TaxTMI 
TaxTMI 
2014 (10) TMI 357
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....ction 147 of the Act. 3.(a) That the alleged Notices under section 143(2) of the Act dated 22.09.2008 and 21.08.2009 having not been served upon the appellant, the reassessment order dated 30.12.2009 passed by the AO is bad in law and deserves to be quashed. (b) That the Appellant having declared on oath the non-receipt of notices under section 143(2) dated 22.09.2008 and 21.08.2009 and it having been found that there is no proof/acknowledgement of service of notice with the Department, the CIT(A) ought to have quashed the reassessment proceedings for want of satisfaction of jurisdictional requirement of issuing notice under section 143(2) within the time limit prescribed under section 143(2) of the Act. 4. The CIT(A) erred in confirming the exclusion of Miscellaneous Income of Rs. 2,01,314/-, Interest from Banks of Rs. 3,062/-, Despatch Earned of Rs. 2,41,542/- and Sundry Creditors Written Back of Rs. 3,22,820/- for computation of eligible profit under section 10B of the Act." whereas in ITA No. 425/PNJ/2013 the Revenue has taken the following effective grounds of appeal : "1. The Ld. Commissioner of Income Tax (Appeals) order is opposed to law and facts of the case....
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....of the Development Commissioner SEEPZ, Special Zone Ministry of Commerce and Industry, Mumbai wherein the status of 100% to Ferromet Concentrates has been extended for a further period of 5 years from 01.04.2001 onwards. It has been claimed that the new unit (which the assessee is now calling Greater Ferro -met) commenced its operation in the previous year relevant to the A. Y. 1999-00. From the above it is clear that this is only a case of capacity expansion and therefore, the assessee cannot claim that a new unit has come into existence which leads the assessee to claim exemption u/s 10B. The C. A. of the assessee has also observed that ".......... this being a highly technical issue, we have relied upon the representation made by the company in this regard for the purpose of reporting u/s 10B of the Act 1961" From the CA's remarks also, though he has signed and certified the exemption u/s 10B in Form No 56G, he is not sure of claiming exemption u/s 10B for the said unit set up in the year 1999-00.Therefore, for the following reasons the exemption is not allowable to the assessee: i. Tax holidays for an EOU is 10 consecutive years and the assessee Company has availed it sin....
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.... the expenses proportionally as per the turnover of the each unit. The turnover in these units is as under: Non EOU EOU Total 14,47,07,843 (18%) 63,94,98,728 (82%) 78,42,06,571 According to the turnover the asessee should have claimed expenses of Rs. 3,31,644/- in the non EOU whereas the same has been claimed and allowed at Rs. 17,97,928/-. In the circumstances, the assessee has claimed excess expenses of Rs. 14,66,284/- in the non EOU thereby reducing the taxable income to that extent. Therefore, the income chargeable to tax has escaped assessment. 4. The assessee is an Indian Company has paid a sum of Rs. 13,40,982/- towards remuneration to its Joint Managing director Sri. Prashanth Timblo. The Joint Director was posted as Manager of the Liason Office and as such he was working in Dubai. Since the payment made to the Joint Director is the salary within the meaning of section 192 of the IT Act, the Provisions of Chapter XVIIB are applicable and the assessee should have been deducted tax on such payment. However, the company has not deducted tax on the remuneration paid to Shri. Prashant timbo. Therefore, the said amount has to be disallowed as per sec....
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....learned CIT(A) vide para 2.5.4. of the impugned order admitted the fact that, "the capital investment in the existing unit was Rs. 3 which was increased to Rs. 30 crores, similarly the production capacity was increased from 2 lakh tonnes per annum to 15 lakh tonnes per annum, which makes the undertaking as a new industrial undertaking. "This finding is not shown to be perverse on facts as neither any cross appeal or cross-objection have been filed by the Income Tax Department nor any plea has been raised in appeal before us. It therefore has to be taken that the findings so reached by learned CIT(A) have acquired finality". 5.4. Since the issue of new unit is covered by the decision of Hon'ble ITAT, this ground of appellant is allowed. Similarly, the issue of production is also covered by the recent decision of Hon'ble ITAT in the case of M/s. Sesa Goa Ltd., respectfully following the decision of Hon'ble ITAT, the new unit is held to be engaged in production, eligible for claim of deduction u/s 10B, this Ground of appeal of the appellant is, therefore, allowed and the A.O. is directed to grant deduction u/s 10B to the appellant." The CIT(A) dismissed the ground of the Assesse....
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....ll as quantification of the deduction claimed by the Assessee u/s 10B was duly verified by the AO. The Assessee has created a new unit - Greater Ferro-Met - having independent functioning and operation. The essential conditions for claiming deduction u/s 10B were complied with. The Auditor has simply stated the representation of the Assessee to the extent it gives the technical reasons, justification as to the necessity of setting up a new unit. The Assessee has submitted alongwith the return, Form no. 56G as required under this section for claiming deduction u/s 10B. This form clearly demonstrates entitlement to claim deduction u/s 10B for the Greater Ferro-Met unit. This form contained an annexure which gave details of the history with respect to the formation of the new unit. The AO while recording the reasons, simply relied on the details contained in this annexure. No further information or material was brought on record. All the all the information and material including the documents referred to were duly submitted either alongwith the return or during the course of assessment proceedings. In response to the query raised by the AO, the Assessee has filed various letters name....
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....ed by him in Dubai which did not accrue or arise in India. Therefore, no TDS was deductible. The details are given in the Tax Audit report, Form 3CD as well as Annexure - F and Exhibit - E to the copy of notes on accounts for which attention was drawn to pg. 86, 87 as well as 88 of the paper book. Reliance was also placed on the decision of the jurisdictional High Court in the case of Hindustan Lever Ltd vs. R.B. Wadkar, 268 ITR 332 (Bom) for the proposition of law that the reasons recorded must be based on facts. It must disclose the reasons as to which fact or material has not been disclosed by the Assessee fully and truly so as to establish the vital link between the reasons and evidence. The reasons cannot be supplemented by filing the Affidavit. Reliance was also placed on the decision of the jurisdictional High Court in the case of Sesa Goa Ltd. vs. JCIT, 294 ITR 101 (Bom) for the proposition of law that the reasons must disclose the non-disclosure of facts fully and truly by the Assessee. Reliance was also placed in the case of Grindwell Norton Ltd. vs. ACIT, 267 ITR 673 (Bom) for the proposition of law that the reasons must disclose that there was a failure on the part of t....
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....id or not; whether the AO has assumed valid jurisdiction for issuing notice u/s 148; whether there is a change of opinion, it is essential to look into the provisions of Sec. 147, 148 and 149 of the Income Tax Act. These provisions read as under : "147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for suc....
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.... outside India. Explanation 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4.-For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012." "148. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particular....
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....y to amount to one lakh rupees or more for that year;] (c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. Explanation.-In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of six years from the end of the relevant assessment year. Explanation.-For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended ....
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....Supreme Court has observed that it is the duty of the Assessee to disclose all the primary facts which has a bearing on the liability of income earned by the Assessee to be subjected to tax. It is for the AO to draw inference from the facts and apply the law determining the liability of the Assessee. The Assessee cannot foresee the conclusion drawn by the AO and once the conclusion is drawn and assessment order is framed, the AO cannot, at a later point of time, form a different opinion by giving a second thought to the facts disclosed by the Assessee holding that he committed an error in computing the taxable income and re-open the assessment u/s 147. Discovery of new and improved material or knowledge of fresh facts which were not present at the time of original assessment would constitute a reason to believe that the income had escaped assessment within the meaning of Sec. 147. 2.3.2 The proviso to Sec. 147 lays down that if the assessment has been framed u/s 143(3) or u/s 147, no action u/s 147 can be taken after the expiry of 4 years from the end of the relevant year unless the income chargeable to tax as escaped assessment for the assessment year by reason of failure on th....
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.... of the I.T. Act. from the A. Y. 1990-91 onwards. Accordingly, the assessee is entitled for exemption for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce article or things. The period therefore ended with the A. Y 2000-01. The assessee was, therefore, not entitled to claim exemption u/s 10B for the A. Y 2002-03. The C. A. of the assessee has mentioned in enclosure-1 (enclosed to the return of income) that during the F. Y. 1994-95 the company decided to go for substantial investment in plant and machinery and approval was sought and obtained from the Central Government vide Ministry of industrial Development's letter dated. 10thNovember 1994 which was subsequently amended vide their letter dated 29.02.1996 wherein status of 100% EOU was extended for further period of 5 years beyond 1996 and again amended by the Central Govt. vide their letter dated 05.10.2001 issued by the office of the Development Commissioner SEEPZ, Special Zone Ministry of Commerce and Industry, Mumbai wherein the status of 100% to Ferromet Concentrates has been extended for a further period of 5....
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.... Rs. 3,062 (b) Despatch earned Rs. 2,41,542 (c) Sundry creditors written back Rs. 3,22,820 (d) Miscellaneous income Rs. 2,01,314 The exemption u/s 10B is available in respect of profits and gains as are derived by the unit from export of articles or things. The assessee has claimed exemption u/s 10B on these items also and the same was allowed in the assessment. Therefore the income chargeable to tax has escaped assessment. 3. Similarly, the assessee has claimed repairs and maintenance of vehicles at Rs. 18,42,471/-. This expenses have been disproportionately claimed in the EOU unit and non EOU unit. These are as under: These are as under: Non EOU EOU Total 17,97,928 44,543 18,42,471 Since these expenses are common expenses of both units, the assessee should have claimed the expenses proportionally as per the turn over of the each unit. The turnover in these units is as under: Non EOU EOU Total 14,47,07,843 (18%) 63,94,98,728 (82%) 78,42,06,571 According to the turnover the asessee should have claimed expenses of Rs. 3,31,644/- in the non EOU whereas the same has been claimed and allowed at Rs. 17,97,....
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....oceedings in respect of alleged escapement of the income as stated in the reasons to believe. The reasons do not talk that there had been any fresh tangible material being obtained by the AO. The reasons are based on the basis of the information which was available and procured by the AO from the income tax return filed by the assessee or from the document/ material submitted by the assessee during the course of assessment proceedings for the impugned assessment year. Therefore, the AO, in our opinion, did not allege that there is a failure on the part of the Assessee to disclose fully and truly all the material facts necessary for his assessment. The ld. Sr. Advocate of the Assessee carried our attention towards the paper book filed by the Assessee which we have perused and we noted all the material, whatever has been referred to by the AO in respect of the entitlement of deduction u/s 10B, in the form of copy of letters from the Central Government issued by the Ministry of Industrial Development or by the office of the Development Commissioner or Form no. 56G or report of the Auditor were already in the possession of the AO. The AO does not state that the Assessee failed to discl....
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....t at 17 per cent of the total costs adopted by the AO for the asst. yr. 2000-01. Nowhere in the reasons recorded by the AO, it is stated that there is a failure on the part of the assessee to disclose material facts in the return filed by the assessee. It is not in dispute that in the present case, reopening of the assessment is beyond the period of four years from the end of the relevant assessment year. This Court in the case of IPCA Laboratories (supra) and Bhor Industries Ltd. (supra), has held that if one reads Expln. 2 to s. 147 including the proviso thereto, then it is clear that the cases where the Department reopens assessment within a period of four years, it can do so on the ground of income having escaped assessment even if there is no failure on the part of the assessee to disclose fully and truly all material facts. However, in the cases of reopening after four years, the AO must have reason to believe that the income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts. It is held that the Expln. 2 cannot be read without reading the proviso to s. 147 of the said Act. Applying the ratio laid down in the....
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....vidence. The reasons recorded must be based on evidence. The AO, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the AO cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced. The impugned notice itself being beyond the period of four years from the end of the asst. yr. 1996-97 and not complying with the requirements of proviso to s. 147, the AO had no jurisdiction to reopen the assessment proceedings which were concluded on the basis of assessment under s. 143(3). On this short count alone the impugned notice is liable to be quashed and set aside." 2.3.5 Similar view has be....
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....n the time-limit of 7 or 10 years, as the case may be, prescribed under s. 149. The object of s. 149 in imposing the restriction of seven years or ten years where the income likely to have escaped assessment is less than Rs. 50,000 or Rs. 1,00,000, as the case may be, is not to permit reopening of the assessment where the tax liability would not be significant as compared with the efforts that would be required for reopening of an assessment after a passage of seven or ten years, as the case may be. To repeat, the time-limit imposed under s. 149 for issuance of the notice is not in derogation of and is not for enlarging the time restriction imposed under the proviso to s. 147 but to put an additional time restriction even where there is no restriction of time for reopening of the assessment on account of failure of the assessee to disclose fully and truly all material facts." 2.3.6 We have gone through the other decisions which are having bearing on this issue in the case of the assessee. In the case of Wel Intertrade (P) Ltd. & Anr vs. ITO (2009) 308 ITR 22 (Asst Yr. 2000-2001), Hon'ble Delhi High court has held that Assessee having fully and truly disclosed all the material fa....
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...., the representation made on behalf of the company was that the sales of shares were casual transactions and in the nature of mere change of investments, which were accepted, but the result of the company's trading from year to year, however, showed that it had really been systematically carrying on the trade in the sale of investments, and that as such the company had failed to disclose the true intention behind the sale of shares. The ITO, therefore, issued notices u/s 34 of the IT Act calling upon the company to submit fresh returns. The company submitted the returns, but applied to the High Court under article 226 of the Constitution of India seeking for the issue of appropriate writs, directing the officer not to proceed to assess on the basis of these notices, on the ground, inter alia, that the ITO did not have reason to believe that understatement had occurred by reason of the omission or failure on the part of the company to disclose fully and truly all material facts necessary for assessment. The ITO filed an affidavit in the court asserting the fact of the representation made in the court asserting the fact of the representation made in the course of assessment proceedin....
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....ry facts necessary for re-assessment of the family were in the possession of the ITO, that these facts came into his possession not by virtue of any disclosure made by the family but were discovered by him otherwise; that at the time of the first reopening of the assessment of the HUF and of the individual members the question of assessment of the entire amount represented by the high denomination notes was under direct consideration; that it was open to the ITO to assess the whole amount of Rs. 19,000/- and Rs. 1,10,000/- in the hands of the HUF at that stage and that the escapement, if any, therefore, took place by reason of the failure of the ITO to assess the family with respect of the sum of Rs. 1,10,000/- when he was in full possession of all the material facts. When the matter was carried on in appeal, the apex court while confirming the decision of the High Court held that, because the primary facts were within the knowledge of the ITO when he completed the first re-assessment, the escapement of income took place by reason of the failure of the ITO to include the sum of Rs. 1,10,000/- in the assessment of the HUF when he was in full possession of all the necessary and mater....
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....after, a successor to the ITO issued a notice u/s 34(1)(b) of the Indian Income-tax Act, 1922, to include the share of profits from that firm which had escaped assessment, the only reason given for such action being that he had changed his opinion. The apex court held that the fact that the successor of the ITO who had made the original assessment had changed his opinion did not furnish a justifiable reason for taking action u/s 34(1)(b). The apex court, however, did not find it necessary to go into the question whether an inadvertent omission in the original assessment can justify the reopening of the assessment u/s 34(1)(b) on its subsequent discovery by the ITO. 2.3.14 In the case of Gemini Leather Stores (1975) 100 ITR 1 (SC), in proceedings for the original assessment of the appellant-firm, though the appellant did not disclose certain transactions evidenced by certain drafts, the officer himself discovered the facts relating thereto but by oversight did not bring the amounts represented by the drafts to tax as the income of the appellant. Subsequently, the ITO issued a notice u/s 147(a) of the IT Act, 1961, with a view to assess the amounts as the appellant's income from u....
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....furnish all the materials on which he had reason to believe that income had escaped assessment. As there was no response, a petition under article 226 of the Constitution of India was filed for quashing the impugned notice. In the affidavit filed before the High Court, the ITO has stated that it was discovered that some of the loans shown to have taken and interest alleged to have been paid thereon by the petitioner during the relevant assessment year were not genuine. The report furnished by the ITO to the CIT was also directed to be produced before the High Court. A Full Bench of the Calcutta High Court by majority held that the notice u/s 148 was not valid and accordingly allowed the writ petition. On further appeal, the apex court held that for a valid re-assessment before issuance of notice u/s 148, two conditions have to be satisfied, viz (i) that the ITO must have reason to believe that income chargeable to tax has escaped assessment, and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return u/s 139, or (b) to disclose fully and truly material facts necessary for the a....
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....ding so, the apex court upheld the majority view expressed by the High Court quashing the notice issued for initiating re-assessment proceedings. 2.3.17 We noted even in the case of Sound Casting (P) Ltd vs. Dy. CIT (2012) 250 CTR 119 (Bom.), the jurisdictional High court took the view where the assessment was reopened after the expiry of four years, as there is no allegation in the reasons for failure to disclose material facts necessary for assessment reopening beyond four years was held to be not valid. In this case assessment was completed under section 143 (3) on 14th December, 2007 accepting the melting loss at 7.75 per cent. The notice for reopening was issued on the ground that in the similar line of business other assessees have claimed the melting loss at 5.5 per cent. The objection of assessee was rejected by the Assessing Officer. The assessee challenged the reopening by writ petition. The court allowed the writ petition and held that there is no allegation in the reasons which have been disclosed to the assessee that there was any failure on his part to fully and truly disclose material facts necessary for assessment and therefore reopening beyond four years was not....
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....well as that of Hon'ble High Court, we quash the reassessment on this ground by allowing ground no.2 taken by the assessee. 2.3.22 Now, coming to the submissions of the Senior Advocate on behalf of the Assessee that the reasons to believe are not bona fide as it tantamounts to mere change of opinion, on this plea as we have already observed in the preceding paragraphs while deciding the issue whether there is a failure on the part of the Assessee to disclose all the material facts that the Assessee has submitted all the relevant information during the course of the assessment, the Assessee has submitted the evidence to prove his claim u/s 10B. The AO has duly examined the claim of the Assessee and verified it and ultimately it culminated into the assessment u/s 143(3). This fact is apparent from the following paragraph of the assessment order in which the AO while allowing the exemption to the Assessee observed as under : "The assessee Company consists of two divisions, viz., M/s. Sociedade de Fomento Industrial Ltd. and M/s. Ferromet Concentrates. M/s. Ferromet Concentrates derives income totally from exports. This division is eligible for exemption u/s 10B from A.Y. 1999-00....
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....tation to the words 'reason to believe', failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfilment of certain pre-conditions and if the concept of 'change of opinion' is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words 'reason to believe' but also inserted the word =opinion' in section 147. However, on receipt of representations from the companies against ....
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.... to be issued within 6 months from the end of the financial year. The Assessee has submitted the return in response to notice u/s 148 on 9.5.2008 and therefore, the notice u/s 143(2) must have been served on the Assessee, if the AO wants to make assessment u/s 143(3) r.w.s. 147, by 30.9.2009. No such notice was served on the Assessee prior to 30.9.2009. Referring to the assessment order that notice u/s 143(2) dt. 22.9.2008 was served on the Assessee, the ld. Sr. Advocate contended that no such notice was served on the Assessee. For this, our attention was drawn towards the Affidavit filed by the Dy. General Manager (Taxation), copy of which is available at pg. 6-7 of the paper book stating therein that no such notice was ever served on the Assessee. Referring to letter dt. 21.8.2009, which is available in the paper book at pg. 32, it was pointed out that this is a covering letter to the 'reason to believe'. The covering letter does not talk of enclosure of notice u/s 143(2). The onus is on the Revenue to prove that the notice has been served. Until and unless the notice is served, assessment cannot be regarded to be a valid one. The ld. Sr. Advocate drew our attention towar....
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.... register, reasons for issue of notice u/s 148 for A.Y 2002-03 was dispatched through speed post on 21.8.2009, therefore, the notice u/s 143(2) must have been enclosed alongwith the reasons but he could not produce any evidence for sending the notice u/s 143(2) through speed post. The ld. DR produced before us both the registers and from the dispatch register dt. 21.8.2009 it is apparent that only reasons for issue of notice u/s 148 for A.Y 2002-03 was dispatched through speed post. From the register which is being maintained for service through notice server it is apparent that two letters to the Assessee for the impugned assessment year were handed over to the notice server on 1.10.2009 and the date of dispatch is mentioned as 30.9.2009. When the Bench raised the query to the ld. DR that if it is presumed that these letters contained notice u/s 143(2) and when these letters were handed over to the notice server on 1.10.2009, how these can be served upto 30.9.2009, the ld. DR was unable to speak anything but vehemently contended that notice would have been sent through speed post. Reliance was placed by the ld. DR on the decision of Hon'ble Punjab & Haryana High Court in the c....
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....r to the notice server after 30.9.2009 i.e. after one year of its issuance. 3.4 We have carefully considered the rival submissions on this issue and we have also gone through the relevant provisions as well as materials and order of the authorities below alongwith the case laws as has been relied on before us. We have examined the assessment record alongwith order sheet as well as the dispatch register and notice server register as produced before us. We noted that in this case the Assessee has challenged the validity of the assessment on the ground that notice u/s 143(2) was neither issued nor served upon the Assessee within the time limit prescribed under the Act. The Assessee claimed that it is only the notice dt. 14.10.2009 which was served on the Assessee and no notice u/s 143(2) claimed to have been issued on 22.9.2008 was ever served on the Assessee alongwith letter dt. 21.8.2009. It was also denied that any hearing was fixed on 26.9.2008. These objections were also taken by the Assessee before the AO vide its letter dt. 30.11.2009. We perused the copy of the letter dt. 21.8.2009. We find that this letter states as under : "Sub: Reason for issue of notice u/s 148 of th....
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.....2009 for the assessment year 2002-03 but only copy of the order sheet recording the reasons for reopening the assessment was served along with the said letter. 4. I say that for the first time Notice under section 143(2) was issued on 14.10.2009 and was served on us on 22.10.2009. 5. I say that we had applied for inspection of records vide our letter dated February 03, 2011 and the same was denied by the assessing officer vide his letter dated 08.03.2011. 6. I say that the facts stated here in above are true to the best of my knowledge." In the said Affidavit the Assessee has categorically stated that no notice issued u/s 143(2) was served alongwith the letter of 21.8.2009 as alleged in the assessment order dt. 30.12.2009 and even no notice dt. 22.9.2008 was served on the Assessee. It was stated that only the copy of the order sheet recording reasons for the re-opening of the assessment was served alongwith the letter dt. 21.8.2009. 3.4.2 On our direction, the ld. DR produced the assessment record as well as the dispatch register. In the order sheet we did not find any description on this date for the issue of notice to the Assessee u/s 143(2). In the dispatch regis....
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....orities proving the sending of the notice by RPAD. The Departmental Representative was also asked to produce the despatch register wherein the sending of the notice to the assessee is recorded. However, he expressed his inability to do so on the ground that the notice was issued by Jt. CIT (Asstt.), Spl. Range, Jabalpur which post is now abolished and, therefore, such register is not traceable. The Revenue has not brought any evidence with regard to the ingredients which would amount to deemed service of notice under s. 27 of the General Clauses Act. Only evidence furnished is the copy of the notice issued under s. 148 and the address reads: "Vindhya Telelinks (P) Ltd., Rewa." Whether this address is full and correct address is doubtful because Rewa is a District place and no address of the office of the company is mentioned in this notice. In the memo of appeal filed by the Revenue, the Revenue has given the address of the assessee as under: "M/s Vindhya Telelink Ltd., Udyog Vihar, Rewa (MP)". In the notice under s. 148 in the address of the assessee "Udyog Vihar" is missing. Therefore, it cannot be said that the notice was correctly addressed. Moreover, no evidence is furnished f....
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....ecified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice: Provided further that in a case- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice.] Explanation.-For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section." We noted from the reading of the provisions that Sec. 147 & 148 do not provide the methodology for making the assessment.....
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....s may be". Nor is there any other good reason to exclude it from the procedure to be followed subsequent to a notice under section 148. Section 144B provides a measure of protection to assesees-that substantial variations, prejudicial to them, should not be made in their returned incomes only by the Income Tax Officers: these should not be made only after consideration by the Inspecting Assistant Commissioners. That a larger number of provisions of section 144B are inapplicable to assessments and reassessments under section 147. Assessments under section 143 and assessments and reassessments under section 147 are different, but in making assessments and reassessments under section 147 the procedure laid down in sections subsequent to section 139, including that laid down by section 144B, has to be followed. Section 144B applies to assessments and reassessments under section 147 and therefore the extended period of limitation provided by Explanation 1(iv) to section 153 is available for making such assessments and reassessments." 3.4.4 From the aforesaid decision of the Hon'ble Supreme Court it is apparent that even in an assessment and reassessment u/s 147, the procedure laid do....
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.... by the Tribunal do not call for any intereference in face of the judgement of this Court in the case of The Commissioner of Wealth Tax Vs HUF of H H Late Shri J M Scindia, Wealth Tax Appeal No. 1001 of 2007 decided on 5th February 2008 and the judgement of the Rajasthan Court in the case of Tiwari Kanhaiya Lal Vs Commissioner of Income Tax, 1985 Vol ITR 154 (Raj.). No question of law much less substantial question of law arises for determination. Appeal dismissed. No order as to costs." Sec. 143(2) stipulates as under : "143(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,- (i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim: [Provided that no notice under this clause shall be se....
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....o notice u/s 148 on 9.5.2008. Therefore, in view of the said proviso to Sec. 143(2), the AO was bound to serve on the Assessee notice u/s 143(2) within 6 months from the end of the financial year in which the return was filed i.e. upto 30.9.2009. 3.4.5 The Special Bench of this Tribunal interpreting the words "and the provisions of this Act shall, so far as may be, apply accordingly as if such return was a return required to be furnished u/s 139" in the case of Raj Kumar Chawla vs. ITO, 94 ITD 1 (Del) (SB) when the question arose whether the provisions of Sec. 143(2) will be applicable to a return filed pursuant to a notice u/s 148 held as under : "In the light of the analysis of the relevant provisions of law and judicial precedents, it was held that the return filed pursuant to notice under section 148 must be assumed and treated to be a return filed under section 139 and the assessment must thereafter be made under section 143 or 144 after complying with all the mandatory provisions. Accordingly, it is incumbent upon the assessing authority to issue notice under section 143(2) within the period as stipulated in the proviso thereunder. In that view of the matter, it was ....
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....r laid down in s. 158BB and the provisions of s. 142, sub-ss. (2) and (3) of s. 143, s. 144 and s. 145 shall, so far as may be, apply." An analysis of this sub-section indicates that, after the return is filed, this clause enables the AO to complete the assessment by following the procedure like issue of notice under s. 143(2)/142 and complete the assessment under s. 143 (3). This section does not provide for accepting the return as provided under s. 143(1)(a). The AO has to complete the assessment under s. 143(3) only. In case of default in not filing the return or not complying with the notice under s. 143(2)/142, the AO is authorized to complete the assessment ex parte under s. 144. Clause (b) of s. 158BC by referring to ss. 143(2) and 143(3) would appear to imply that the provisions of s. 143(1) are excluded. But s. 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under s. 143(2). However, if an assessment is to be completed under s. 143(3) r/w s. 158BC, notice under s. 143(2) should be issued ....
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....t s. 37(2) provides that "the provisions of the Code relating to searches, shall so far as may be, apply to searches directed under s. 37(2). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in s. 165 has to be generally followed. The expression "so far as may be" has always been construed to mean that those provisions may be generally followed to the extent possible. The learned counsel for the respondent has brought to our notice the observations made by this Court in the case of Maganlal vs. Jaiswal Industries & Ors. (1989) 4 SCC 344, wherein this Court while dealing with the scope and import of the expression "as far as practicable" has stated "without anything more the expression 'as far as possible' will mean that the manner provided in the code for attachment or sale of property in execution of a decree shall be applicable in its entirety except such provision therein which may not be practicable to be applied." The case of the Revenue is that the expression 'so far as may be apply' indicates that it is not expected to follow the provisions of s. 142, sub-ss. (2) and (3) of s. 143 strict....
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.....1992, dispatched to the petitioner, vide dispatch no. 177 dated 22.5.1992 etc. A relevant extract from paras 6,7 and 8 of the reply reads as follows: "6 That initial notice u/s 143(2) dated 22.5.92 issued vide dispatch No. 177 dated 22.5.92 has never been received back by the office and as such this tantamount to be a valid service. Moreover the petitioner appeared before the A.O in pursuance to notice dated 22.5.1992 for Assessment Year 1990-91 hence it does not lie in his mouth to contend that notice u/s 143(2) for the assessment year 1991-92 is not served upon particularly when both the notices u/s 143 (2) for the assessment year 1990-91 & 1991-92 were dispatched together. 7. That this notice of dated 22.5.92 also falsifies the contention of the assessee as the same notice was also issued for the assessment year 1990-91 vide the same dispatch No. i.e., 177 dated 22.5.92 in a single Envelop and to this assessee has duly complied. 8. That surprisingly the assessee has nothing uttered towards the issuance of notice u/s 143(2) of the I.T. Act which was issued vide dispatch no. 177 dated 22.5.92 for the assessment year 1990-91. Only this score proves that the notices issued....
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.... was sent through registered post was also supported by the entry in the dispatch register. The notice never returned back. In the case of the Assessee, the entry for the issue of the notice u/s 143(2) is not supported either by order sheet, dispatch register or by the notice server register. This decision, therefore, in our opinion, will not be applicable. On this basis itself, we allow the ground taken by the Assessee. 4. Ground no. 4 relates to the confirmation of the exclusion of the miscellaneous income, interest from bank, dispatch earned and sundry creditors written back for computation of eligible profit u/s 10B of the Act. 4.1 The ld. Sr. Advocate before us referring to the provisions of Sec. 10B(1) and 10B(4) vehemently contended that the CIT(A) although allowed deduction to the Assessee u/s 10B but included the miscellaneous income, interest from bank, dispatch earned and sundry creditors written back although these incomes have been assessed by the AO under the head =income from business'. Our attention was drawn towards the formula given u/s 10B(4) which states that for the purpose of sub-section (1), profit derived from export of an article or thing or computer ....
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....sment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things. (4) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year relevant to any subsequent assessment year,- (i) section 32, section 32A, section 33 and clause (ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years, in relation to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii) of sub-section (2) of section 33 or the second proviso to clause (ix) of sub-sec....
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....ion in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years. Explanation.- For the purposes of this section.- (i) "hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act; (ii) "relevant assessment years" means the ten consecutive assessment years referred to in sub-section (3); (iii) "manufacture" includes any- (a) process, or (b) assembling, or (c) recording of programmes on any disc, tape, perforated media or other information storage device; (iv) "produce", in relation to any article or thing referred to in clause (i) of sub-section (2) includes production of computer programmes." We noted that while interpreting the provisions of this section, the Hon'ble Karnataka High Court in the case of CIT vs. Motorola India Electronics (P) ....
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....he consideration realized by export of articles. In view of the definition of 'Income from Profits and Gains' incorporated in Subsection (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals. Therefore, the first substantial question of law raised in ITA No 428/2007 is answered in favour of the revenue and against the assessee and the first substantial question of law in ITA No 447/2007 is answered in favour of the assessee and against the revenue. In the light of the aforesaid findings, the second substantial question of law in both the appeals do not arise for consideration. Parties to bear their own costs." In view of the said decision and the specific provision of Sec. 10B(4), we are of the view that in case the Assessee is eligible for deduction u/s 10B, which is the ground taken by the Revenue in its appeal, the AO will compute the exemption to the Assessee u/s 10B in accordance with the formula laid down u/s 10B(4). The exemption under this section has to b....
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.... substantial expansion and not a case of setting up a new unit and for this our attention was drawn towards letter dt. 29.2.1996 issued by the EOU section of Secretariat for Industrial Approvals, Dept. of Industrial Policy and Promotion, Ministry of Commerce & Industry, Government of India, letter dt. 5.10.2001 issued by the Development Commissioner, SEEPZ, Ministry of Commerce and Industry, Government of India and Audit report in Form 56G issued u/s 10B of the Income Tax Act. It was pointed out that no fresh industrial licence etc. was obtained by the Assessee for establishing a new unit. The Assessee has requested for extension in the industrial licence already obtained. It is only increase in the production capacity of the existing unit. Since no new unit came into existence, no question of allowing the exemption u/s 10B arises. On a query from the Bench whether any appeal has been filed by the Revenue against the order of CIT(A) for A.Y 2006-07 in which the CIT(A), in pursuance of ground no. 5 taken by the Assessee against the denial of the exemption to the Assessee by the AO u/s 10B, under para 2.5.4 of his order took the view that the assessee established new unit but denied ....
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....rawn towards pg. 1-30 of the paper book. Under this licence a unit called "Ferro-met Concentrates" (referred to as =old unit') came into existence in which the commercial production started in July, 1986. This unit was designed to produce iron ore concentrates of exportable quality when the Run of Mines (ROM) fed to the said plant was having Fe content of 60% and above. This unit was set up at a total cost of Rs. 3 crores and was having production capacity of 2 lac tons per annum only. The salient features of this unit were - a. Fresh water requirement - 400 cubic meter per hour b. Feed capacity - 150 tons per hour c. Production activity involved was scrubbing, crushing and desliming. ii) This unit served its designed purpose from 1986 to 1994 as long as the mine could support production of ROM ore of above 60% Fe content. It was anticipated that by 1994 the Fe content would fall below 60% resulting in production of non- marketable ore from the old unit. Therefore, the Assessee on 8.8.1994 made an application for approval of setting up of a new unit under the same industrial license. By the said application the Assessee sought approval to import duty free capital goods ....
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....rtable, improved quality products (High Fe, low Alumina) at 75%, recovery weight even by feeding sub-grade ROM ores of below 60% Fe content which production could not be achieved by the old unit. The status of 100% EOU to the new unit was initially given for a period of 5 years and was subsequently extended by two further terms of 5 years each (ending 2011). The present operating license issued in the name of "Greater Ferro-met" by the said authority vide their letter dt. 20.4.2006 is for 5 years starting from 1.4.2006 and ending with 31.03.2011. Attention was drawn to pg. 48 & 51 of the paper book). The salient features of the new unit are - a. Fresh water requirement - 300 cubic meter per hour b. Feed capacity - 300 tons per hour c. Production activity involved are : i. Two stages scrubbing in attrition scrubbers and desliming in screw washers is done on fines to eliminate gangue constituents such as alumina, silica and to improve Fe content. ii. Log washers are used to treat calibrated lumpy ore to break adhering clay and improve its Fe content and tumler index. iii. To recover ultrafine ore from washings fine-cut hydrocyclones are used as Rougher, Scavenger, d....
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....ioning, the new unit has been operating independently, i.e. ROM is fed into the new unit which is then beneficiated to produce various types of marketable ore; vi. that the new unit has been setup with a substantial capital investment of over Rs. 30 Crores; vii. that the new unit was covered under the EOU approval initially given for a period of 5 years, which term was thereafter extended by two further terms of 5 years each (ending 2011); and, the present operating license issued in the name of "Greater Ferro-met" by the said authority vide their letter dt. 20th April, 2006 is for 5 years starting from 1st April 2006 and ending with 31.03.2011; viii. that the Appellant is not required to procure a new industrial license to set up a new unit, in that, several units could be set up under the same industrial license; ix. that the new unit was and is being granted all the benefits under 100% export-oriented undertaking regime; x. that the simultaneous existence of the old unit alongside the new unit supports the claim of the Appellant under section 10B of the act with respect to the profits derived by the new unit; xi. that even assuming, without admitting, that the ....
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....er dt. 4.12.2009 after examining the facts in total held that the unit formed in 1998 is a new unit. Our attention was drawn towards the relevant observation of the Commissioner in para 2.5.4 at pg. 17 of the said order. It was pointed out that the finding of the CIT(A) for A.Y. 2006-07 has been accepted by the Revenue by not filing any second appeal before the Tribunal, Panaji Bench, Goa and the ITAT Panaji Bench, Goa vide its order dt. 7.4.2011 also noted this fact while disposing off the appeal filed by the Assessee in ITA No. 42/PNJ/2010 for A.Y. 2006-07 against the order CIT(A) denying deduction to the Assessee on the ground that the Assessee did not have necessary approval under the 100% EOU scheme as required u/s 10B of the Income Tax Act for considering it a new unit. This Tribunal vide its order dt. 7.4.2011 allowed the appeal of the Assessee allowing exemption to the Assessee u/s 10B. On the basis of the order of this Tribunal, it was contended that the case of the Assessee is duly covered against the Revenue and this Bench is bound to follow the same. Coming to the merits of the case, reliance was placed on the decision of the ITAT Panaji Bench in the case of Sesa Goa....
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.... Act." 5.4.1 The CIT(A) on the basis of the material and documents, copy of which has been filed by the Assessee before us in the paper book during the course of the hearing and which has been referred to and relied on by both parties, ultimately took the view under para 2.5.4 that the =Greater Ferro-met' is a new industrial undertaking but he took the view that all the newly established industrial undertakings are not entitled for exemption u/s 10B. It is limited only to the newly established 100% EOU and ultimately by referring to the provisions of Sec. 10B(1), 10B(2), 10B(3) and 10B(5) he denied the deduction to the Assessee as according to him the newly established industrial undertaking was not approved as 100% EOU by the Board. The relevant finding of CIT(A) dt. 4.12.2009 are reproduced as under : "2.5.4 If the ratio laid down by the various decisions discussed above is applied to the case of the appellant, there is no doubt that the capital investment in the existing units was Rs. 3 crores which was increased to Rs. 30 crores, similarly the production capacity was increased from 2 lakhs tones per annum to 15 lakhs per tone per annum which make the expanded undertaking ....
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....f by the Central Government in exercise of powers conferred by Section 14 of the Industrial (Development and Regulation Act 1951 and the Rules made under that Act hereunder referred as 'Board') From the above definition, it is clear that the undertaking which have been approved by the competent authority as mentioned in clause (iv) of Explanation to Section 10B shall only be eligible for deduction under Section 10B. Now, in the case of the appellant, it is admitted fact that the first application for approval as hundred percent export undertaking was filed on 13.02.1984. The approval was granted by the 'Board' as per letter dated 21.05.1984. In the approval, it is stated that the industrial undertaking for the manufacture of iron ore concentrate has been approved as hundred percentage export oriented undertaking by the 'Board' specially constituted for approval of hundred percent export oriented undertaking. It is admitted by the appellant that 'Ferro-Met' concentrates division of the appellant company was approved as hundred percent export oriented undertaking under industrial license dated 26.12.1985 for a period of 10 years. It is also admitted by the appellant that t....
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....m 01.04.2001, in view of proviso to Sub Section (1) of Section 10B the appellant become eligible for deduction for unexpired period of ten consecutive assessment years. Now the issue for determination here is as to whether the undertaking on which the deduction is now claimed under Section 10B is the undertaking which have been approved by the 'Board' as referred in Clause (iv) of Explanation 2 to Section 10B. To arrive at this conclusion, it is necessary to go through the correspondence made by the appellant with the Government of India and the response of the Government of India on such correspondence. The analysis of these correspondence is given as under :- (i) Ferro - MET Concentrates (proposed hundred percent export oriented unit) division of the appellant company filed an application on 10.02.1984 to the Secretary, Ministry of Industries, New Delhi for obtaining approval Govt. of India as hundred percent export oriented unit. (ii) The Govt. of lndia, Ministry of Industry as per letter dated 21.05.1984, informed that the Govt. are prepared to issue an industrial license under the Industries (Development & Regulation Act 1951) for establishment of new undertak....
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.... available to your undertaking also". (v) The appellant made an application to the Secretary, Ministry of Commerce Govt of India on 8/8/1994 in which it was requested to the Govt that "in term of license No.LI-368(84)/iv-O.M 49 (84)/IL dated 21.05.1984, subsequently converted into Industrial License ------ dated 26.12.1985. We were allowed to established a new industrial undertaking --------- Now we wish to modernize and substantially expand our plant and machinery to be able to maintain competitiveness of our product in overseas or in our market which will keep phase with modern development ------- will result in substantial expansion, in this case more than three hundred percent of the original gross block value ---- it is therefore requested that the approval / sanction may please be granted for : (1) increasing annual capacity to 15 lakh tons (2) Duty free import of plant and machinery costing Rs. 7 crores. (3) Procuring free of excise duty and sales tax, indigenous plant and machinery, components, spares, consumable, etc., valued at 13 crores. (4) Duty free imported and indigenous (excise, sales tax free) spare parts Rs. 2 crores, every year, for 10 years. * ....
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....o the above extent. (viii) The Development Commissioner Government of India as per letter dated 5.10.2001, in reference to Industrial Licensed ---------- dated 26/12/1985 for manufacture of iron ore concentrates under 100 % EOU Scheme with reference to request for extention of 100% EOU status. In this letter in Para 2 it is stated that "in view of the position explained above, the Development Commissioner SEEPZ, permits you to continue as 100% EOU for a further period of 5 years from 2001 to 2005-06" It is also mentioned in Para 4 of this letter that "the industrial license No. ------- dated 26/12/1985 as amended under reference stands amended to the above extent w.e.f.1.4.2001. The Para no.8 of the letter also states that "all other terms and conditions mentioned in the industrial license no. --------- dated 26/12/1985 shall remain unchanged. (ix) There is another letter dated 20.04.2006 from the Asst. Development Commissioner in which it is stated that "I am directed to refer to your letter dated 29/3/2006 on the subject stated above and to say that in view of the position explained therein, the Development Commissioner, as SEEPZ - SEZ, approves your request to continue as ....
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....ies which are available to the hundred percent export oriented undertaking will be available to the undertaking. (ii) On 08.08.1994, the appellant approached to the Government of India with a request that it want to modernize and subsequently expand the plant and machinery to maintain competitiveness of their product in overseas market. A request was made to grant sanction for increasing annual capacity, duty free import of plant and machinery, concession in exercise duty and sales tax for purchase of indigenous plant and duty free import of indigenous spare parts of Rs. 2 crores every year. The Government of India approved the scheme of modernization and expansion of the plant as per letter dated 10.11.1994. However, it was clearly mentioned that the Industrial License dated 26.12.1985 is amended to the above extent. The approval for expansion was not given by the Board appointed under the Industrial (Development and Regulation) Act 1951, but by the concerned department of the Government of India. Further, through this letter no fresh license was granted, it is in continuation to the license dated 26.12.1985. (iii) As per letter dated 02.11.1995, the appellant sought an exte....
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....ofits and gains has not been included by application of the provision of the Section as it is stood immediately before its substitution by the Finance Act 2000, the undertaking shall be entitled to the deduction referred to in this Sub Section only for the unexpired period of aforesaid ten consecutive assessment years." The unexpired period expires in assessment year 1999-2000. Therefore, the deduction under Section 10B for the expanded and modernized undertaking cannot be allowed beyond the ten consecutive assessment years to the undertaking to which the approval was granted by the 'Board' as per license dated 26.12.1985. There is no approval by the 'Board', after 26.12.1985, it is also clear from the subsequent approvals that the appellant will only be eligible for certain relief's like duty free import, excise duty and sales tax as narrated in those letters. However, all other concessions which includes deduction under Section 10B also shall not be available as the same was allowed only through approval dated 21.05.1985 and 26.12.1985. During the course of the hearing, the appellant repeatedly drawn the attention towards the agreement entered and argued that n....
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....5, the relevant paras of the above Circular are reproduced hereunder :- "3. Representations have been received from various quarters as to whether an undertaking set up in Domestic Tariff Area, which is subsequently approved as 100% EOU by the Board appointed by the Central Government in exercise of powers conferred under section 14 of the Industries (Development and Regulation) Act, 1951, is eligible for deduction under Section 10B of the Income Tax Act." 4. The matter has been examined and it is hereby clarified that an undertaking set up in Domestic Tariff Area (DTA) and deriving profit from export of articles or things or computer software manufactured or produced by it, which is subsequently converted into a EOU, shall be eligible for deduction under Section 10B of the IT Act, on getting approval as 100% export oriented undertaking. In such a case, the deduction shall be available only from the year in which it has got the approval as 100% EOU and shall be available only for the remaining period of ten consecutive years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or compute....
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....ssessing Officer and thereafter from year to year also the claim was allowed. In the relevant year under consideration, the Assessing Officer for the first time in making assessment, refused to allow the relief to the assessee. 30. The assessee claims to have demonstrated before the authorities below that it has met all the tests of being an independent and new unit as are laid down by the Supreme Court in the case of Textile Machinery Corporation Ltd vs CIT(1977) 107 ITR 195 (SC) and also in CIT vs Premier Cotton Mills Ltd 240 ITR 434 (Mad.) 31. The learned CIT(A) vide para 2.5.4 of the impugned order admitted the fact that "the capital investment in the existing unit was Rs. 3 crores which was increased to Rs. 30 crores, similarly the production capacity was increased from two lakh tones per anum to 15 lakh tones per anum, which makes the undertaking as a new industrial undertaking". This finding is not shown to be perverse on facts as neither any cross appeal or cross objection have been filed by the Income Tax Department nor any plea has been raised in appeal before us. It therefore has to be taken that the findings so reached by learned CIT(A) have acquired finality. ....
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....er to that extent and allow the grounds no. 6 to 8 raised in appeal by the assessee." Since the Revenue did not file any appeal against the order of CIT(A), especially the finding that the impugned unit is a newly established undertaking, this finding of CIT(A), in our opinion, has become final. The order of CIT(A) is dt. 4.12.2009. The AO on this basis itself, vide his order dt. 30.12.2009 cannot take a different view. In our opinion, the Revenue is bound with the finding of CIT(A) which has not been disputed by the Revenue that the Greater Ferro-met is a newly established undertaking. On this basis itself we are bound to confirm the order of CIT(A) and dismiss the ground taken by the Revenue. It is not disputed by both the parties that the facts involved and considered by the CIT(A) while rendering the decision for the assessment year 2006-07 are same. Therefore, on the basis of the principle of the precedent the revenue is bound with the earlier decision. Hon'ble Supreme Court on the applicability of principle of res judicata in the case of Bharat Sanchar Nigam Ltd vs Union of India 282 ITR 273 (SC) at page 286 observed as under :- " The decisions cited have uniformly held....
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.... not a newly established undertaking but it is merely a case of substantial expansion of the already existing unit. The Revenue has also taken the submission before us that the unit is not engaged in manufacturing or production of an article or thing. We noted that a similar issue had arisen before this Bench in the case of ACIT vs. Sesa Goa Ltd. in ITA Nos. 72/PNJ/2012 and 85/PNJ/2012 for A.Y 2009-10 as well as in ITA No. 89/PNJ/2012 for A.Y. 2008-09 in which this Tribunal vide order dated 8.3.2013 and 17.5.2013 respectively, after discussing the various case laws and the relevant provisions of the Income Tax Act and after considering same arguments as has been advanced by both the parties in this case took the view that the unit of the Assessee which is also carrying on undisputedly similar activities as the impugned unit of the Assessee is carrying took the view that 100% EOU engaged in processing of the crude ore are entitled for exemption u/s 10B subject to the other conditions for exemption u/s 10B. The relevant finding of the Tribunal are reproduced as under : "42.7 In our opinion, the common issue involved on the facts of the case in the case of the assessee is whether a....
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.... 10B. Explanation (iv) of the said sec. 10B further provided that the word 'produce' for the purpose of said section, in relation to any article or thing shall include production of computer programme. CBDT vide its circular no. 528 dated 16/12/1988 176 ITR ST. 154 explained the [provisions enacted by the Finance Act, 1988 under para 8.2 of the circular. In this circular, CBDT had clearly explained that the said new sec. 10B had been inserted in the statute book with a view to provide further incentive for earning foreign exchange so as to secure that the income of a 100% EOU shall be exempt from tax for a period of five consecutive assessment years falling within the block of eight assessment years. The exemption provided under this new section was similar to the one provided under sec. 10A of the Act to industrial undertaking operating under the free-trade zone. It was also clarified therein that the expression 'manufacture' for the purpose of both sections 10A and 10B of the said Act would include any processing or assembling or recording of programme on disc, tape, perforated media or other information storage device. 43.1 This definition of 'manufacture' was removed when se....
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....omic Zone Act, 2005 was passed by the Parliament in May, 2005, which was brought into effect w.e.f. 23/06/2005. Section 2(r) of Special Economic Zone Act defines the expression 'manufacture' as under:- "Manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinct name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisci culture, poultry, sericulture, aviculture and mining". 43.4 This definition was adopted by the Legislature in section 10AA w.e.f. 10/02/2006 as adopted by the Special Economic Zones Act, 2005 by inserting Explanation 1(iii) to section 10AA of the Act which reads as under:- (iii) 'Manufacture' shall have the same meaning as assigned to it in clause (r) of section 2 of the Special Economic Zone Act, 2005. As per the said definition 'process' is included in manufacture. Subsequently, by the Finance Act, 2009 w.e.f 1.4.2009, clause (29BA) was inserted in section 2 of the Income Tax Act, 1961defini....
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....suffered, the commodity would experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and extent of change is not material. It may be that camphor powder may just be compressed into camphor cubes by application of mechanical force or pressure without addition or admixture of any other material and yet the operation would amount to processing of camphor powder as held by the Calcutta High Court in Om Prakash Gupta Vs Commissioner of Commercial Taxes [16 STC 935 (Cal)]. What is necessary in order to characterize an operation as "processing" is that the commodity must as a result of the operation, experience some change. Here, in the present case, diverse quantities of ore processing different chemical and physical compositions are blended together to produce ore of the requisite chemical and physical composition demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective chemical and ....
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....During conversion of crude ore into lumps and fines, waste is generated which is called tailing and discharged into tailing pond. In Codli Unit these tailings which are in liquid form are converted into ultra fine. In our opinion as we noted from this physical sample also crude ore is entirely different from the lumps and fine in physical appearance used and chemical compositions even technically names are also different, similarly what comes as output from the input in codli unit that is also different in physical appearance and chemical composition. We do not agree with the learned D.R that there is not any change in physical and chemical composition of the output than the input as is being processed in all the three units. If we go to section 2(29BA) inserted w.e.f. 1.4.2009, we find clause (b) of this section clearly states that bringing into existence of new and distinct object or article or thing with a different chemical composition or integral structure tantamount to 'manufacture'. The Crude ore once processed is made marketable and had a different chemical and physical composition than the ROM (Crude Ore) even though in common paralance both may be called iron ore.....
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....he assesses for the purpose producing the tea mixture could be said to have been 'processed', after the purchase, within the meaning of the proviso to section 8(a), so as to preclude the assesses from being entitled to deduct their turnover under section 8(a), so as to preclude the value of the tea purchased by them. The relevant observations made by the Hon'ble Supreme Court in this respective are quoted and set out herein below for ready reference: "7. The Revenue however relied on the decision of the Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay [10 STC 500 (Bom HC)]. The assessees in this case were registered dealers in tea under the Bombay Sales Tax Act, 1953 and they purchased in bulk diverse brands of tea and without the application of any mechanical or chemical process blended these brands of different qualities according to a certain formula evolved by them and sold the tea mixture in the market. The question arose before the Sales Tax Authorities whether the different brands of tea purchased and blended by the assessee for the purpose of producing the tea mixture could be said to have been 'processed' after the purchase withi....
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.... to be applied for the purpose of determining whether there is 'processing'. The question is not whether there is manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes 'processing' we are clearly of view that the blending of ore in the course of loading through the mechanical ore handling plant amounted to 'processing' of ore within the meaning of Section 8(3)(b) and Rule 13 and the mechanical ore handling plant fell within the description of "machinery, plant, equipment" used in the processing of ore for sale...... " 43.9 In deciding the said question, the Hon'ble Supreme Court after considering the judgment of the Hon'ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay [1959] 10 STC 500 (Bom), inter alia, observed as follows: (v) When different brands of tea were mixed by the assessee as in Nilgiri Ceylon Tea Supplying Co.'s case (1959) 10 STC 500 (Bom) for the purpose of purchasing a tea mixture o....
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....or from the different brands of tea which went into the mixture. 43.11 Hon'ble Kerala High Court had the occasion to consider whether assessee is engaged in the manufacture or production of an article or thing when assessee was exclusively engaged in blending, packaging and export of tea bags, tea packets and bulk tea packs in the case of Tata Tea Ltd. Vs. ACIT 338 ITR 285. The assessee's unit was recognized as 100% EOU. The assessee claimed exemption u/s 10B of the Act for the assessment year 1996-97 onwards which was granted up to the assessment year 2000-2001, but for the assessment years 2001-02 and 2002-03 the exemption was denied for the reason that by the Finance Act, 2000, the definition of 'manufacture' which included processing contained in sec. 10B of the Act was deleted w.e.f. 01/04/2001. (The same reasoning as has been given by the coordinate bench in the case of Chowgule & co. ITA 162 & 184 heavily relied by the department under para 14 of their order dt. 12.7.2007.) Hon'ble High court noted in that case that the Revenue's stand is that manufacture or production had liberal meaning under the definition clause contained in section 10B of the Act until its deletion w....
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....blending. The contention of the counsel for the assessee is that the purpose of removal of the definition of "manufacture" from section 10B was not to provide a restricted meaning for that term contained in the main section because if that was so, then the Legislature would have only modified the definition clause. Further, the definition of 100 per cent export oriented unit even after the amendment is retained in the said section, which defines it as an undertaking which has been approved as a 100 per cent export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of powers conferred by section 40 of the Industries (Development & Regulation) Act, 1951, and the Rules made under that Act. It is pertinent to note the products for which the assessee's unit is recognized as a 100 per cent export oriented unit are tea bags, tea in packets and tea in bulk packs. In fact, the assessee is exclusively engaged in blending and packing of tea for export and is not manufacturing or producing any other article or thing. Still it is recognized as a 100 per cent export oriented unit by the concerned authority within the meaning of that term contained in....
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....supra) gave the clear cut finding impliedly that even if the assessee is engaged in processing and is recognized as 100% EOU, it will be entitled for exemption claimed u/s 10B of the Act. 43.13 The crux of the submissions of the Ld. special Counsel for the department is that the assessee is engaged in these 100% export oriented units only in processing of iron ore and by processing it get it upgraded for export, therefore it is not entitled for exemption u/s 10B does not have any leg to stand in view of the decision of Kerala High Court (supra), Supreme Court in the case of Chowgule & Co(supra). Even on this issue we have gone through the decision of Hon'ble Special Bench in the case of Madhu Jayanti International Ltd. and Others Vs. DCIT. The question for consideration and decision of the Special Bench was: "Whether on the facts and in the circumstances of the case, the Assessees, who are in the business of blending & processing of tea and export thereof, can be said to be "Manufacture/Producer" of the tea for the purpose of Section 10A/10B of the I.T. Act, 1961"" 44. The brief facts in the case of Madhu Jayanti International Ltd. in ITA No. 1463/Kol/2007 were that the as....
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.... words, admittedly all Special Economic Zones were also being governed by the Exim Policy prior to the enactment of SEZ Act, 2005. Clause (iii) of Explanation 1 to section 1OAA lays down that the expression "manufacture" shall have the same meaning as assigned to it in section 2(r) of the Special Economic Zones Act, 2005, which definition is as under: "Manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and includes agriculture, aquaculture, animal husbandly, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining". In Exim Policy, the expression "manufacture" is defined, in paragraph 9.30 & 9.31 thereof almost in the same manner as in the Special Economic Zone Act, 2005, which is as under: "Manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, re....
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....said definition was again applied by the Hon'ble Supreme Court in CIT V. Emptee Poly-Yarn Pvt. Ltd. (2010) "Green Tea" means the variety of manufactured tea commercially known as green tea; 320 ITR 665,667 (SC). 33. The Assessee Company carries out its operations of blending, packaging and export of tea bags, tea packets and bulk tea packs in its modern factory, well equipped with all imported and sophisticated automatic plant and machineries with the help of over 100 workmen engaged on contract basis through M/s. Trot Pvt. Ltd. The manufacturing'. operations are carried in its said factory situated at 19/4A, Munshiganj Road (under Falta Export Processing Zone), Kolkata. We find from facts of the case that the details of turnover of the assessee shows Bulk Tea (0.94%), Packet Tea and Tea Bags .(99.06%),. as. per different descriptions, brand names and varieties, as listed APR. Assessee Company is duly registered as a 100% EOU by the Government of India, Ministry of Industry, Department of industrial Policy and Promotion Secretarial for Industrial Approvals, ECU Section in the state of West Bengal for manufacture of Packet Tea, Tea Bags/Bulk Tea with annual capacity of 3110 ....
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....considered view that the contention of the assessee that the scheme of income tax exemption available to units in the SEZ u/s. TOA of the Act and units in the free trade zone provided u/s, 10AA of the Act and the exemption available to 100% EOU u/s. 1OB of the Act are very similar in nature and the wordings of the statutory provisions are similar in nature is correct. We find that Hon'ble Kerala High Court also considered the judgment in-the decision of Supreme Court in Tara Agencies, supra relied on by the Ld. CIT, DR, wherein Hon'ble Supreme Court clearly held that blending of tea does not amount to 'manufacture' or 'production' of an article, but is only processing. We find that the assessee was exclusively engaged in blending and packing of tea for export and was not manufacturing or producing any other article or thing. It was recognised as a 100% EOU division and the Department had no case that the assessee's unit engaged in export of tea bags and tea packets was not a 100% EOU. If exemption was denied on the ground that products exported were not produced or manufactured in the industrial unit of the assessee's 100% EOU, it would defeat the ve....
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....exemption u/s. 10B of the Act as prayed for. Their appeal for the AY 2004-05 is allowed. As regards other appeals and that of the interveners, the matters are restored back to the Division Bench, with directions to decide those appeals in the light of principle laid down herein, so far as the claim for relief u/s. 10A or 10B of the Act in accordance with law." 44.1 From the reading of para 35 of the aforesaid judgment we noted that the Special Bench in this case clearly held that the assessee was engaged only in processing and was not engaged in the manufacture or production but had ultimately under para 36 it took the view in view of the fact that the definition of 'manufacture' u/s 2(r) of the SEZ Act, 2005 which is incorporated in section 10AA w.e.f. 10/02/2006 includes 'processing'. Therefore, following the decision of Kerala High Court in the case of Girnar Industries and Tata Tea Ltd. (which was discussed by us in the preceding paragraphs) held that the assessee is entitled for exemption u/s 10B of the Act on account of blending of tea. 45. We have also gone through the decision of Hon'ble Supreme Court in Indian Cine Agencies Vs CIT 308 ITR 98. In this ....
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....as right in coming to the conclusion that the activity undertaken by the respondents-assessees did constitute manufacture or production in terms of Section 80IA of the Income Tax Act, 1961. 23. Before concluding, we would like to make one observation. If the contention of the Department is to be accepted, namely that the activity undertaken by the respondents herein is not a manufacture, then, it would have serious revenue consequences. As stated above, each of the respondents is paying excise duty, some of the respondents are job workers and the activity undertaken by them has been recognized by various Government Authorities as manufacture. To say that the activity will not amount to manufacture or production under Section 80IA will have disastrous consequences, particularly in view of the fact that the assessees in all the cases would plead that they were not liable to pay excise duty, sales tax etc. because the activity did not constitute manufacture. Keeping in mind the above factors, we are of the view that in the present cases, the activity undertaken by each of the respondents constitutes manufacture or production and, therefore, they would be entitled to the benefit of ....
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.... this Tribunal vide order dt. 19th July, 2007 but we do not agree on this with the Ld. AR. We have gone through the order dt. 12th July, 2007 as well as order dt. 19th July, 2007 but we noted that the Tribunal rectified the order as the Tribunal noted the assessee itself was extracting the entire ores and processing the same. Thus, the assessee complied with both the conditions of extracting and processing of iron ore. This Tribunal did not reverse the finding that the processing is not entitled for the exemption. The Tribunal did not reverse the finding that extraction and processing should go together. Even that bench / tribunal did not visualize that 100% EOU is approved for a particular location and its boundry cannot extend beyond that location. It is only the profit derived by the 100% EOU Unit situated within that location, can be regarded to be the profit derived by the 100% EOU. The assessee in that case has taken the mines on lease which were not approved as part of 100% EOU but still the assessee was allowed exemption u/s 10B even though the iron ore extracted from those mines which were taken on lease were not part of the 100% EOU 45.4 No doubt the decision of the co....
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.... as if fresh facts had been placed before it. On principle there is not much difference between fresh facts being placed before the second Tribunal and the second Tribunal taking into consideration certain material facts which the first Tribunal failed to take into consideration". 45.5 The other exception is for non-binding of the coordinate Bench decision is when there had been amendment in law subsequent to the decision on the basis of which the coordinate bench rendered the decision and the co-ordinate Bench could not be able to consider the said amendments, the decision of the co-ordinate Bench is not binding. From para 14 of the order of the Co-ordinate Bench it is apparently clear while deciding the appeal in the case of Chowgule & Co. (ITA 162 & 184), it had got impressed that the expression "processing" is omitted in Section 10B. The appeal relates to A.Y.2002-03 not relating to impugned A.Y. Clause (iii) of Explanation 1 to section 1OAA, which lays down that the expression "manufacture" shall have the same meaning as assigned to it in section 2(r) of the Special Economic Zones Act, 2005, and section 2(29BA) were subsequently brought into the statute after the rendering ....
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....nt to the decision of the coordinate Bench, Supreme Court has also decided following cases in which also, in our opinion, similar issue whether processing is manufacture or production has been decided. These decisions are given as under:- i) India Cine Agencies 308 ITR 98 (SC) ii) Oracle Software India Ltd. 320 ITR 546 (SC) iii) Arihant Tiles and Marbles (P) Ltd. 320 ITR 79 (SC). 45.6 We noted that in all these decisions except in the case of Oracle Software the decision of the Supreme Court in the case of CIT vs. Sesa Goa Ltd. 271 ITR 331 was referred to by the court. Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Abhishek Industries Ltd. 286 ITR 1 (P&H) has observed as under on the responsibility of the Tribunal while deciding the case: "The Tribunal being the last fact-finding authority, a higher responsibility is cast by the Legislature on it to decide the cases by recording complete facts and assigning cogent reasons. It is the duty of the Tribunal to decide the cases on the basis of the law laid down by the Supreme Court/High Court and not what the Tribunal decides on the particular issue. Every effort must be made by the Tribunal to decide the issu....
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....ding and making the commodity fit for export and which is a 100% EOU approved by the competent authority can be said to have been engaged in manufacture or production of an article or thing. We have noted that this issue is duly covered by the decision of the Special Bench in the case of Madhu Jayanti International Ltd.(supra). The relevant paragraph of this judgement has been reproduced by us in the preceding paras. 45.9 In this decision, Special Bench has exhaustively dealt with the provisions of section 10B, section 2(29BA) of the Income-tax Act, 1961 and section 2(r) of the Special Economic Zones Act, 2005; and the various decisions of the Supreme Court as well as the High Court which dealt with the similar issue and even the decision of Chowgule & CO (SC) as was referred to by us in the preceding paras herein above. The Special Bench clearly noted in this decision, the decision of the Supreme Court in Tara Agencies' case 292 ITR 444 in which it was held blending and packing of tea amounts to processing and is not manufacturing or producing of an article or thing. In this decision the Special Bench also noted that Kerala High Court in the case of Tata Tea Ltd. Vs. ACIT 338 I....
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....acturing of an article. As the nature of the activities carried out by the impugned unit of the Assessee is similar to the unit of Sesa Goa, we, therefore, hold that the impugned unit of the Assessee is engaged in manufacturing or production of an article. 5.4.4 Now, coming to the question whether the Assessee has established a new unit or reconstructed its business, in our opinion, as the finding of CIT(A) given in A.Y 2006-07 has not been disputed by the Revenue, the AO, in our opinion, cannot again deny the benefit to the Assessee on this basis. Even otherwise also, this Tribunal has dealt with this issue in the case of Sesa Goa in ITA No. 72/PNJ/2012 for the A.Y. 2009-10 and by order dt. 8.3.2013 this Tribunal has also taken the view as has been taken by the CIT(A) in the case of the Assessee during assessment year 2006-07 on the similar facts. The relevant finding of the Tribunal are reproduced as under : 45.10 Now, we will deal with the contention whether the assessee has set new units or has merely reconstructed the business which was already in existence. We noted that the assessee had made the following investments in installing the Plant & Machinery in these EOUs:- ....
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....ital expenditure at Amona and Chitradurga Plants at page nos. 696, 699-700 & 702 of the paper book. ii. Photographs of Pants at Amona & Chitradurga EOUs at page nos. 704-713 of the paper book. iii. Year-wise Tables of Plant & Machinery capitalized for - (a) Amona EOU for the FYs 2002-03 to 2008-09 (at page nos. 45-48 of the paper book), (b) Chitradurga EOU for the FYs 2005-06 to 2008-09 (at page nos. 54-55 of the paper book), and (c) Codli EOU for the FYs 1999-2000 to 2008-09 (at page nos. 38-40 of the paper book). iv. Audited Annual Accounts of the appellant-company for the financial years ended on 31/03/2003, 31/03/2006, 31/03/2007 and 31/03/2009 at page nos. 91-632 of the Additional paper book. v. Copies of bills of plant & machinery items were submitted in respect of the EOUs as under: (a) Amona EOU for Rs. 3,57,03,426/- out of total investment of Rs. 3,96,10,020/- at page nos. 794-1146 and 1378-1435 of the Additional paper books. (b) Chitradura EOU for Rs. 8,18,50,910/- out of total investment of Rs. 8,33,34,046/- at page nos. 1147-1355 and 1436-1472 of the Additional paper books. 45.11 These evidences clearly prove, in our opinion, that the asses....
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....plied to the Karnataka State Pollution Control Board vide its application dated 09/09/2005 for its Consent for Establishment under the Water and Air Acts for expansion of iron ore mining capacity from 1.6 MTPA to 2.5 MTPA. Subsequently, the management of the company also underwent a change from Mitsui group with M/s Vedanta Group. Due to this expansion/establishment project could be completed during the FY 2008-09 in three phases having a total production capacity of 6 MTPA. The investments were made in a phased manner which resulted in creation of new unit in place of the existing unit. In the FY 2005-06, i.e., the initial year for the purpose of section 10B, total investment of Rs. 93,84,633/- was made in acquisition of new plant & machinery including dismantling of the old plant & structures. The phase-II of project establishment was completed next year, i.e., FY 2006-07 in which fresh capital investment of Rs. 35,67,257/- was made in plant & machinery. Finally the third phase of new plant was completed in the FY 2008-09 with an addition of Rs. 7,03,82,158/- to plant & machinery. The WDV as on 01/04/2005 of the plant & machinery at Chitradurga was just Rs. 6,93,596/- which was e....
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.... 45.12 According to Revenue, all old machines were not replaced since there was no deletion in the book value of the existing plant shown in the depreciation charts for the concerned years. CIT(A) has complied charts in respect of Amona and Chitradurga units in his appellate order. In this regard the Ld. AR explained the basic cost of plant & machinery in the case of an iron ore beneficiation plant is incurred on raising steel and concrete structures on which the conveyor belts, crushers, screens, etc. are installed. Though all existing items of machine were scrapped usable steel from the same was utilized in the erection of new machines and equipments for which only some additional charges were paid. Thus, the existing dismantled structure got merged within the new plant to that extent. Accordingly, instead of deleting the relatable value of existing plant, the cost of additional plant acquired during the year was recorded at net value. Also the scrap of the remaining existing plant was sold and shown separately in the relevant audited profit & loss account for the concerned financial year under the head "Service and Other Proceeds" for which attention was drawn to P & L accoun....
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....actually in the nature of repairs and renovation. The CIT(A) had referred to only a few correspondence exchanged with Panchayat to make a case that it was only some repairs or at best a renovation work undertaken at Amona, whereas several other pieces of correspondence were ignored by him which prove that the appellant had factually undertaken a major dismantling and demolition of the existing plant as well as erection and installation of new plant in its place there. From the correspondence exchanged with panchayat and newspaper clippings filed in PB (Pages 293,294,299 & 409-411), we noted the CIT(A) ignored the local newspaper clippings which in our opinion are vital piece of evidence in this regard. These clippings clearly bring out the fact that a complete destruction of old unit was done and altogether new plant was set-up at Amona, albeit, with the aid of some old machinery and parts thereof. Regarding the contention of the revenue that there is only one bill of Rs. 3,522/- which contains demolition or dismantling charges, we noted that in the same bill Rs. 65,346/- and Rs. 79,060/- at sl. nos. 13 & 14 for dismantling of structural steel and crusher hopper respectively were a....
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....s industrial undertaking and other processes such as storage of milk in stainless steel storage tanks, pre-warming, pre-heating, pasteurization were only of preparatory nature for the manufacturing of the product of the assessee. The assessee appears to have introduced almost entirely new manufacturing technology and processes. 13. The reconstruction of a business or an industrial undertaking must necessarily involve the concept that the original business or undertaking is not to cease functioning, and its identity is not to be set to be lost or abandoned. The concept essentially rests on changes but the changes must be constructive and not destructive. There must be something positive about the whole matter as opposed to negative. The underlying idea of a reconstruction evidently must be - and this is brought out by the section itself - of a 'business already in existence'. There must be a continuation of the activities and business of the same industrial undertaking. The undertaking must continue to carry on the same business though in some altered or varied form. If the alteration and changes are substantial, there would be little scope for describing what emerges as ....
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....ufacture in the year 1957-58 could not claim the benefit of provisions of Section 84 of the Act because the unit as such had commenced in the year 1957-58 notwithstanding the fact that there had been an expansion thereto in the subsequent year." (iii) Taurus Merchandising (P) Ltd. Vs. ITO (2012) 143 TTJ (Del) 1 "16. ...In Jt. CIT vs. Associated Capsules (P) Ltd. (2008) 117 TTJ (Mumbai) 399 : (2008) 9 DTR (Mumbai)(Trib) 95 : (2008) 304 ITR 85 (Mumbai)(AT), it has been held that where the assessee had established new plant and machinery at the same premises and was producing the same product as that done by the existing business, the new units were having separate and distinct identity of their own, profits and gains were derived from them and the assessee was treating each unit as a separate and independent unit in its accounts, the new units could not be held to be part of the existing business; and that the assessee was entitled to deduction under ss. 80-I and 80-IA of the Act. 17. Further, the existence of business is a presupposition for the formation of a new undertaking by the reconstruction or the splitting up thereof. In the present case, there had been no business ....
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....Vs. CIT (2012) 249 CTR (Guj.) 82 "In the present case also, it is not the case of the Revenue that the new unit by itself is not capable of production of goods but the case of the Revenue is that it takes help of the old existing unit. We are of the view that, that itself should not be the reason to reject the claim under Section 80-I of the Act. Thus, whether an undertaking is a "new industrial undertaking" entitled to the exemption under Section 80-I of the Act depends on the facts of each case. No hard and fast rule can be laid down. Use by the assessee of the old undertaking for the purpose of production in its new undertaking is not a decisive test in construing Section 80-I of the Act. The new undertaking must not be substantially the same old business. Substantial investment of new capital is imperative and in the present case, there has been a huge substantial investment of around Rs. 7 crore almost three decades ago. The words "the capital employed" in the principal clause of Section 80-I of the Act are significant, for fresh capital must be employed in the new undertaking claiming exemption. Manufacture or production of articles yielding additional profit attributable ....
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....up new units essentially producing the same commodity as in the existing units, though there is no such bar imposed in law. 45.17 Accordingly, after hearing both the parties and also going through the material placed on record and after considering the various decisions, we hold that new units had actually been established by the assessee in the FY 1999-2000 at Codli; in the FY 2002-03 at Amona; and in the FY 2005-06 at Chitradurga. 45.18 We noted after going through the provisions of sec.10B that there is no requirement that the assessee should maintain separate books of accounts in respect of 100% EOU Unit for claiming deduction. The only requirement in this regard u/s 10B(5) is that the assessee shall not be allowed deduction unless the assessee furnishes in the prescribed form along with the return of income the report of an accountant, as we find in the explanation below sub-sec.2 of sec.288, certifying that deduction has been correctly claimed in accordance with provisions of the IT Act, 1961. We have gone through the case laws, as relied by the learned AR and we find that the case of the assessee is duly covered by the decision in the case of DCIT Vs Arabian Exports Lt....
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....ue of the crude ore consumed by the assessee on the basis of the value paid by the assessee for the crude ore to the outside parties during the year and thereby recomputing the profit derived by the assessee from the 100% EOU units eligible for exemption u/s 10B. Accordingly, we direct the Assessing Officer to recompute the exemption available u/s 10B to the assessee in respect of Amona as well as Chitradurga units after ascertaining the market value of the crude ores transferred by the assessee to these units from its extraction divisions on the basis of the average market value as the assessee has paid to the outside parties for the crude ores purchased by the assessee from these parties during the impugned assessment year and substituting as cost of the raw material in place of cost of the crude ore derived by the assessee from its own mines after giving proper and sufficient opportunity to the assessee to adduce the material and evidence in this regard. 45.22 With regard to Codli unit, the assessee claimed before us that the input in this case is =tailings' which is merely a waste product and does not involve any cost and also has not fetched any price in the open market, th....
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....he conclusion that the unit is not engaged in production or manufacture within the meaning of section 10B of the Act relatable to it's activity of purchasing, processing and exporting of the iron ore. 4. The CIT(A) erred in not deciding the following issues, which were specifically raised before him. (i) The eligibility of the undertaking under section 10B of the Act must be decided in the initial assessment year and as per the law existed in that year. Since the assessee started it's production activity in the assessment year 1999-2000 (admitted by CIT(A)), and as per the definition of the term "manufacture" in clause (iii) of the Explanation to section 10B as existed as on 01.04.1999 which includes "Process", even income from ROM processed by the assessee would also be entitled to deduction. (ii) Without prejudice to Ground No. 4(i) above, in the absence of the definition of the term "Manufacture" in the assessment year under consideration, the definition as contained in other legislations may be relied upon as held by the Kerala High Court in the case of Tata Tea Ltd. (338 ITR page 285). Applying the said ratio of the Kerala High Court decision, the assessee is said to ....
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....rocessed of Rs. 85,90,16,792/- out of total profit of Rs. 131,18,76,592/-." 6.1 Since issue involved in all these appeals are common therefore, both the parties agreed that all these appeals be decided on the basis of the facts involved for the assessment year 2007-08. We, therefore, decided all these appeals on the basis of the facts involved for the assessment year 2007-08. 7. Ground no. 1 in both the assessment year in Assessee's appeal as well as in revenue's appeal is general in nature and does not require any adjudication. 8. Ground no. 2 in Assessee's appeal for both the assessment years relates to the illegality of the assessment proceedings initiated u/s 147. The ld. Senior Advocate contended that in both the assessment years return has been processed u/s 143(1) and the exemption claimed by the assessee u/s 10B has been allowed. He carried us to the facts for the assessment year 2007-08 and stated that in this case the Assessee submitted its return of income on 31.10.2007 showing an income of Rs. 57,26,22,757/- after claiming exemption u/s 10B amounting to Rs. 131,18,76,592/-. The return was processed u/s 143(1) on 16.2.2009 but AO did not issue any notice u/s 143....
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....nd the question was left to be investigated and decided by the assessing authority. The ld. Sr. Advocate agreed on the verdict of Raymond Woollen Mills (supra). 8.1 The ld. DR, on the other hand, relied on the decision of the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (SC). He contended that where return has been processed u/s 143(1), there is no assessment. It is merely an intimation. The 'reason to believe' u/s 147 as it stood after 1.4.1989 does not require that there should be a fresh material on which a reasonable person could have formed the requisite belief. 8.2 We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below as well as the material and the relevant provisions of the Income Tax Act. We have gone through the case laws as has been relied on before us from both the sides. Before deciding the issue involved, it is expedient to discuss the relevant provisions. The relevant provisions of Sec. 147 are reproduced as under : "147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any ass....
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....ished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not bee....
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....estion of applying the mind by AO arises while determining the taxable income is concerned. 8.4 We noted that the words =income chargeable to tax has escaped assessment' has been defined by explanation 2 in Sec. 147 as substituted w.e.f. 1.4.1989. Sub-clause (b) of the explanation is relevant for us. This sub-clause clearly mandates that where income tax return has been filed by the Assessee but no assessment has been made and the AO notices that the Assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return, it will be deemed to be a case where income chargeable to tax has escaped assessment. In our opinion, explanation 2(b) is clearly applicable in the case of the Assessee in view of the proposition of law as pronounced by the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) as the assessee has duly furnished the return but no assessment u/s 143(3) has been framed by the assessing officer. In the case of the Assessee, we noted that the return for the impugned assessment has been processed u/s 143(1) and issued the intimation. No decision was brought to our knowl....
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....o tax has been underassessed; or (b) where such income has been assessed at too low a rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or (d) where excessive loss or depreciation allowance has been computed." 8.5 We, therefore, do not agree with the submission of the ld. Sr. Advocate on this issue and reject the plea advanced in this regard. 8.6 Now, coming to the second submission of the ld. Sr. Advocate that in view of the decision of the Hon'ble Delhi High Court in the case of CIT vs. Orient Craft, 354 ITR 536 (Del.) (supra) as given in para 18, there must be tangible material which should have come in the possession of the AO subsequent to the issue of the intimation, we noted this observation of the Hon'ble High Court. We also noted that the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) nowhere took the view that some fresh tangible material should come subsequently in the possession of the AO while taking action u/s 147 after the return is processed u/s 143(1). The Hon'ble Supreme Court whi....
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.... has not formed any opinion. Therefore, on the basis of the material which is available in the return or alongwith the return with the AO, the AO, in our opinion, in view of explanation 2(b) can take action u/s 147 in a case where the return has been processed u/s 143(1). We are bound to follow the decision of the Hon'ble Supreme Court. Even we noted that the decision of the Hon'ble Delhi High Court is not binding on us in view of the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Thana Electricity Supply Ltd., 206 ITR 727 in which the Hon'ble jurisdictional High Court has laid down as under : "The general principles with regard to precedents are : (a) The law declared by the Supreme Court being binding on all courts in India, the decisions of the Supreme Court are binding on all courts, except, however, the Supreme Court itself which is free to review the same and depart from its earlier opinion if the situation so warrants. What is binding is, of course, the ratio of the decision and not every expression found therein. (b) The decisions of the High Court are binding on the subordinate courts and authorities or Tribunals under its....
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....ce has been computed, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time 2[* * *] and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section:" 8.9 We noted that Sec. 34 authorises the AO to....
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....information, but merely proceeds to reopen the assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1)(b) would have no application." 8.10 From the aforesaid judgement, we noted that the Hon'ble Court has interpreted that the word =subsequent information' requires fresh facts and material or if there are existing facts, then, there must be enquiry into the materials available. Thus, we noted that requirement of fresh material or facts has been interpreted by the court because Sec. 34(1)(b) states that the AO has in consequence of information in his possession 'reason to believe'. =Reason to believe' should have arisen in consequence of the information and as the information cannot be based without material or facts, therefore, it has been interpreted by the Court that there must be fresh facts or tangible material with the AO. We noted that in Sec. 147, as was in existence prior to 1.4.1989, under sub-clause (b) similar language has been used as had been used in Sec. 34(1)(b). For ready reference the said section 147 as was in existence prior to 1.4.1989 is reproduced as under....
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....ave reason to believe the income chargeable to tax has escaped assessment. But the jurisdiction of the court extends no further. Whether on the information in his possession, he should commence proceedings for assessment or reassessment, must be decided by the Income-tax Officer and not by the High Court. The Income-tax Officer alone is entrusted with the power to administer the Act: if he has information from which it may be said, prima facie, that he had reason to believe that income chargeable to tax had escaped assessment, it is not open to the High Court exercising powers under article 226 of the Constitution to set aside or vacate the notice for reassessment on a reappraisal of the evidence. In a petition under article 226 of the Constitution, the taxpayer may challenge the validity of a notice under section 147 of the Income-tax Act, 1961, on the ground that either of the conditions precedent does not exist, but an investigation whether the inferences raised by the Income-tax Officer are "correct or proper" cannot be made. Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that in....
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....e only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. The scope and effect of Sec.147 as substituted w.e.f. 1.4.1989 is substantially different from the provisions as stood prior to such substitution. The court has interpreted from time to time that there must be bona fide reason to believe. Where the AO has applied his mind to the material available with him, he cannot be permitted to review the assessment in the garb of 'reason to believe'. The Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) has categorically taken the view at pg. 509 that the intimation u/s 143(1) cannot be treated to be an order of assessment. The AO is bound to accept the return as has been filed by the Assessee and process it. Since the AO is bound to process the return without making any addition thereon, no question of application of mind by the AO arises. Therefore, it cannot be said that the AO has applied his mind and if the AO is taking action u/s 147 on the basis of the material available on record for escapement of the income as per the definition given under expl....
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....or both A.Ys. 2007-08 and 2008-09. Both the parties agreed that the issue involved in ground no. 5 taken by the Assessee in both the assessment years relates to disallowance made u/s 14A of the Income Tax Act. Both the parties agreed that a similar issue has arisen in the case of the Assessee for A.Y. 2009-10 in the Assessee's appeal bearing ITA No. 32/PNJ/2013 by way of ground no. 2. This Tribunal has already decided this issue and allowed the ground of the Assessee. The facts involved in these two years are also the same as were in A.Y. 2009-10. We, therefore, after hearing the rival submissions and carefully considering the same noted that a similar issue had arisen in the case of the Assessee in A.Y. 2009-10 in ITA No. 32/PNJ/2013 in which this Tribunal vide order dt. 13.9.2013, after considering the submissions of both the parties, had decided the issue in favour of the Assessee in the following manner. "3.4 We have heard the rival submissions and carefully considered the same. We noted from the provisions of Sec. 14A(2) that before making any disallowance u/s 14A, the AO must record satisfaction having regard to the accounts of the Assessee that the claim of the Assessee t....
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....l income under the Act. Subsequently, by Finance Act, 2002 with retrospective effect from 11/5/2001 proviso was added which states that this sec. shall not empower the AO either to re-assess or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee for any assessment year beginning on or before 1/4/2001. With effect from 1/4/2007 by Finance Act, 2006 sub-sec. (2) empowers the AO to determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with the method as may be prescribed. Such power is to be exercised if the AO having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of the expenditure mentioned in sub-sec.(1). Before applying Rule 8D, it is apparent that the AO must be satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee. Such satisfaction is an objective satisfaction that it has to be judicious and based on the material on record. It cannot be an impression that it is much more than the gossip or hearsay, it mean....
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....Act. The explanation of the assessee was that (i) 95% of the shares were bonus shares for which no cost was incurred; (ii) No investment in shares was made in the current year and no disallowance was made in earlier years and (iii) There were sufficient interest free funds available in the form of share capital, reserves etc. which were more than investment in shares. The AO was not satisfied with the explanation of the assessee and he made disallowance u/s 14A on prorata basis. The CIT(A) following his orders for earlier years, accepted the appeal of the assessee. The Tribunal following the decision of the Special Bench in the case of ITO Vs Daga Capital Management (P) Ltd 117 ITD 169 (SB) restored the matter to the file of the AO for the consideration in the light of the provisions of sub-sec.(2) & (3) of Sec.14A of the IT Act. The assessee, being aggrieved, filed appeal as well as Writ Petition challenging the constitutional validity of sub-sec. (2) & (3) and Rule D. The Hon'ble High Court gave the following findings; 1. The provisions of sec. 14A and Rule 8D are constitutionally valid. 2. The provisions of sub-sec. (2) & (3) of Sec.14A and Rule 8D are prospective and ....
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....penditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the AO not being so satisfied that recourse to the prescribed method is mandated by law (pages 31-32). 6. In the event that the AO is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion (page-79). 7. The effect of sec.14A is to widen the theory of the apportionment of expenditure (page 49). 8. The expression =expenditure incurred; in Sec.14A refers to expenditure on rent, taxes, salaries, interest, etc., in respect of which allowances are provided for (page-50). 9. Sub-sections (2) & (3) of Sec.14A are intended to enforce and implement the provisions of sub-sec (1) (pages 50). 10. Even in the absence of sub-section (2) of sec.14A the AO would have to apportion the expenditure and to disallow the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The AO would have to follow a reasonable method of apportioning the expenditure co....
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....re, but relationship with exempted income must be proximate. If there is material to establish that there is direct nexus between the expenditure incurred and the income not forming part of total income then disallowance would be justified even where there is no receipt of exempted income u/s 10 in the year under consideration in view of the decision of Special Bench in the case of Cheminvest Ltd. 124 TTJ 577 (Del)(SB). 17. The basic principle of taxation is to tax the net income. On the same analogy, the exemption is also to be allowed on net basis i.e. gross receipts minus related expenses. Therefore, if any expenditure is directly related to exempted income, it cannot be allowed to be set off against taxable profit. On the same analogy, in our opinion, if any expenditure is directly related to taxable income, it cannot be allowed to be set off against the exempted income merely because some incidental benefit has arisen towards exempted income. Before making any disallowance u/s 14A, the AO is required to record a satisfaction, having regard to the accounts of the assessee, that claim of assessee that expenditure incurred is not related to the income forming part of the total....
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....ect the accounts of the assessee and take the shelter of Rule 8D for computing the disallowance out of the exempt income. We are not at all convinced with the submission of the Ld. DR relying on the decision of CIT(Appeal) in respect of Explanation bb to sec. 80HHC that 10% of the receipts under the sources mentioned therein are deemed to be the expenditure. This in our opinion will strengthen the case of the assessee as Explanation bb to sec. 80HHC does not recognize amount of the investment made in other receipt to be the basis of computing the expenditure being incurred for the earning of that income. Similar views have been taken by Hon'ble Tribunal in the following decisions also. In the case of DCIT Vs. Jindal Photo Ltd. held in I.T.A.T. Delhi bench dated 7.1.2011 it was held as follows: "Now as per section 14A(2) of the Act, if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the assessee=s total income under the Act, the AO shall determine the amount incurred in relation to such income, in accordance with suc....
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....g Officer". In the case of Avshesh Mercantile P. Ltd. Vs. DCIT in I.T.A.T. Mumbai Bench (I.T. Act No.5779/Mum/2006 & 208/Mum/2009) it was held as follows: "At the time of hearing, the contention raised by the learned DR in this regard is that the appeal of the Revenue on the issue having been dismissed by the Hon'ble Bombay High Court merely observing that no question arises, it cannot be treated as a decision rendered by the Hon'ble High Court on the merit of the issue which is binding on this Tribunal. We are unable to accept this contention of the learned DR. It is well settled proposition of judicial precedents that is appeal the Hon'ble High Court considers facts pertaining to the issue and gives approval to the decision of the lower forum, the decision of lower forum gets merged with the judgment and order of the High Court and it becomes binding precedent even though approval to decision of lower forum/court is summarily recorded. Similar situation had arisen for consideration before the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. 283 ITR 402 wherein the effects of summary disposal of appeal by the High Court were analysed and explai....
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.... DR, it is observed that in none of these cases, the facts involved were similar to the case of the present assessees in as much as the investment made therein was not found to be capable of earning taxable as well as exempt income which was actually not earned by the assessee in the relevant period as are the facts of the present case or that of the case of Delite Enterprise (supra) decided by the Hon'ble Bombay High Court. Accordingly, we decide the common issue involved in all these appeals in favour of the assessees following the decision of jurisdictional High Court in the case of Delite Enterprises (supra) and allow the appeals of all the assessees". 18. We have also gone through the decision relied upon by the learned DR also. The decision of ACIT Vs CITICORP Finance (Ind.) Ltd., 108 ITD 457 (Bom.) is no more relevant, in view of the decision of the Hon'ble Mumbai High Court in the case of Godrej Boyce Mfg Co. Ltd. (Supra). The decision of SPIC Vs DCIT 93 TTJ (Chennai) 161 is not applicable to the facts of the case. As in that case, the assessee was regularly investing in the shares. The assessee has not disallowed any expenditure with regard to the earning of the....