both the additions have to be made by the AO in assessment order which has not been the case of AO during the year under consideration as he has not made any additions on the basis of total turnover. - Decided against revenue.

Summary

Issues Involved:
1. Validity of reopening the assessment under section 148 of the Income Tax Act.
2. Treatment of various incomes (interest, dividend, brokerage, and commission) for the purpose of deduction under section 10B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Assessment under Section 148:

The primary issue was whether the reopening of the assessment by the Assessing Officer (AO) under section 148 was valid. The AO initiated the reassessment proceedings based on an audit objection from the AG Department, which suggested that the total turnover used for claiming the deduction under section 10B was incorrect. The AO's reasons for issuing the notice under section 148 were based on the belief that substantial income had escaped assessment due to an incorrect calculation of the total turnover.

However, the assessee argued that the AO had no independent satisfaction and merely acted on the audit objection. The CIT (A) quashed the assessment order, stating that the reopening was based solely on borrowed satisfaction from the audit objection without any independent material to justify the reopening. This was supported by judicial precedents, including the decisions of the Hon'ble Rajasthan High Court in Shri Rajasthan Syntax Ltd. and the Hon'ble Gujarat High Court in Adani Exports vs. DCIT.

The Tribunal upheld the CIT (A)'s decision, noting that the AO had not made any additions based on the reasons for reopening the assessment. The Tribunal relied on the decisions of the Hon'ble Delhi High Court in Ranbaxy Laboratories Ltd. vs. CIT and the Hon'ble Bombay High Court in CIT vs. Jet Airways (I) Ltd., which held that if the AO does not make any additions on the basis of the reasons for which the assessment was reopened, he cannot independently assess other income. Therefore, the Tribunal confirmed the CIT (A)'s order and dismissed the revenue's appeal.

2. Treatment of Various Incomes for Deduction under Section 10B:

The AO observed that certain incomes, including interest, dividend, and brokerage and commission, were included in the total turnover for claiming the deduction under section 10B. The AO held that these incomes did not qualify for the deduction under section 10B as they were not business income but income from other sources. Consequently, the AO reduced the deduction under section 10B from Rs. 3,24,81,050 to Rs. 3,12,21,537, treating the difference of Rs. 12,59,513 as income from other sources.

The assessee contested this treatment, arguing that the interest income should be reduced from interest expenditure, and the dividend and brokerage income were related to the business operations. However, the AO maintained that these incomes were not derived from the export business and thus did not qualify for the deduction under section 10B.

The CIT (A) did not decide on the merits of this issue, as the assessment order itself was quashed on the grounds of invalid reopening. The Tribunal, while upholding the CIT (A)'s decision to quash the assessment, did not delve into the merits of the treatment of these incomes for the purpose of deduction under section 10B.

Conclusion:

The Tribunal dismissed the revenue's appeal, confirming the CIT (A)'s decision to quash the assessment order. The reopening of the assessment under section 148 was deemed invalid as it was based on borrowed satisfaction from an audit objection without independent material. Consequently, the Tribunal did not address the merits of the treatment of various incomes for the purpose of deduction under section 10B. The order was pronounced in the open court on 17.07.2015.