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TMI Blog2017 (5) TMI 1049X X X X Extracts X X X X X X X X Extracts X X X X ..... ome "on going through the return of income" filed by assessee after he accepted return u/s. 143(1) without scrutiny, and nothing more. In these facts, it was held by the Hon’ble High Court that it was nothing but review of earlier proceedings and abuse of power by AO. It was further held that since there was no whisper in reasons recorded, of any tangible material which came to possession of AO subsequent to issue of intimation, therefore, it was an arbitrary exercise of power conferred u/s 147. Thus, reopening was held to be invalid on this ground itself. - Decided in favour of assessee. - I.T.A No. 1613/Kol/2016, C.O.No.02/Kol/Kol/2017 - - - Dated:- 19-5-2017 - Sri N. V. Vasudevan, JM And Dr. Arjun Lal Saini, AM For the Department : Shri Banibrata Dutta, Addl. CIT(DR) For the Assessee : Shri D.S.Damle, FCA ORDER Per N. V. Vasudevan, JM I.T.A.No.1613/Kol/2016 is an appeal by the Revenue against the order dated 07.05.2016 of CIT(A)-23, Kolkata, relating to AY 2006-07. The Assessee has raised Cross Objection against the very same order of CIT(A). 2. In the Cross objection the assessee has challenged the validity of initiation of reassessment proceedings by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation of ₹ 2,20,25,827/- ( A.Y. 04-05) . As per the original assessment order the assessee company was allowed deduction u/s. 10A of ₹ 3,22,18,149/- from total income of ₹ 3,51,14,628/ before setting off aforesaid brought forward losses. Brought forward losses should have been first set off against total income of ₹ 3,51, 14,628/ and after that deduction u/s 10A of Rs,3,22,18,149/- should have been allowed. As this was not done, the irregularity in set off of losses leads to un-due deduction for an amount of ₹ 3,22,18,149/- under section 10A of the Act. Accordingly, assessment in this case is being re-opened under the provisions of section 147 of the Income Tax Act, 1961 after obtaining necessary approval from the Additional Commissioner of Income-tax, Range-2, Kolkata. 6. In the re-assessment proceedings the assessee took a stand that deduction u/s 10A of the Act is an exemption provision and therefore the set off of carry forward of loss as contemplated u/s 70(1) and Sec.72 of the Act are not applicable and therefore the claim as originally allowed in the assessment u/s 143(3) of the Act should be retained. The AO, however, did not agree wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income from business after set off of Business loss and depreciation nil Income from other sources ₹ 26,442/- Total income ₹ 26,440/- Less: Depreciation set off out of remaining amount of (Rs.2,20,25,827/- less ₹ 72,62,385/-) Rs.1,47,63,442/- thus allowed to carry forward. 7. Aggrieved by the aforesaid order of AO the assessee filed an appeal before CIT(A). The assessee challenged the validity of initiation of proceedings u/s 147 of the Act on the ground that the AO while completing the original assessment and formed a particular opinion on the assessee s claim of deduction u/s 10A of the Act and on the basis of the same facts without new material coming to the notice of the AO, he has initiated proceedings u/s 147 of the Act purely on the basis of change of opinion and therefore initiation of re-assessment proceedings are not valid. This plea was rejected by CIT(A) by observing as follows :- 1. I have considered the issue emanating from the reopening of the case of the appellant, and his submission along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amended by the FA 2000 w.e.f. 1.4,2001 to convert it from an exemption provision to a deduction provision. S, 10A allows deduction from the total income . The phrase total income in s. 10A means the total income of the STP unit and not total income of the assessee , Consequently, s. 10A deduction has to be given before computing the profits gains of business under Chapter IV. This proposition is in line with the form of return, Allowing deduction at the earliest stage of business income computation will blur the difference between commercial profits and tax profits . Further, though s, 10A was amended to make it a deduction provision, it continues to remain in Chapter III and was not moved to Chapter VI-A. The result is that even now s. 10A is in the nature of an exemption provision and the profits of the eligible unit have to be deducted at source level and do not enter into the computation of income, Consequently, the losses suffered by non-eligible units cannot be set-off against the eligible profits; (b) On issue (ii), s. 10A(6) as amended by the FA 2003 w.r.e.f. 1.4.2001 provides that depreciation and business loss of the eligible unit relating to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, remained uncontroverted. 11. In the light of the above facts with regard to recording of reasons, let us examine settled position of law on this issue. The Hon ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC), has held that for reopening of the assessment, the AO should have in its possession tangible material . The term tangible material has been understood and explained by various courts subsequently. There has been unanimity of the courts on this issue that in absence of fresh material indicating escaped income, the AO cannot assume jurisdiction to reopen already concluded assessment. The Hon ble Delhi High Court in the case of Pr. CIT vs Tupperware India Pvt. Ltd., in its order dt 10-8-15 (ITA no 415/2015 ) has taken the view that that even in the case of original assessment order having been passed u/s 143(1), it is mandatory for the AO to have in its possession, fresh tangible material before reopening of the case. In the case of CIT vs. Orient Craft Ltd. 354 ITR 536, it was held by Hon ble Delhi High Court that reasons for reassessment disclosed that AO reached belief that there was escapement of income on going through the return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in sections 70, 72 and 74 would be premature for application. The deductions under section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression 'total income of the assessee' in section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of section 10A the aforesaid discord can be reconciled by understanding the expression total income of the assessee in section 10A as 'total income of the undertaking'. For the aforesaid reasons it is held that though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV and' not at the stage of computation of the total income under Chapter VI. 14. In the light of the aforesaid judicial pronou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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