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2016 (6) TMI 637 - AT - Income TaxReopening of assessment - reasons to believe - whether the proceedings under sec. 147 of the Act were initiated merely on the change of opinion? - Deduction u/s 10B wrongly claimed - Held that - AO has not applied his mind at all. The order passed by the AO is flimsy and one page order which shows total non application of mind and the assessment order (original) dated 9.10.2009 has not discussed any issue much less the issue under sec. 10B and the basis of calculation giving the benefit of sec. 10 B to the assessee. Even assuming the information which were supplied by the assessee, as per question no. 9 & 25 of the paper book , then also this information was not correct and complete information i.e was not a sufficient disclosure. In our view the assessee has wrongly claimed the deduction of ₹ 22,91,771/- as mentioned by the AO. In our view the AO is required to form his opinion one way or the other and also required to adjudicate on the entitlement and quantum of the assessee for the deduction under section 10B of the IT Act on the basis of complete information. In our view though the information were supplied but that was not sufficient for the AO for completing the assessment u/s 143(3) by applying his mind and form his opinion. In our view, there was no opinion formed, therefore, we do not find any merit in the submission of the ld. A/R that there is a change of opinion. In view thereof, we reject the ground of the assessee that reassessment was bad in law. Deduction u/s 10B computation - Held that - The total profit of business has been mentioned at ₹ 66,32,853/- and total profit of undertaking was mentioned at ₹ 29,33,736/-. Total turnover of the undertaking as well as export turnover was mentioned as ₹ 46,99,000/- whereas the total turnover of the business has been mentioned as ₹ 8,81,97,775/-. The total profit of the undertaking and total turnover of the undertaking is required to be applied, as per the formula accepted in terms of section 10B(4) of the IT Act. AO has correctly applied the formula but has applied wrong figure. In view thereof, we have no option but to remand the matter to the file of the AO to recalculate the deduction after applying the correct formula as mentioned under section 10B(4) of the IT Act. - Decided partly in favour of assessee for statistical purposes.
Issues Involved:
1. Legality of the reassessment proceedings under Section 147 of the Income Tax Act, 1961. 2. Validity of the disallowance of the deduction claimed under Section 10B of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Legality of the Reassessment Proceedings under Section 147: The primary issue raised by the assessee was the legality of the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961. The assessee argued that the reassessment was based on a "change of opinion," which is not permissible under the law. The AO had issued a notice under Section 147/148, stating that there was a reason to believe that the assessee's income chargeable to tax had escaped assessment. The assessee contended that all relevant details, including those related to the exemption under Section 10B, were fully disclosed during the original assessment proceedings under Section 143(3). The assessee relied on various judicial precedents, including the judgments of the Hon’ble Delhi High Court in the matter of Replika Press Pvt. Ltd. vs. DCIT and the Hon’ble Jurisdictional High Court in the matter of Mukesh Modi & Ors. vs. DCIT, to argue that the reassessment was invalid as it was based on the same set of facts already considered during the original assessment. However, the Revenue argued that the reassessment was justified as the AO had reasons to believe that income had escaped assessment due to the excess deduction claimed under Section 10B. The Revenue relied on the judgment of the Hon’ble Madras High Court in the case of Sword Global India (P) Ltd. vs. ACIT, which supported the AO's action in reopening the assessment. The Tribunal, after considering the rival arguments and the material on record, concluded that the original assessment order did not show any application of mind by the AO regarding the deduction under Section 10B. The Tribunal noted that the original assessment order was a one-page order with no discussion on the issue. Therefore, it was held that there was no "change of opinion" as no opinion was formed in the first place. Thus, the reassessment proceedings were deemed valid. 2. Validity of the Disallowance of the Deduction Claimed under Section 10B: The second issue was the validity of the disallowance of the deduction claimed by the assessee under Section 10B. The AO had disallowed the deduction on the ground that the assessee had claimed an excess exemption under Section 10B. The AO applied a formula to recompute the eligible deduction, which resulted in a significantly lower deduction than claimed by the assessee. The assessee argued that the AO had incorrectly applied the old law instead of the new law amended in 2001. The assessee contended that the deduction under Section 10B should be calculated based on the profit of the undertaking in proportion to the total turnover of the undertaking, not the total turnover of the business carried on by the assessee. The Tribunal examined the provisions of Section 10B(4) and agreed that the AO had applied the correct formula but had used the wrong figures. The Tribunal noted that the total profit of the business and the total turnover of the undertaking were incorrectly calculated. Therefore, the Tribunal remanded the matter back to the AO to recalculate the deduction under Section 10B using the correct figures. Conclusion: The Tribunal upheld the validity of the reassessment proceedings under Section 147, rejecting the assessee's argument of "change of opinion." However, on the issue of the deduction under Section 10B, the Tribunal found that the AO had used incorrect figures and remanded the matter back to the AO for recalculating the deduction using the correct formula as per Section 10B(4). The appeal of the assessee was allowed for statistical purposes.
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