2017 (9) TMI 52 - HC - Income Tax

Reopening of assessment - entitlement of the Pune unit for deduction under Section 10B - reason to believe - proof of manufacturing activity by Pune unit - Held that - The Pune unit being an export unit (as held by the Supreme Court in Yokogawa (2016 (12) TMI 881 - SUPREME COURT) is an eligible undertaking and is entitled to the benefit under Section 10B. All the material facts relating to the Pune and Delhi units and their respective businesses, having been filed with the AO, The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the Assessee there being nothing new, this reason is not tenable for reassessment. The reasons recorded seem to suggest that no sale proceeds are brought to India and that the Assessee is only providing the manufacturing services to its AEs and receiving the charges on a cost plus basis. This is not correct as per the record. The Assessee s Pune unit is a 100 % export oriented unit carrying on manufacturing activities. The AO, during the assessment proceedings, had accepted this position and had assessed the income of the Assessee at ₹ 6,85,24,800/- after allowing the benefit under Section 10B of the Act. There was no reason for the AO to seek re-assessment on this ground. It is also held that the activities conducted by the Pune unit constitute manufacture and in the subsequent year, on a similar set of facts, the issue of benefit under Section 10B having attained finality, the impugned order deserves to be quashed. Accordingly, notice dated 25th March, 2014 issued under Section 148 of the Act is quashed and the order dated 11th June, 2014 passed by the Respondent, disposing of the objections of the Assessee for AY 2007-08, is set aside. - Decided in favour of assessee.

Issues Involved:
1. Validity of notice issued under Section 148 of the Income Tax Act, 1961.
2. Entitlement of deduction under Section 10B of the Income Tax Act for the Pune unit.
3. Impact of subsequent assessment orders on reopening of earlier assessments.
4. Adequacy of disclosure by the Assessee during original assessment proceedings.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued under Section 148 of the Income Tax Act, 1961:
The Petitioner sought quashing of the notice dated 25th March 2014, issued under Section 148 by the Deputy Commissioner of Income Tax (DCIT) for reassessment of income for AY 2007-08. The Petitioner argued that the reopening was based on the same issues already examined during the original assessment under Section 143(3) and subsequent proceedings under Section 153. The Court noted that for reopening after four years, there must be a failure to disclose fully and truly all material facts, as held in *Oracle India Pvt. Ltd. v. ACIT*. Since the Assessee had disclosed all relevant details during the original assessment, the reopening notice was found to be invalid.

2. Entitlement of Deduction under Section 10B for the Pune Unit:
The Assessee claimed a deduction of ?4,67,89,966 under Section 10B for the Pune unit, which was a 100% export-oriented unit. The AO's first reason for reopening was that the Assessee's overall income was negative, thus not entitled to the deduction. The Court referenced *CIT v. Yokogawa India Ltd.*, which clarified that deduction under Section 10B is to be made before arriving at the total income and is specific to the eligible undertaking. The Pune unit, being an eligible undertaking, was entitled to the deduction, making the AO's first reason untenable.

3. Impact of Subsequent Assessment Orders on Reopening of Earlier Assessments:
The AO relied on the disallowance of the deduction under Section 10B in the subsequent AY 2008-09 as a reason for reopening the assessment for AY 2007-08. The Court observed that the CIT(A) had reversed the AO's disallowance for AY 2008-09, and the Revenue did not challenge the grant of deduction under Section 10B in their appeal to the ITAT. This rendered the basis for reopening invalid, as held in *A. T. Kearney India Ltd. v. ITO* and *Ultra Marine Air Aids (P) Ltd. v. Inspecting Assistant Commissioner*.

4. Adequacy of Disclosure by the Assessee During Original Assessment Proceedings:
The Assessee had disclosed all relevant details, including the income, exempted income, and the bifurcation of losses between the Pune and Delhi units, during the original assessment. The AO had assessed the income at ?6,85,24,800 after considering these details. The Court found that there was no new material or fact discovered later that would justify reopening the assessment. The AO's second reason, that the Assessee was only providing manufacturing services on a cost-plus basis and not bringing sale proceeds into India, was factually incorrect as per the Transfer Pricing Report and Form 3CEB.

Conclusion:
The Court quashed the notice dated 25th March 2014 issued under Section 148 and set aside the order dated 11th June 2014 disposing of the Assessee's objections. The writ petition was allowed, and there was no order as to costs. The Pune unit was held to be entitled to the benefit of Section 10B, and the activities conducted constituted manufacturing. The reopening of the assessment was found to be unjustified due to the lack of fresh material and the Assessee's adequate disclosure during the original assessment.

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