2016 (5) TMI 1126 - AT - Income Tax

Tribunal upholds assessment reopening & deduction disallowance under Income Tax Act

M/s. TTK Protective Devices Ltd. (Formerly TTK LIG Ltd.) Versus The Assistant Commissioner of Income Tax

The Tribunal dismissed the appeal, upholding the reopening of the assessment under Section 147 of the Income Tax Act and the disallowance of the deduction ... Reopening of assessment - disallow the expenditure in terms of Section 14A - Held that:- In the present case, it is not the case of assessee that the AO was not made any addition by invoking the provisions of the section 14A of the Act. Being so, the contention of the assessee was that there is no addition for which the assessment was reopened, is not correct. There is an addition by the AO on the reasons recorded that is by invoking the provisions of the section 14A of the Act and being so; the AO can travel beyond he reasons recorded for making the addition as disallowance in re-opening the assessment also. - Decided against assessee Disallowance u/s.80IB - Held that:- The assessee is not entitled for deduction u/s.80-IB of the Act in respect of its unit at Pallavaram unit which is manufacturing rubber contraceptives as the assessee’s produce manufactured is an item covered by Item Nos.27& 28 of Eleventh Schedule of the ‘Act’ being a rubber fitting. Accordingly, we hold that the CIT(A) has rightly upheld the rejection of assessee’s claim of deduction/s 80IB of the Act.- Decided against assessee Issues Involved:1. Condonation of delay in filing the appeal.2. Validity of reopening the assessment under Section 147 of the Income Tax Act.3. Disallowance of deduction under Section 80-IB of the Income Tax Act.Detailed Analysis:Condonation of Delay:The assessee filed the appeal with a delay of 124 days. The delay was attributed to the resignation of the person responsible for tax matters and the subsequent time taken to identify and engage new counsel. The Tribunal found the reasons for the delay to be bona fide and condoned the delay, allowing the appeal to be admitted for adjudication.Reopening of Assessment under Section 147:The original assessment for the assessment year 2004-05 was completed on 21.12.2006. The assessment was reopened on 30.03.2011 on the grounds that the assessee had not disallowed expenditure related to exempt income as required under Section 14A. The assessee contended that there was no failure on its part to disclose all material facts fully and truly, making the reopening invalid.The Tribunal held that the Assessing Officer (AO) had relevant material to form a belief that income had escaped assessment. The AO's reasons for reopening, including the failure to disallow expenditure under Section 14A, were deemed sufficient. The Tribunal emphasized that the AO's subjective satisfaction, based on objective material evidence, is crucial. The Tribunal also noted that the assessee had not disclosed fully and truly all material facts necessary for the assessment, particularly the decision of the Special Bench in the case of Cheminvest Ltd. v. ITO. Consequently, the reopening of the assessment was held to be valid.Disallowance of Deduction under Section 80-IB:The assessee claimed deduction under Section 80-IB for its unit manufacturing rubber contraceptives. The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] disallowed the claim, stating that the product fell under items 27 and 28 of the Eleventh Schedule of the Income Tax Act, which excludes certain items from the benefits of Section 80-IB.The Tribunal referred to its previous order in the assessee's case for assessment years 2002-03 to 2007-08, where it was held that rubber contraceptives are covered under items 27 and 28 of the Eleventh Schedule, as they are considered rubber fittings. The Tribunal reiterated that the statutory provisions clearly include rubber fittings in the Eleventh Schedule, thereby disqualifying the assessee from claiming the deduction under Section 80-IB. Consequently, the disallowance of the deduction was upheld.Conclusion:The appeal was dismissed, with the Tribunal upholding the reopening of the assessment under Section 147 and the disallowance of the deduction under Section 80-IB. The reasons provided by the assessee for the delay in filing the appeal were accepted, but the substantive issues regarding the reopening of the assessment and the disallowance of the deduction were decided in favor of the Revenue.