2015 (10) TMI 599 - AT - Income Tax

Tribunal favors assessee, quashes reassessment & revision orders. Foreign exchange gains to be included in export turnover. Reconsider interest levy.

The Tribunal ruled in favor of the assessee, quashing the reassessment proceedings under Section 147 and the revisionary order under Section 263. It also ... Reopening of assessment - failure on the part of the assessee to disclose all material facts fully and truly for claiming deduction u/s 80HHF of the I.T. Act, on the export claimed to have been made to Star T.V. Hong Kong and other exports made apart from other issues recorded in the preceding paragraphs - assessee is aggrieved by the action of Ld. CIT in holding that reassessment order dated 24th December, 2010 passed by the AO u/s 147 / 143(3) of the Act is erroneous and prejudicial to the interest of the revenue - Held that:- A bare reading of first proviso to section 147, shows that the law merely casts a duty on the assessee to disclose fully and truly all material facts necessary for his assessment. The duty of the assessee does not extend beyond the disclosure of all material facts necessary for his assessment. It is thereafter the duty of AO to properly apply the law thereto. Even if one presumes for a moment that in proceedings u/s 143(3) of the Act, the then AO did not properly appreciate the law that income from foreign exchange fluctuation is not derived from the activities of export then assumption of jurisdiction u/s 147 is unsustainable in the instant case in view of the decision of Hon'ble Delhi High Court in the case of Purolator India Ltd. reported in [2011 (11) TMI 365 - DELHI HIGH COURT ]. Since the order of ITAT was passed on 31stMarch, 2008, the AO while recording of reasons on 31st March, 2010 could not have reasons to believe doubting factum of export. Law relating to change of opinion being not permissible for invoking proceedings u/s 147 of the Act is now well settled. Support in this regard can be derived from the decisions of Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India reported in (2010 (1) TMI 11 - SUPREME COURT OF INDIA ) and the judgment of Delhi High Court in the case of Usha International Ltd. reported in (2012 (9) TMI 767 - DELHI HIGH COURT ). Moreover after initiating reassessment proceedings doubting factum of export the AO thereafter in the reassessment order has accepted the submission of assessee on this issue in para 3.4 and restricted his findings only on the issue of foreign exchange fluctuation gain. As far as the objection as to the factum of export and issue relating to copyright being not disclosed by the assessee fully and truly, again we find no merit in the case of AO. During the course of proceedings u/s 143(3) of the Act, the assessee had clearly declared the nature of business and items being exported by it. Once these facts were presented and considered by the AO in the proceedings u/s 143(3) of the Act, then the impugned reassessment proceedings u/s. 147 would clearly fit into the class of a change of opinion, which is not permissible under law. - Decided in favour of assessee. Revision u/s 263 - assessee has inflated export turnover by ₹ 10.73 crores equivalent to USD 30,00,000. Ld CIT has also held that assessee has not furnished FIRC's to this extend - Held that:- As in years 1997 and 1999 appellant had received advances from Star TV Hong Kong to the tune of USD 85,00,000. During the course of original assessment proceedings u/s 143(3) vide submissions dated 22nd February 2006, assessee had filed details as to how this advance was offered to tax going forward. Relevant details are also filed before us, which are placed at page 78 of the paper book. From a perusal of this it is seen that advance to the extent of USD 30,00,000 was offered to tax this year. Since adequate enquiries were conducted by the AO in original assessment proceedings hence even on merits also we find that the order of assessment u/s 147/143(3) cannot be termed as erroneous or prejudicial to the interest of revenue. In view of this discussion and respectfully following the decision of co-ordinate Bench and the decision of jurisdictional High Court in the case of assessee itself, we are of the considered view that the impugned order of ld. CIT does not stand on sound footings. Accordingly, this appeal of the assessee also deserves to be allowed Issues Involved:1. Validity of reassessment proceedings under Section 147 of the Income-tax Act, 1961.2. Eligibility of foreign exchange fluctuation gains for deduction under Section 80HHF.3. Validity of the revisionary order under Section 263 of the Income-tax Act, 1961.4. Levy of interest under Sections 234B and 234D of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of Reassessment Proceedings under Section 147:The reassessment proceedings were initiated by the Assessing Officer (AO) after four years from the end of the relevant assessment year. The AO reopened the assessment on the grounds that the assessee had failed to disclose fully and truly all material facts necessary for assessment, particularly regarding the inclusion of foreign exchange fluctuation gains in the export turnover for claiming deduction under Section 80HHF. The assessee objected, arguing that all material facts were disclosed during the original assessment, and the reassessment was based on a mere change of opinion. The Tribunal found that the AO had all the necessary information during the original assessment and that the reassessment was indeed based on a change of opinion, which is not permissible under the law. Consequently, the initiation of reassessment proceedings was held to be invalid and quashed.2. Eligibility of Foreign Exchange Fluctuation Gains for Deduction under Section 80HHF:The AO contended that foreign exchange fluctuation gains should not be included in the export turnover and total turnover for the purpose of computing the deduction under Section 80HHF. The Tribunal, however, held that foreign exchange fluctuation gains are directly related to the export business and form part of the export turnover and total turnover. The Tribunal relied on various judicial precedents, including decisions from the Gujarat High Court and ITAT Delhi Bench, which support the inclusion of foreign exchange fluctuation gains in the export turnover for computing deductions under Section 80HHF. Therefore, the Tribunal ruled in favor of the assessee, allowing the deduction for foreign exchange fluctuation gains.3. Validity of the Revisionary Order under Section 263:The Commissioner of Income-tax (CIT) invoked revisionary powers under Section 263, arguing that the AO failed to examine crucial issues related to the eligibility of deduction under Section 80HHF, including the actual export of eligible items and the inflated export turnover. The Tribunal noted that the issues raised by the CIT were already examined during the original assessment and reassessment proceedings. It also observed that the CIT did not issue a show cause notice on the specific issue of inflated export turnover, which violates the principles of natural justice. The Tribunal held that the revisionary order under Section 263 was invalid, as the reassessment order itself was void and non-est, and there was no error in the AO's original assessment. Consequently, the Tribunal quashed the revisionary order under Section 263.4. Levy of Interest under Sections 234B and 234D:The assessee challenged the levy of interest under Sections 234B and 234D. The Tribunal directed the AO to allow consequential relief based on the outcome of the reassessment and revisionary proceedings. Since the reassessment proceedings were quashed, the levy of interest under these sections would also need to be reconsidered.Conclusion:The Tribunal allowed both the appeals of the assessee, quashing the reassessment proceedings under Section 147 and the revisionary order under Section 263. The Tribunal also ruled in favor of the assessee regarding the inclusion of foreign exchange fluctuation gains in the export turnover for deduction under Section 80HHF and directed the AO to provide consequential relief for the levy of interest under Sections 234B and 234D.