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TMI Blog2015 (5) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld the validity of initiation of reassessment proceedings. Computation of deduction u/s 80HHC for the purpose of excluding the same from the Net profit for the purpose of computation of “Book Profit” u/s 115JB - Held that:- In view of the subsequent decision of the Hon’ble Supreme Court in the case of ACG Associated Capsules P Ltd Vs. CIT [2012 (2) TMI 101 - SUPREME COURT OF INDIA ] wherein held that ninety per cent of not the gross interest/rent but only the net interest/rent, which has been included in the profits of the business of the assessee as computed under the heads ‘PGBP’ is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the assessing officer with the direction to determine the interest income in terms of the decision rendered by the Hon’ble Supreme Court in the case of ACG Associated Capsules P Ltd (supra). Exclusion of 90% of the following Miscellaneous income while computing “Profits of business” for the purpose of computing deduction u/s 80HHC - Held that:- Ld CIT(A) was justified in holding that the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company was earlier known as M/s Reliance Petroleum Limited and it has since been merged with M/s Reliance Industries Ltd. We shall take up the appeal filed by the assessee for the assessment year 2001-02. Following issues are urged before us by the assessee: a) Validity of reopening of the assessment; b) Computation of deduction under section 80HHC of the Act; and c) Interest chargeable u/s 234D of the Act. 3. The assessee company is engaged in the business of refining of crude oil. The original assessment u/s 143(3) of the Act was completed in the hands of the assessee for the assessment year 2001-02 on 30.1.2004 determining loss of ₹ 996.74 crores under the normal provisions of Act and book profit of ₹ 1580.09 crores under the provisions of section 115JB of the Act. Consequent to the order passed by the ld.CIT(A) on 24.3.2004, the assessment order was revised to give effect to the order of ld.CIT(A) which resulted into total income at NIL under the normal provisions of Act and book profit of ₹ 1214 crores u/s 115JB of the Act. 4. Subsequently, the AO noticed that the income relating to the year under consideration has escaped assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first issue contested by the assessee relates to validity of reopening of the assessment. The ld. AR submitted that the AO has computed the income at NIL in the impugned reassessment proceedings also. In the order passed to give effect to the order of ld.CIT(A) in the first round of proceedings, taxable income was determined at NIL. Accordingly, he submitted that there is no change in the total income consequent to passing of the reassessment order and hence there was no demand of any additional tax. Accordingly the ld. AR, by placing reliance on the decision of Hon ble Delhi High Court in the case of Essex Forms (P) Ltd Vs. CIT (1986) 157 ITR 241 Delhi, submitted that the escapement of income should result in escapement of tax in order to hold the reassessment proceedings to be valid. Accordingly, he submitted that the impugned reassessment proceeding is not valid since the same has not resulted in escapement of tax. The Ld. AR further submitted that the AO has stated that he has sought necessary approval from the Commissioner of Income Tax before issuing the notice u/s 148 of the Act. The ld. AR, by placing reliance on the decision of Hon ble Supreme Court in the case of Chhuga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same, the assessee furnished a return of income, wherein the assessee offered a sum of ₹ 5.60 crores as additional income, i.e., the assessee itself has accepted that its income for AY 2001-02 has escaped the assessment to the tune of ₹ 5.60 crores. It is a well settled proposition that the assessing officer, at the time of issuing notice u/s 148 of the Act, should have reason to believe about the escapement of income. In the instant case, the belief formed by the assessing officer got vindicated by the fact that the assessee itself has offered additional income in the return of income filed in response to the notice issued u/s 148 of the Act. 10. We have gone through the order passed by Hon ble Delhi High Court in the case of Essex Farms (P) Ltd (supra) and we notice that the Hon ble High Court was mainly concerned with the question as to whether there was failure on the part of the assessee to disclose material facts necessary for assessment in terms of sec. 147(a) of the Act, which existed at the relevant point of time. The Court was examining about the validity of arrangement made between the assessee therein and its sister concerns about trading transactions. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Profits of Business for the purpose of determining the deduction u/s 80HHC of the Act reduced 90% of following items of income included in the Profit and Loss account:- Interest received Rs.180,12,94,672/- Profit on sale of Assets ₹ 8,35,934/- Miscellaneous income ₹ 29,20,15,599/- The contention of the assessee is that the explanation (baa) to section 80HHC of the Act which requires the profit of the business computed under the head Profits and Gains of Business is not applicable for the purpose of computing book profit eligible for deduction u/s 80HHC for computing income under section 115JB of the Act. The Ld CIT(A) rejected the said contentions, since he held that the Explanation (baa) to section 80HHC is equally applicable while computing income under section 115JB. 14. Before us the assessee reiterated the same contentions. However, in the absence of any case law to support the view taken by the assessee, we are of the view that the Ld CIT(A) is justified in applying the provisions of Explanation (baa) while computing dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,34,885 6 Sales Tax Recovered (Scrap Sales) 28,41,252 7 Rent Received 2,17,62,000 8 Penalty Recovered from Contractors 40,02,378 9 Insurance Claims Received 6,52,333 10 Cash Discount Received 18,77,219 11 Miscellaneous Recoveries 2,87,87,786 12 Miscellaneous Income-Others 5,55,93,304 Total 29,20,15,599 In the grounds of appeal, the assessee itself admitted that the Commission income (Item no.3) and Rent (Item No.7) are not in the nature of business income, meaning thereby the assessee does not object to exclusion of 90% of the same. 17. We heard the parties on this issue. We are of the view that the Ld CIT(A) was justified in holding that the following income also represents independent source of income unconnected with the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature and hence we decline to address this issue. 22. We shall now take up the appeal filed by the revenue for AY 2001-02, wherein the revenue is contesting the decision of Ld CIT(A) in deleting the addition relating to alleged Commission/surcharge paid to State Oil marketing Organisation (SOMO) of Iraqi Government Agency. 23. The facts relating to the above said issue are set out in brief. Consequent to the invasion of Iraq into Kuwait, UN Security Council imposed economic sanctions on Iraq Government. However, on humanitarian grounds, a scheme called Oil for Food Programme (OFFP) was introduced, whereby the Iraq was permitted to export oil and use the proceeds thereof to buy basic goods from other countries. The Iraq Government ordered its Ministry to collect Surcharge on the sale price of the Oil. The Iraqi State Oil Marketing Organisation (SOMO) ran a highly organized system to collect oil surcharges and maintained an extensive data base to keep track of the payments. This collection appears to have been viewed by UN as irregular. Hence the UN Security General appointed an independent Enquiry Committee (called Volcker Committee) to investigate the administration and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or material in support of the alleged payment of illicit commission forming part of the purchase price. Even the Volcker Committee has not referred the appellant as payer of illicit commission. iii). Assessee purchased .lraqi crude oil from Alcon Petroleum Ltd. (Alcon), Leichtenstein company based in Europe, a UN approved company for dealing in crude in oil and food-programme . The contract was signed with Alcon (and not with Iraqi Government) for supply of crude at an agreed price per barrel at the prevailing international market rate. There was no purchase from Iraqi Government or any Iraq Government agency and the contract signed between Alcon and assessee categorically states that Alcon has not paid any surcharge to Government or their agency for procuring the crude. (iv) The price paid by assessee to Alcon is the consolidated price for the goods purchased and cannot be split for part of it as representing surcharged alleged to have been paid by Alcon to Iraqi Government. For assessee, it is the cost of goods for computing taxable income. (v) There is no privacy of contract between assessee and Iraqi Government or any evidence direct or indirect confirming payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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