2017 (11) TMI 1130 - AT - Income Tax

Invalid Reopening of Assessment: Change of Opinion vs. New Facts

The Tribunal held that the reopening of the assessment under sections 147/148 was invalid as it was based on a change of opinion and not on new material ... Reopening of assessment - Deduction under section 10B disallowed - the assessee is not involved in the business of export and import of article or things but was merely doing a job work to the person for sending the gold to the assessee from Dubai which the assessee is exporting back after doing job work - Held that:- The hon'ble jurisdictional High Court in the case of Mahavir Spinning Mills Ltd. v. CIT [2004 (5) TMI 38 - PUNJAB AND HARYANA High Court] opined that no allegation that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Absence of this finding makes the action of the Assessing Officer wholly without jurisdiction. In the instant case there has been no change in the business activity of the assessee right from the inception of the company and the deduction under section 10B has been continuously claimed examined and allowed by the Department. In the instant case after going through the reasons recorded by the Assessing Officer it cannot be said that there has been any no new material that necessitate neither reopening nor any new fact should have been brought to the notice. The Assessing Officer has arrived at his satisfaction from the material available on record namely the export of gold to Dubai and the job work done by the assessee to two concerned persons present at Dubai. - Decided in favour of assessee. Issues Involved:1. Deletion of disallowance under section 10B of the Income-tax Act, 1961.2. Justification of holding that the issue of deduction under section 10B has attained finality.3. Applicability of the Supreme Court judgment in the case of J. B. Bodo and Co. Pvt. Ltd. v. CBDT.4. Qualification of goods manufactured and returned to a party outside India as exports under section 10B.5. Classification of making charges/job work charges received in convertible foreign exchange as sale proceeds within the meaning of section 10B.6. Validity of proceedings initiated under section 147 read with section 148 of the Income-tax Act.Detailed Analysis:1. Deletion of Disallowance under Section 10B:The primary issue revolves around whether the learned Commissioner of Income-tax (Appeals) was right in deleting the disallowance of Rs. 2,14,89,928 made by the Assessing Officer under section 10B. The assessee, a 100% export-oriented unit engaged in manufacturing and exporting jewelry, had been claiming exemption under section 10B since its inception in the assessment year 2004-05. The Assessing Officer, during the reassessment proceedings, disallowed the claim under section 10B on the grounds that the assessee was not involved in the export of goods but merely in job work for a party in Dubai. The Commissioner of Income-tax (Appeals) deleted this disallowance, which the Revenue contested.2. Justification of Finality of Deduction under Section 10B:The Revenue contended that the Commissioner of Income-tax (Appeals) was unjustified in holding that the issue of deduction under section 10B had attained finality because the Department had not contested this issue in the assessment year 2011-12 due to the tax effect being below the monetary limits prescribed in Circular No. 21 of 2015. The Commissioner of Income-tax (Appeals) held that the issue had attained finality, which the Revenue disputed.3. Applicability of Supreme Court Judgment in J. B. Bodo and Co. Pvt. Ltd. v. CBDT:The Revenue argued that the judgment of the Supreme Court in the case of J. B. Bodo and Co. Pvt. Ltd. v. CBDT was not applicable to the assessee's case. The Supreme Court had granted relief to J. B. Bodo and Co. Pvt. Ltd. based on CBDT Circular No. 731 dated December 20, 1995, regarding deduction under section 80-0. However, in the assessee's case, the deduction was claimed under section 10B, and the transactions were not done with the permission of the Reserve Bank of India.4. Qualification of Goods as Exports under Section 10B:The Revenue questioned whether goods manufactured and returned to a party outside India would qualify as exports under section 10B, especially when the material for manufacturing was supplied by that party free of cost and the assessee was only paid making charges. The Commissioner of Income-tax (Appeals) held that the assessee was involved in job work and not in the export of goods, thus disallowing the claim under section 10B.5. Classification of Making Charges as Sale Proceeds:The Revenue also raised the issue of whether the making charges/job work charges received in convertible foreign exchange could be termed as sale proceeds within the meaning of section 10B. The Commissioner of Income-tax (Appeals) held that the assessee was not involved in the export of goods but in job work, and thus the making charges could not be termed as sale proceeds under section 10B.6. Validity of Proceedings under Section 147/148:The assessee contested the validity of the proceedings initiated under section 147 read with section 148, arguing that no new facts had emerged and that the reopening was based on a change of opinion. The Commissioner of Income-tax (Appeals) upheld the reopening, stating that the Assessing Officer had prima facie reason to believe that income had escaped assessment based on new information gathered during the assessment proceedings for the assessment year 2011-12. The Tribunal, however, found that no new material facts had emerged and that the reopening was based on a change of opinion, rendering the notice under section 147 invalid.Conclusion:The Tribunal concluded that the reopening of the assessment under section 147 was invalid as it was based on a change of opinion and not on new material facts. Consequently, the disallowance under section 10B was deleted, and the appeal of the Revenue was dismissed, while the cross-objection by the assessee was allowed.