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TMI Blog2024 (9) TMI 1061X X X X Extracts X X X X X X X X Extracts X X X X ..... stion. However, this Court in its judgment [ 2021 (5) TMI 466 - BOMBAY HIGH COURT] has noted the argument of Revenue to the effect that the Amona and Chitradurga units were not new units. The subject matter of Tax Appeal was the entitlement of the petitioner to a claim for deduction under Section 10B of the profits that are derived from its export oriented undertakings situated at Amona, Chitradurga and Codli. It is this claim which was adjudicated by the appellate authorities in the original assessment proceedings. Respondent no. 1 wants to reassess this claim by relying on certain additional evidence found in the course of the survey which according to him supports its case that the deduction under Section 10B could not be allowed. According to us, such a course of action cannot be countenanced as it would be in the teeth of the third proviso to Section 147. For the reasons stated above, in our opinion, respondent no. 1 has acted wholly without jurisdiction when he has sought to assume jurisdiction to reassess the petitioner's income so as to once again disallow a claim for deduction under Section 10B. Decided in favour of assessee. - M. S. KARNIK VALMIKI MENEZES, JJ. For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of commencement of the commercial production and therefore the claim for deduction under Section 10B was proposed to be disallowed. The petitioner filed the reply on 27.12.2011 and made detailed submissions as to why its claim for deduction under Section 10B was correct and the inference that was sought to be drawn by respondent no. 1 was not justified. An assessment under Section 143 (3) was finalised by respondent no. 1 where under the petitioner's claim for deduction under Section 10B was disallowed in its entirety for the reasons given by him in paragraph 6 of the order. 5. The Commissioner of Income Tax (Appeals) [CIT (A), for short] passed an order under Section 263 on 30.03.2012 seeking to revise the assessment framed for the assessment year 2009-10 and directed the Assessing Officer to consider the report filed by the SFIO and the submissions of the appellant thereon in connection with the allegation that the petitioner was under invoicing its exports. 6. The petitioner filed detailed written submissions before the CIT(A) on 11.05.2012, 24.05.2012 and 11.06.2012 in support of its contention that it was entitled to the deduction under Section 10B as claimed. Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 148 was issued on 16.07.2014. the petitioner filed its return of income in response to the impugned notice on 14.08.2014 and sought for the reasons recorded by respondent no. 1 before issuance of the same. 10. A second Miscellaneous Application was filed on 21.08.2014 before the Tribunal purporting to utilise the information gathered in the course of the second survey and alleging that there was a mistake apparent on record in the order of the Tribunal. The DRI addressed a communication dated 23.09.2014 to the Assistant Commissioner of Customs whereby they intimated that the investigation into the case pertaining to the Sesa Group as a follow-up of the report of Justice M.B. Shah Commission was completed and no show cause notice has been issued as no evidence of undervaluation was detected. The Director of Mines and Geology granted a renewal of mining lease to the petitioner on 09.12.2014. 11. Respondent No. 1 furnished the reasons recorded prior to the issuance of the impugned notice on 31.12.2014. As per the same the escapement of the income was on account of the following reasons:- (i) the claim of deduction under section 10B was wrongfully allowed; (ii) under invoicing of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was rightly allowed in view of the fact that the units were not new units . It is submitted by the learned Senior Advocate that this Court in its original order admitting the appeal dated 23.09.2013, did not frame this question probably on the basis that it was a finding of fact. In any case, this Court in its judgment dated 07.05.2021 has noted the argument of the learned counsel or the Revenue in paragraph 7 as well as paragraph 17 to the effect that the unit at Amona and Chitradurga were not new units. Learned Senior Advocate submits that in these circumstances, the case of the Revenue that the new material was not the subject matter of the appeal is not in accordance with the scheme of the new Act. Learned Senior advocate urged that there are various other grounds to challenge the assumption of jurisdiction. The argument of the learned Senior Advocate is that respondent no. 1 was precluded from reopening the assessment in view of the third proviso contained in Section 147. 16. Ms Susan Linhares appearing for respondents made submissions in support of the impugned order. She submitted that the assessment under section 143 (3) was completed disallowing the benefit under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to the assessment order and during the pendency of the proceedings before this Court, there is no bar on the re-opening of the assessment for taxing income based on new material facts. It is urged that these material facts were not even considered by the Assessing Officer or appellate Authorities as they were not even subject matters of the appeal before this Court. Respondents filed an application under Section 254 (2) of the IT Act before the ITAT to place on record the new material facts revealed during the survey conducted on 20.03.2014. However, the ITAT vide order dated 07.01.2015 held that these material facts were brought out after the survey held on 20.03.2014 and were not considered in its earlier order dated 08.03.2013 and the same cannot be considered under Section 254 (2) in view of Rule 18 (6) of the Appellate Tribunal Rules. 19. Ms Linhares submitted that the notice under Section 148 dated 16.07.2014 and the order disposing objections dated 06.02.2015 passed by the respondent no. 2 is in accordance with law for the following reasons: A. The Order dated 06.02.2015 passed by the CIT disposing the petitioner's objections is a speaking Order and is well reasoned b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the A.O is within the realm of subjective satisfaction. In other words if the A. O for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to re-open the assessment. I. The Supreme Court in the case of A .L.A Firm v CIT reported in 1991 (55) Taxman 497 (SC) in para no. 20, last line held that initiation of reassessment proceeding have to be based on definite material not considered at the time of the original assessment. 20. It is also necessary to refer to the submissions made by Ms Linhares as regards those material facts which according to the Revenue are suppressed by the petitioner and were not subject matter of consideration by the Assessing Authority or the Appellate Authorities including the Tribunal. I. AMONA UNIT is an amalgamated/reconstructed unit from the existing two dry plants and one wet plant for beneficiation and the limit of 20% old machinery used in the new unit is not applicable to the reconstructed unit u/sec. 10B of the IT Act. The Petitioner claimed that durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated to approvals granted for capital expenditure proposals for the F.Y. 2002-03 relevant to A. Y. 2003-04. However, the petitioner did not reply to this letter. The petitioner has not denied the fact of amalgamation of the three unit as one unit as per the capital expenditure proposal for the E Y. 2002-03. The Amalgamation of the existing two dry plants and one wet plant as single unit is a clear case of reconstruction of the already in existence as per provision of section 10B (2) (ii) of the I. T. Act, 1961. Section 10B is not applicable to reconstructed units. Further, the permissible limits of use of the 20% of the machinery in the new unit is not applicable to a reconstructed unit. The explanation under section 10B (2) viz use of 20% old machinery in the new unit of 20% old machinery in the new unit as provided u/s 80I (2) is applicable only to unit mentioned under clause (iii) of sec. 10B (2). This is not applicable to the reconstructed units as mentioned u/s 10B (2)(ii). Therefore, on account of suppression of material facts by the petitioner, the income escaped assessment. Without prejudice to the above, even if the amalgamated Amona Unit is treated as a New Unit, the old ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration is only Rs. 51,51,434/- out of Rs. 3.94 crores and the balance amount is used for removal of old machineries and reinstallation of the same as per the new layout for amalgamation purpose and part of the amount is used in modification of the existing machinery and therefore the balance amount incurred on the amalgamation cannot be treated as new machinery. The old machinery used in the new unit in terms original value is Rs. 95,29,341/- and WDV value is Rs. 26,17,71/- excluding the original WDV values of log washer, Classifier and Hydro Cyclones which are yet to be furnished by the petitioner. Thus, it is clear that the old machinery used is more then 20% of the new unit. Out of the 11 machineries above, the introduction of one new machinery to the old unit does not result into a new unit. Therefore, the petitioner is not eligible for Section 10B claim for Amona Unit. CHITRADURGA UNIT The petitioner claimed 10B benefit for the A.Y. 2009-10 for the first time for the Chitradurga EOU unit and it claimed that assessment year 2006-07, the petitioner set up a new unit at Chitradurga. During the course of the survey and post survey inquires it was noticed that the petitioner pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ona, Chitradurga and Codli which are export oriented undertakings and the profits derived from them are eligible for a deduction under Section 10B. Section 10B (1) reads thus: 10B(1). Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent. export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee. 23. Section 10B (2) provides that Section 10B applies to any undertaking which fulfils all the conditions therein. Suffice it to observe that the petitioner filed its return of income after claiming a deduction under Section 10B in respect of the aforesaid three units. A survey under Section 133A was carried out at the petitioner's premises in connection with the claim for deduction under Section 10B. The assessment order under Section 143 (3) was finalised by respondent no. 1 on 30.12.2011 whereunder the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal held that the petitioner was engaged in the business of manufacture and production of iron ore and, hence, the deduction as claimed ought to be allowed. The Tribunal also dealt with the other reasons given by the CIT (A) and Assessing Officer whilst rejecting the petitioner's claim and found no merit in the same specifically as regards the allegation of the units at Amona and Chitradurga being the old units. 25. The Revenue filed a Tax Appeal before this Court against the order of the CIT (A). This Court admitted the appeal filed by the Revenue against the order of the Tribunal. On 28.03.2013, respondent no. 1 passed an order under Section 143 (3) pursuant to the order under Section 263 and accepted that having regard to the supplementary report submitted by SFIO there was no allegation that the petitioner was under invoicing its exports. 26. In the course of the survey conducted on 20.03.2014 under Section 143A, further information was obtained by respondent no. 1 which demonstrated that the claim for deduction under Section 10B was not in accordance with law. These new materials were placed before this Court by the Revenue byway of Miscellaneous Applications. This Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. (emphasis supplied) 29. It is important to bear in mind that the Assessing Officer had disallowed the benefit to the petitioner under Section 10B on the ground that the processing of iron ore does not amount to the manufacture within the meaning of Section 10B and also the Amona and Chitradurga units are not new units. The Assessment order was passed after a proper survey was conducted. The order passed by the CIT (A) was the subject matter of challenge before the Tribunal. The Tribunal held in favour of the petitioner. This Court admitted the Tax Appeal filed by the Revenue on limited grounds. It was at this stage that a fresh survey was conducted during the course of which the Revenue claims to have found new materials allegedly suppressed by the petitioner which justifies the action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Oil Corporation V/s. The Income Tax Officer, Central Circle V, Calcutta and Ors. 1987 AIR SC 1897. 33. It is also well settled that the burden is on the Assessing Officer to establish that the aforesaid conditions are fulfilled and that the fulfilment of the conditions has to be established on the basis of reasons recorded in terms of Section 148 (2) of the Income Tax Act. 34. We find that the reasons recorded prior to the issuance of the notice as set out herein before proceed on the footing that the reassessment proceedings are initiated on account of three circumstances. The first two circumstances viz. the allegation of under invoicing exports as well as the allegation that the mining activities carried out by the petitioner are illegal came up for consideration in several Writ Petitions some of which were disposed of by this Court by three separate judgments. The first judgment is in the case of Sesa Sterlite Limited and others V/s. ACIT 417 ITR 774. This Court held that the Assessing Officer could never have reason to believe that the income of the assesses therein had escaped assessment on account of the observations made in the third report of Justice M.B. Shah Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making some investments on plant and machinery would not justify a claim for deduction under Section 10B. The CIT (A) upheld the denial of the claim of deduction under Section 10B by respondent no. 1. However, the Tribunal by an order dated 08.03.2013 upheld the claim of the petitioner for deduction under Section 10B. The Tribunal dealt with all the reasons given by the Assessing Officer. The Tribunal, from paragraph 45.11 onwards of its order, specifically dealt with the argument that the units at Amona and Chitradurga were not new units but were merely a reconstruction of the existing units. Thus, it is apparent that the subject matter of appeal both before the CIT (A) as well as before the Tribunal was whether the petitioner was entitled to a deduction under Section 10B as claimed. 36. The question whether the petitioner can claim deduction under Section 10B was decided by the Tribunal. The tax appeal of the Revenue was pending in this Court. The Assessing Officer as well as the CIT (A) had already taken a view that the petitioner is not entitled to deduction under Section 10B. During the pendency of the tax appeal before this Court, a fresh survey was conducted and on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication filed by the Revenue in this Court for bringing the new materials on record was directed to be heard at the time of final hearing. Despite placing all these facts on record, this Court upheld the order of the Tribunal thereby granting the claim of the assessee under Section 10B. It may be that this Court decided the Tax Appeal on the basis of the materials on record without adverting to the new materials which the Revenue claims to have found during the course of the fresh survey conducted in 2014. This Court, though conscious of the new materials and the reassessment proceedings, upheld the order of the Tribunal. The effect of the order passed by this Court in the tax appeal filed by the Revenue is that the assessee's claim for deduction under Section 10B has been upheld. According to us, in such a situation, if the reassessment proceedings are allowed to continue, the same would virtually amount to having an effect of sitting in appeal over the orders passed by this Court as well as the Tribunal. This cannot be countenanced. Though it is the allegation that fresh evidence was unearthed during the course of fresh survey in March 2014, it indicates that the new units w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT 41 Taxmann 183. 40. A brief reference to the Tax Appeal filed by the Revenue in this Court challenging the decision of the Tribunal is necessary. As indicated earlier, the Tribunal allowed the claim for deduction under Section 10B. One of the questions that was raised in the Tax Appeal was whether the deduction was rightly allowed in view of the fact that the units were not new units. This Court in its order admitting the appeal vide order dated 23.09.2013 did not formulate this question. However, this Court in its judgment dated 07.05.2021 has noted the argument of the learned counsel for the Revenue in para 7 as well as in para 17 to the effect that the Amona and Chitradurga units were not new units. The subject matter of Tax Appeal was the entitlement of the petitioner to a claim for deduction under Section 10B of the profits that are derived from its export oriented undertakings situated at Amona, Chitradurga and Codli. It is this claim which was adjudicated by the appellate authorities in the original assessment proceedings. Respondent no. 1 wants to reassess this claim by relying on certain additional evidence found in the course of the survey which according to him sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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