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TMI Blog2012 (2) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... erest on FDR amounting to ₹ 9,98,245/- has rightly been treated by the AO as income from other sources. The contention of the learned CIT (Appeals) and AO that surplus funds are parked in FDR and it has no nexus with the export business of the appellant is wrong and misconceived of the facts. 4.The learned CIT (Appeals) erred in law and on facts in holding that interest on FDR is not eligible for deduction u/s 80HHC of the Income Tax Act, 1961. 2. In the Department s appeal, the revenue has raised the following grounds:- (i) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in law in directing the AO to treat the premium on sale of quota amounting to ₹ 17,54,174/- as other receipts under explanation (baa) to section 80HHC of I. Tax Act. (ii) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in law and facts in directing the AO to treat DEPB income amounting to ₹ 2,55,74,491/- as other receipts under explanation (baa) to section 80HHC of I.Tax Act. ITA No. 1415: 3. Ground No. 1 is general. 4. Ground Nos. 2 3 are against the reopening of the completed assessment. 5. The facts are that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scapement of income were never provided to the assessee in the assessment proceedings, but were only reproduced in the assessment order passed under sections 147/143(3) of the Act on 31.10.2006; that the case of the AO was therefore hit by the decision of the Hon ble Supreme Court in G.K.N. Driveshaft (I)Ltd. v. ITO , 259 ITR 19(SC), where-under, the AO is bound to furnish the reasons to the assessee within a reasonable time so as to enable the assessee to file objections thereon; that further, the provisions of section 147 of the Act can be invoked only if the AO has reason to believe escapement of income; that the reasons recorded by the AO must disclose the process of reasoning for arriving at such a belief; that merely saying that excess loss of depreciation had been computed, without disclosing the reasons or wrong interpretation leading the AO to hold such belief does not confer jurisdiction on the AO to reassess the income; that also, a mere change of opinion on the interpretation of a particular provision from that adopted by the earlier Assessing Authority also does not confer jurisdiction to reassess income; that in the present case, the AO s contention that while deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant cannot be accepted. Reliance is placed on the judgment of Praful Chunni Lal Patel Vasant Chunni Lal Patel Vs. ACIT (1999) 236 ITR 832 (Guj.). As such there is no force in the above ground of appeal raised vide ground no. 2 of appeal, accordingly the same is rejected. 9. Aggrieved by the aforesaid action of the ld. CIT(A), the assessee has raised ground Nos. 2 3 before us. 10. Before us, the learned counsel for the assessee has broadly reiterated the stand taken before the Authorities below. It has been contended that the initiation of the reopening of the completed assessment was brought about within 4 years of the relevant assessment year; that the reason for reopening was only one, i.e., that while deducting 90% of the income from profit of business, the assessee had allegedly not considered premium on sale of quota of ₹ 17,54,174/- resulting in excess allowance of deduction u/s 80 HHC of the Act to the assessee; that in fact, there has been no escapement of income; and that the reason recorded by the AO for reopening the completed assessment is not at all a valid reason, since it was incorrect inasmuch as premium sale of quota of ₹ 17,54,174/- was never in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete disclosure of material facts by the assessee; and that the reasons recorded are to be read as a whole. The ld. DR has filed a Synopsis/Compilation of judicial decisions. 12. The compilation of judicial decisions filed by the ld. DR, it is seen, has been filed in the Department s appeal in ITA No. 1941(Del)09 in which, the issues, as seen from the Grounds of Appeal above, pertain to the treatment to be accorded to the premium on the sale of quota and DEPB income. 14 out of the 17 decisions discussed in this compilation are regarding reopening of the completed assessment. The remaining 3 decisions deal with the issues involved in the Department s appeal. The learned Counsel for the assessee has also filed a Synopsis in Rebuttal. 13. We have heard the parties on ground Nos. 2 3 in the assessee s appeal. The issue is as to whether the ld. CIT(A) has rightly upheld the reopening of the completed assessment of the assessee, even though, as per the assessee, such reopening was bad in law. 14. The following are the reasons recorded for reopening of the completed assessment of the assessee:- On going through the return of income filed by the assessee, it is revealed that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment had not been supplied to the assessee and were delineated only in the assessment order; that the reasons recorded by the AO are wrong since the premium on sale of quota of ₹ 17,54,174/- had never been included for sale of computation of income u/s 80 HHC of the Act; that the reason of the AO was also incorrect in view of the CBDT Instruction dated 23.2.98 (supra), relied on by the ld. CIT(A) himself in the assessee s own case for assessment years 2000-01 and 2001-02 (supra); and that it was legally settled that when the primary facts necessary for the assessment are fully and truly disclosed to the AO in the original assessment, the AO is not entitled, on a change of opinion to commence reassessment proceedings. 16. In its written submissions dated 20.1.09 (copy at APB 61 to 64) filed by the assessee before the ld. CIT(A), the assessee reiterated its aforesaid stand and it was stated that the claim of the assessee was allowable and had been allowed in the past also, due to which, on the same set of facts, reopening of the assessment was bad in law. 17. The ld. CIT(A), however, did not favourably consider the above contention on behalf of the assessee. 18. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Paper Book filed before the Tribunal. It is observed that the receipt by way of sale of quota rights have been shown as a part of total turnover. Secondly, the said gross receipts were taken as part of local turnover and consequently it constituted a part of the profits of the business . It was on this basis the assesee has thereafter computed its claim u/s 80HHC at ₹ 19,13,15,168/- which has since been accepted by the AO in the course of assessment u/s 143(3) of the Act. The first and the foremost aspect that we find expedient to examine is as to whether the claim so made by the assessee and also allowed by the AO in the assessment finalized u/s 143(3) could be said to be prejudicial to the interest of Revenue in the context of the stand of the Commissioner that the claim of the assessee had been allowed in a manner not admissible under the Act in respect of the profit on sale of quota rights. In this context a reference is necessary to the Instruction dated 23.02.1998 (supra) by the CBDT regarding the treatment of premium received on the transfer of quotas for the purposes of computing deduction u/s 80HHC of the Act, as copy of which has been placed in the Paper Book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to be again subjected to relief u/s 80HHC in terms of the proviso to sec. 80HHC(3) as mandated by the CBDT circular dated 23.02.1998 (supra). It is therefore, abundantly clear that the income resulting to the assessee from sale of quota rights is exigible for the benefits envisaged u/s 80HHC and such position has been upheld by the Tribunal in the case of Anil L. Shah (supra) and also in the line with the Instruction issued by the CBDT (supra). Thus, in principle, the assessee is entitled to seek relief u/s 80HHC even in respect of the impugned income. However, coming back to the present controversy, on the basis of the aforesaid decision, even if we are to uphold the charge of the Commissioner that the AO erred in not applying the correct law to compute the deduction u/s 80HHC yet after the application of the correct legal position, there does not remain any prejudice to the Revenue in the order of assessment with respect to computation of deduction u/s 80HHC of the Act. There does not remain any prejudice to the Revenue. Therefore, the twin conditions required to be satisfied by the Commissioner before invoking sec. 263 under the present circumstances, does not stand sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l has come to the notice of the AO after the original return filed by the assessee was processed. The issue on merits stands covered by the Tribunal decision supra and CBDT Instruction supra. Therefore, even as such, no addition could be made. There is, therefore, no escapement of income. 23. Apropos the case laws sought to be relied on by the Department, in Rajesh Jhaveri (supra), the Supreme Court laid down a test, i.e., at the stage of issuance of notice of reassessment, what is to be considered is only whether there was a relevant material before the AO, based on which a reasonable person could have formed such belief. In the assessee's case, as above, no material whatsoever, much less tangible material came to the notice of the AO after the processing of the return filed by the assessee. Further, the AO wrongly sought to apply Explanation to Section 80 HHC of the Act. If he had considered the first proviso to Section 80 HHC, it would have been apparent to him that there was no escapement of income. Rajesh Jhaveri (supra), moreover, stands now considered by the Hon'ble Supreme Court in Kelvinator of India (supra), wherein, as discussed, it has been observed, inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department is ACIT v. T.N. Gopal , 121 ITD 352(Chennai). In that case, tangible material did exist for the formation of the rectification order u/s 154 of the Act. In the assessee's case, not only there is no such tangible material but also there is no escapement of income, as discussed. The ld. DR has also relied on Ankita Deposits Advances P. Ltd. v. CIT , 193 Taxman 36(HP). Therein too, the issue was of change of opinion, which is absent in the appeal at hand. Moreover, Kelvinator of India (supra), was not adverted to in that case. Significantly, however, in that case also, it was held that in case no opinion has been expressed, would have the reason to be, as long as it prima facie specifies the conscience of the court, the court would not interfere in the issuance of a notice for reassessment. Herein, as discussed, since there is no escapement of income, as discussed, the opinion expressed by the AO in the reasons does not persuade us to hold the initiation of reassessment proceedings as valid. 27. In CIT v. Chandra Sekhar Bala Gopal , 328 ITR 619(Ker), it is seen, is the decision rendered prior to Kelvinator of India (supra). Kelvinator of India (supra) to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held to be valid. The facts of the present case, as deliberated upon, are entirely different, there being no scrutiny assessment and there being no existence of tangible material before the AO after processing of the return of income. 34. The three decisions cited by the Department on merits are- 1. Santex Fashions Ltd. v. ACIT , 92 ITD 535(Del); 2. CIT v. Kalpataru , 328 ITR 451(Bom); and 3. CIT v. Purolator , 2011-TIOL-176-HC-DEL-IT. 35. However, in view of the discussion on the validity or otherwise of the initiation of the reassessment proceedings, the merits of the case have not been discussed. 36. For the above discussion, we hold that since there was no tangible material available with the AO to form the requisite belief of escapement of income, the reopening of the completed assessment is unsustainable in the eye of law. The same is, therefore, cancelled. 37. The ld. DR has contended that this being a curable defect, the matter be sent back for fresh adjudication. However, we find that the flaw in the reopening of the completed assessment goes to the very root of the matter and it is a jurisdictional defect. In the absence of tangible material to for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. That the Commissioner of Income Tax has erroneously assumed jurisdiction thus the order u/s 263 is invalid and without the authority of law. That the proposal to cancel the assessment order vide show cause notice dated 18.07.2008 and order cancelled/revised for assessment year as per order u/s 263 is different and therefore, bad in law. 3. That the Commissioner of Income Tax has erred in law and on facts in stating that the order passed u/s 143(3)/147 is erroneous and prejudicial to the interest of revenue without recording finding and therefore, cancellation of the assessment order u/s 143(3)/147 is without any justification. 4. It is contended that the provisions of sec. 263 are not applicable at all as the order passed u/s 143(3)/147 should have been both erroneous and prejudicial to the interest of the revenue and therefore, action u/s 263 is tantamount to imposing another view than that of the Assessing Officer on the issue. 5. It is contended that the report in form no. 56G was enclosed with the original return of income filed on 31.10.2002 and the fact was mentioned in the Acknowledgement No. of documents/ statements attached under the head Description as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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