TaxTMI 
TaxTMI 
2014 (10) TMI 357
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....ices 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. 2. The Ld. CIT(A) erred in allowing deduction u/s 10B of....
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....merce 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 since 1991-92 ii. No new unit has been approved by Development Commission....
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....7,843 (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 section 40a(iii) of the I. T. Act. However the same was not disallowed in the assessment. Therefore the income chargeable to tax has escaped assessment. For al....
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....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 Assessee about the exclusion of the miscellaneous income, interest from bank, dispatch earned and sundry creditors written back taking it to be part of the eligible profit u/s 10B. ....
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....peration. 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 namely, letter dt. 29.2.1996, copy of invitation letter dt. 20.11.1998 addressed to the Commissioner of Customs and Central Excise, Goa, copy of letter dt. 5.10.2001 written by the Development Comm....
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....he 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 the Assessee to disclose the material facts in the return filed by the Assessee. Reliance was also placed on the decision of the Third Member in the case of ACIT vs. Vindhya Telelinks Ltd., 13 S....
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....e 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 such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to dis....
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....es 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 particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 : Provided that in a case- (a) where a return has been fur....
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....ocated 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 by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012." Thus, in view of the provisions of Sec. 147 & 148 the following conditions must be satisfied for a valid action being taken by the AO bef....
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....ility 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 the part of the Assessee to make a return u/s 139 or make a return in response to a notice issued u/s 142(1) or failure to file a return in response to a notice issued u/s 148 or to disclose fully and truly all the material facts necessary for his assessment for that assessment year....
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....hings. 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 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 there....
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.... 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. 17,97,928/-. 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 Ti....
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....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 disclose any of the said documents, letters or material during the course of the assessment proceedings. We even noted that the apportionment of the expenditure has duly been pointed out by the Assessee to the AO for determining the income of Greater Ferro-Met during the course of the assessment proceedings which is apparent from pg. 89 of the paper book. Even the Assessee ha....
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....e 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 aforesaid cases, it is clear that in the present case, in the absence of any failure on the part of the assessee to disclose fully and truly all material facts, the reopening of the assessment beyond the period of four years cannot be sustained." 2.3.4 In the case of Hindustan Lever Ltd vs. R.B. Wadkar, 268 ITR 332 (Bom) (supra) the jurisdictional High Court has also taken the....
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....sons 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 been taken by the jurisdictional High Court in the case of Sesa Goa Ltd. vs. JCIT, 294 ITR 101 in the following manner : "Sec. 147 is the source of power of the AO for reopening of the assessment. Sec. 148 contains procedural restrictions for issuance of a notice for exercise of the power of reopening of an assessment conferred under s. 147. Sec. 149 prescribes the time-limit for issua....
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....ts 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 facts necessary for the assessment as required by the AO, the precondition for invoking the proviso to S. 147 was not satisfied and therefore AO acted wholly without jurisdiction in issuing notice u/s. 148 beyond four years period mentioned in S. 147. 2.3.7 The Hon'ble Mumbai High court again in the case of Purity Techtextile (P) Ltd. vs. ACIT & Anr. (2010) 325 ITR 459 (Bom.) took the view....
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.... 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 proceedings for the year 1994-95. As the assessee was not successful before the High Court, he went in appeal to the apex court. The apex court while negativing the contention of the Department held as under (page 200) : 'In every assessment proceedings, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help ....
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....tes 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 material facts. In such a situation, the requirements of section 34(1)(a) were not satisfied. 2.3.12 In the case of Chhugamal Rajpal v. S.P. Chaliha (1971), 79 ITR 603 (SC), in proceedings for assessment for the assessment year 1960-61, the appellant-firm had produced its books of account and also a statement giving full names and addresses of the various creditors from whom it had borrowed on hundis dur....
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....son 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 undisclosed sources. On a writ petition filed by the appellant, the High Court held that the ITO did not apply his mind to the question whether the amounts could be treated as part of the total income of the appellant and as the appellant did not disclose the source of those amounts which were not recorded in the account books, all the conditions for invoking the jurisdiction u/s 147(a) were present. On app....
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....titioner 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 assessment. The apex court further observed that the duty, which is cast upon the assessee, is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the ITO of the account books or other evidence from which material evidence could with due diligence have been discovered by the ITO will not necessarily amount to disclosure contemplated by law. The dut....
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....close 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 valid. (A.Y. 2005-06) 2.3.18 The Hon'ble Supreme Court in the case of CIT Vs. Corporation Bank Ltd., 254 ITR 791 took the view that disclosure in balance sheet also amounts to disclosure. We noted that in this case for the previous year ended 31.3.1968 the Assessee has shown Rs. 54,485/- which represented interest on loan recovery of which was doubtful in the interest suspense account as unrealised amount of i....
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....ee 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. Since this division was not getting any taxable income during A.Ys. 1999-00 to 2001-02, exemption u/s 10B was not claimed. During the captioned year, the assessee has made profits. Since the income for the purpose of assessment has been computed by combining the profits of both the divisions, it is necessary to ascertain the correct position of carry forward business loss as well as unabsorbed depreciation in the said two divisions separately. The....
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....ilment 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 omission of the words 'reason to believe', the Parliament reintroduced the said expression and deleted the word =opinion' on the ground that it would vest arbitrary powers in the Assessing Officer." We noted that in this case the true meaning of the phrase 'Reason to Believe' was also explained. 'Change of Opinion' rebuts the formation of =Reason to Believe' which is the crux. If there is "Change of opinion" it is essentially a Revi....
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....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 towards the letter dt. 21.8.2009 issued by the AO, and stated that this letter clearly states that it is only the copy of the reasons which has been enclosed alongwith this. Copy of the notice has been put subsequently alongwith this letter when the Assessee took this ground before the AO. Referring to para 4.3 of the order of CIT(A) it was pointed out that CIT(A) has also observed that no proof of service of this notice is not available on the records available with ....
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....hrough 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 case of Shahbad Cooperative Sugar Mills Ltd. vs. DCIT, 38 taxmann.com 204 (P&H) for the proposition of the law that where Revenue dispatched notices u/s 143(2) for two A.Ys together in same envelope through post and Assessee accepts to have received one while denied receipt of other one, presumption of service to the Assessee was to be accepted. 3.3 To counter it, the ld. Sr. Advocate drew our attention towards the dispatch register and pointed out that it is appar....
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....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 the I.T. Act, in your case - AY 2002-03 - reg Ref: Assessee's letter dated _____ Please kindly refer to above. As requested by you, I am furnishing herewith the reason recorded for reopening of the case for the AY 2002-03. Yours faithfully, Sd/- (A.N. Honavar) Encl. : as above Asst. Commissioner of Income Tax Central Range, Panaji" From this letter which is addressed to the Assessee it is apparent that the AO has enclosed alongwith this letter the reasons for the....
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....e 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 register we noted that there is mention on 21.8.2009 for sending the reasons for issue of notice u/s 148 for A.Y 2002-03 through speed post but there is no mention about the sending of notice u/s 143(2) through speed post. We also examined the dispatch register through notice server. We noted that on 30.9.2009 letters are mentioned (not notice u/s 143(2) for the impugned assessment year) which were handed over to the notice server on 1.10.2009. In the first column the date against the name of the Assessee has been pu....
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....der 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 for the properly stamping of the envelope and also despatch of the said envelope. Once the assessee has claimed that the notice was not served upon it, the burden was upon the AO to prove how the notice was served on the assessee. Merely saying that the notice was issued and it must have been received by the assessee, the onus cannot be said to have been discharged. The service of the notice under s. 148 is a precondition for assuming the jurisdiction for reassessment under s. 147. Therefore, the service of the cop....
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....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. Sec. 147 states that the AO shall assess or re-assess the total income chargeable to tax which has escaped assessment. This section, in fact, creates a legal fiction that all the provisions of Income Tax Act so far they are applicable to the return filed u/s 139 shall apply to the return filed under this section. This implies that all the procedures prescribed for the purpose of assessment subsequent to Sec. 139 will automatically apply in case of return filed u/s 148 in response to a notice issued u/s 148(1). The provisions of Sec. 1....
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....nts 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 down in sections subsequent to section 139 has to be followed therefore issuance and service of the notice u/s 143(2) is necessary. The non issue and service of notice under this section within the time limit prescribed statutorily will render the order passed u/s 143(3) as invalid. The provisos as added by the Finance Act 2006 to section 148 to save assessments completed on the assumption that no such notice need be issued for completing such assessments if the notice was issued before completion of assessment. These provisos are having ret....
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.... 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 served on the assessee on or after the 1st day of June, 2003;] (ii) notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return: [Provided that no notice under clause (ii....
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....ec. 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 held that the proviso to section 143(2) which mandates the service of notice within 12 months from the end of the month in which return is filed, also applies to the returns filed pursuant to notice under section 148. As regards the issue regarding effect of non-service of notice under the proviso to section 143(2) to return filed pursuant to section 148, it was to be held that the assessment can be made if the notice under section 143(2) is not served within the time prescribed by the proviso under section 143 and, thus, the return filed will be deemed as accepte....
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....mplying 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 within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under s. 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under s. 143(2) cannot be dispensed with. The other important feature that requires to be noticed is that the s. 158BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the AO while completing the block assessments under Chapter XIV-B of the Act. This legislation is by incorporation. This sec....
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....ndustries & 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 strictly for the purpose of block assessments. We do not agree with the submissions of the learned counsel for the Revenue, since we do not see any reason to restrict the scope and meaning of the expression 'so far as may be apply'. In our view, where the AO in repudiation of the return filed under s. 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of s. 142, sub-ss. (2) and (3) of s. 143. Sec. 158BH provides for application of the other provisions of the Act. It reads: "Save as otherwise provided in this chapter, all the other provisions....
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....oth 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 u/s 143(2) of the Income Tax Act vide dispatch No. 177 dated 22.5.1992 were validly issued and served." 6. The averments in the reply, duly supported by copies of the notices, dispatched vide dispatch no.177 and the fact that notices were not received back raise a presumption of service under Section 27 of the General Clauses Act, 1897. The onus to rebut the presumption of service of notice sent by post, lies upon the petitioner. The petitioner has failed to discharge this onus. The bald denial by the petitioner that notice was never received, in our considered opinion, is insufficient, t....
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....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 software shall be the amount which bears to the profit of the business of the undertaking same proportion as export turnover in respect of such article or thing or computer software bears to the total turnover of the business carried out by the undertaking. Reliance was placed on the decision of the Hon'ble Karnataka High Court dt. 11.12.2011 in Tax Appeal no. 428 of 2007 in the case of CIT vs. Motorola India Electronics (P) Ltd. 4.2 The ld. DR, on the other hand, relied on the order of the authorities below. 4.3 We have heard the rival submissions and carefully considered the same. We have also ....
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....ting 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-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction; (ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I [or section 80-IA] [or section 80-IB] in relation to the profits and gains of the undertakings; and (iv) in computing the depreciation allowance under sectio....
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....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) Ltd (supra) has observed as under : "By Finance Act, 2001, with effect from 01.04.2001, the present Subsection (4) is substituted in the place of old Subsection (4) No doubt Subsection 10(B) speaks about deduction of such profits and gains as derived from 100% EOU from the export of articles or things or computer software. Therefore, it excludes profit and gains from export of articles. But Sub-section (4) explains what is the profit derived from export of articles as mentioned in Sub-section(1). The substituted Sub-section (4) says that profits derived from export of articles or things or computer software shall be the account which bares to the profits o....
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.... 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 be based on the basis of the formula. We, therefore, in the interest of justice and fair play to both the parties set aside and restore this issue to the file of the AO and direct the AO that in case he finds that the ground taken by the Revenue in its appeal that the Assessee's undertaking is entitled for deduction u/s 10B, the exemption under this section has to be computed in accordance with the formula given u/s 10B(4). While computing the profits of the business of the undertaking, the AO should include not only the profit and gains from the export of the articles but also all the incomes which are taken by the Assessee in ground no. 4 if these incomes are assess....
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....t 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 the same as, in his opinion, the new unit did not comply with the condition as approval was not granted by the Board as per licence dt. 26.12.1985 and deduction is to be allowed only upto 10 years, the ld. DR was fair enough to concede that the Revenue has not gone in appeal against the finding of CIT(A) that the Assessee established a new undertaking and the finding of the CIT(A) on this point has become final. He was also fair enough to concede that the Tribunal vide its order dt. 7.4.2011 in ITA No. 42/PNJ/2010 allowed exemption to the Assessee u/s 10B by setting aside the order of CIT(A). 5.3 The ld. Sr. Advocate before us contended that the benefit of exemption u/s 10B....
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.... 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 costing Rs. 7 crores as also indigenous Plant and Machinery, components, spares etc. worth Rs. 13 crores and also duty free imported and indigenous spare parts of Rs. 2 crores per year for 10 years. As a consequence of the fresh investment it was expected that the annual production capacity would stand increased from 2 lac tons to 15 lac tons per annum and permission was sought for the same. Approval for this new unit was accorded to the company by the Ministry of Industry on 10.11.1994. Pursuant to the approval an agreement dt. 24.6.1995 was entered into between the Assessee company and the government for fulfilment of the export obligation. For this, attention was drawn to pg. 31-41 of the paper bo....
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....eed 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, duty. iv. HGMS (High Gradient Magnetic Separator) is used as cleaner - separating equipment, for recovering high quality ultra fines, first time in India. It had even prompted the Secretary of Ministry of Steel to conduct visitation to the plant. v. Use of Hydrocyclone and HGMS (High Gradient Magnetic Separator) has made it possible to recover high quality ultra fines by rejecting tailings at less than 42% Fe and less than 25% weight loss. vi. Use of High Rate Thickner (HRT) for recovery of process water for recirculation before tailings are discharged, has made it possible to operate the GREATER FERRO-MET with only 200 cubic meter per hour of fresh water, which is less than half of the water required for operat....
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.... 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 formation of "new unit" is only a case of capacity expansion, the substantial expansion resulting into the formation of a new independent unit and such new unit would equally be entitled to whatever deductions that are permissible in law; xii. that there was no material to support the allegation / suggestion that the new unit was formed by transfer of machinery or plant previously used for any purpose, xiii. that the photograph enclosed at regular assessment stage (pg. 52 of the paper book) establishes that the old unit which was not in a position to produce the required high grade of Fe content ore stands as it was and the new unit setup adjacent to this old unit is a standalone unit capable of producing on its own; xiv. that the total capital....
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....ring 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 in ITA No. 89/PNJ/2012 for A.Y 2008-09. It was vehemently contended that the nature of the product manufactured by the Assessee is the same as in the case of Sesa Goa. Attention was drawn towards the provisions of Sec. 10B as was in existence during the impugned assessment year. It was pointed out that clause (iii) of explanation defines 'manufacture' to include any process or assembling or recording of programmes on any disc, tape, perforated media or other information storage device. This definition has been removed subsequently but was applicable during the impugned assessment year. It was further submitted that the Greater Ferro-met primarily consists of (a) primary beneficiation section and other related plant and machinery and (b) slime treatme....
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....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 as new industrial undertaking. However, all the above decisions have been rendered in the context of Section 15C of Income tax Act 1922 and Section 80J of Income Tax Act 1961. The deduction under Section 15C and also under Section 80J was allowable to newly established industrial undertaking but new industrial undertaking was not defined in those sections. However, to hold the undertaking as a new industrial undertaking, certain conditions were put in the section to arrive at the conclusion as to whether the industrial undertaking is eligible for deduction or not. It has been observed by the Hon'ble Madras High Court that even though, the heading of the Section 80J indicates that deduction is in respect of the newly established industrial undertaking but any unde....
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.... 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 the approved unit commenced commercial production in July 1986. The appellant claimed deduction under Section 10B from the assessment year 1990-1991 onwards. Section 10B was not in statute when the undertaking commenced the production in July 1986. Section 10B was Inserted by Finance Act 1988 with effect from 01.04.1989, the Sub Section (1) of which read as under :- "Subject to the provisions of the section, any profits and gains as are derived by an assessee from a hundred percent export oriented undertaking (hereafter in this section referred to the undertaking) to which the section applies shall not be included in the total income of the assessee." The definition of the hundred percent export oriented undertaking was provided in Clause (i) to Explanation of Section 10B was ....
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....led 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 undertaking under the hundred percent export oriented scheme for the manufacture of iron ore concentrates of annual capacity of 2 lakhs tons. In Para 3 of this letter the approval is communicated as "please note that your industrial undertaking for the manufacturer of iron ore concentrates (pellets) is a hundred percent export oriented undertaking and, therefore, your application for manufacture of iron ore concentrates (pellets) was considered an approved by the specially constituted board for approval for hundred percent export oriented undertaking formed under Resolution No.8(15/78-EP dated 31.12.1980) issued by the Ministry of Commerce. All the concessions/facilities which are available to hundred percent export oriented undertaking will be available to your undertaking also". (iii) In the t....
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....d 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. * The main reason for import and/or domestic consumption of spares worth Rs. 2 crores, every year, for 10 years is to maintain the quality of our product to be competitive, keeping in view the technological developments in overseas countries and to maintain the plant at the state of art level. It may be noted that iron ore being very abrasive commodity, a lot of wear and tear place on the plant. Our efforts, however, will be to indigenize, wherever possible, as we have done in the past". In reference to above application, the Under Secretary to the Govt. Of India, Dept of Industrial Development, as per letter dated 10.11.1994 communicated to the appellant as under :- "I am directed to refer to your letter addressed to Ministry of Commerce on the above subject and to say that you proposed to undertake modern....
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....6/12/1985 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 EOU for further period of 5 years form 1.4.2006 onwards. In Para 3 of the letter it is stated that Industrial license dated 26/12/1985 is amended to the above extent and para 6 states that other terms and conditions mentioned in the license stated shall remain unchanged. (x) The Audit report in form 56G filed with the return of income to claim deduction under section 10B, reveals the following facts: (a) Ferro-Mat Concentrates a division of the appellant company was approved as 100% EOU under Industrial License dated 26.12.1985 for a period of 10 years. The appellant claimed exemption under section 10B from the assessment year 1990-91 onwards. (b) The industrial license was extended for a further period of 5 years beyond October 1996 and it was further extended for a further period of 5 years from 01.04.2001 onwa....
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....or 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 extension of EOU status for five years. It is clearly mentioned by the appellant that it want extension of hundred percent export oriented unit operating under the Industrial license dated 26.12.1985. The Government responded through letter dated 29.02.1996 in which the Government permitted the appellant to continue as hundred percent export oriented for further period of five years beyond October 1996. Nowhere in this letter, it has been mentioned that the approval has been granted by the board appointed for the purpose of approving hundred percent export oriented undertaking. Here also, it is clarified that the original industrial license is amended to the above extent. (iv) Through the letter dated 05.10.2001, it is clearly mentioned that the industrial license dated 26.12.1985 is permitted to continue as hundred percent export oriented ....
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....s 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 new hundred percent export oriented undertaking was approved. However the appellant failed to substantiate that the approval was granted by the 'Board' Therefore, in view of the fact that no separate approval was granted by the 'Board' after the license was issued on 26.12.1985, subsequently, the concessions sought by the appellant were allowed by the Government by extending the period of EOU unit for further period. For example as per the letter dated 08.08.1994 the appellant requested for duty free import of plant and machinery costing Rs. 7 crores, procuring free of excise duty and sales tax, indigenous plant and machinery, component, spares, consumables valued at Rs. 13 crores and duty free imported an indigenous (excise commercial tax free) spare parts of Rs. 2 crores for every year for ten years. The Government approved the ....
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....ch 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 computer software, as a DTA unit. Further, in the year of approval, the deduction shall be restricted to the profits derived from the exports, from and after the date of approval of the DTA unit as 100% EOU. Moreover, the deduction to such units in any case will not be available after assessment year 2009-10." In view of the above, it is clear that the deduction claimed under Section 10B for the assessment year is not allowable to the appellant, accordingly disallowance of deduction under Section 10B made by the Assessing Officer is upheld. The appeal on this ground is accordingly dismissed." 5.4.2 The Revenue did not file any appeal against the said order of CIT(A) before the ITAT but the Assessee went in appeal before the Tribunal vide ITA No. 42/PNJ/2010 against the finding of CIT(A) that the new unit established by the Assessee does not have the nece....
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....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. 32. The learned CIT(A) however holds that requirement of explanation 2(iv) of section 10B of the Act has not been satisfied as no separate approval in this case has been accorded by the Board appointed in this behalf 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. The Development Commissioner extended the status of EOU without there being an approval from the Board. No undertaking will be eligible for deduction under sections 10B of the Act. The appellant however has placed on record that the approval granted to it by the Development Commissioner is in exercise of the powers delegated to him by the Board of Approval under clause No. 9.37 of the hand book on procedures and thus the approval granted being delegated authority, amounts to exercise of p....
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....fore, 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 that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The course will generally adopt an earlier pronouncement of law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why courts have held parties to the opinion expressed in a decision in one assessment year to the same assessment in the subsequent year is not because of any principle of res judicata but because of theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different vi....
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....t 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 all the three units in respect of which the assessee claimed the exemption u/s 10B are engaged in any manufacture or production of article or thing for the purpose availing of exemption u/s 10B. If engaged in processing, whether assessee is entitled for exemption u/s 10B in respect of all these three units. The nature of activities in the case of Amona plant as well as Chitradurga is similar as explained in the earlier paras. Both these units as well as Codli plant are approved as 100% EOU units. The necessary Board approvals are placed in respect of each unit by the assessee on record. For Codli Unit, approval was given initially for five years, which was subsequently extended to which we are satisfied as the revenue did not prove that the letter issued is bogus or forged one. To decide the issue whether all these units are engaged in any manufacturing or production of a....
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....lso 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 sec. 10A and 10B of the Act were amended by the Finance Act, 2001 w.e.f. 01/04/2001. Sections 10A and 10B of the Act were further amended by the Finance Act, 2003 w.e.f. 01/04/2004 and the definition of 'manufacture' was inserted as under:- "Explanation (iv) - For the purpose of this section, =manufacture or produce' shall include the cutting and polishing of precious and semi-precious stones." 43.2 The EOUs were allowed to sell 25% production within the country. With a view to rationalize the concession and to phase these out by the end of the assessment year 2009-10, the provisions of sec. 10A and 10B were substituted by the new provisions by the Finance Act, 2000. CBDT vide circular no. 794 dated 09/08/2000 245 ITR St. 21, 34-35 under para 15.3 explained that the deduction u/s 10B would be granted in respect of profits and gains derived by an undertaking which manufacture....
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....eaning 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, 1961defining the expression "manufacture as under: "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,- (a) Resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use or (b) Bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. 43.5 In Chowgule & Co. Pvt. Ltd. Vs. Union of India (1981) 1 SCC 653 Hon'ble Supreme Court, after considering the judgment of Hon'ble Bombay High Court in Nilgiri Ceylon Tea Supplying Co. Vs. State of Bombay (1959) 10 STC 500 (Bom.), clearly observed on the question whether the blending of ore, whilst loading it in the ship by means of the mechanical ore handling plant, constituted 'manufacture or processing or ore for sale within the meaning of ....
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....isite 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 physical composition, because what is produced by such blending is ore of a different chemical and physical compositions. When the chemical and physical composition of each kind of ore which goes into the blending is changed, there can be no doubt that the operation of blending would amount to "processing" of ore within the meaning of Section 8(3)(b) and Rule 13. It is no doubt true that the blending of ore of diverse physical and chemical compositions is carried out by the simple act of physically mixing different quantities for such ore on the conveyor belt of the mechanical ore handling plant, but to our mind it is immaterial as to how the blending is done and what process is utilized for the purpose of blending. What is material to consider is whether the different quantities of ore which are blended together in the course of loading through the mechanical ore handling plant undergo any change in their phys....
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....emical 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. It is no more remains as crude ores. Tailing no more remains tailing but converted into a powder.In view of this clause and the decision of Supreme Court in the case of Chowgule & CO. (Supra), it can be held that the assessee is engaged in these units in 'manufacturing'. Further, in CIT Vs N.C. Budharaja & Co. (1993) 204 ITR 412 (SC), Hon'ble Supreme Court further observed that the word "production" is much wider than the word "manufacture". It was said (page 423): "The word "production" has a wide connotation than the word "manufacture". While every manufacture can be characterized as production, every production need not amount to manufacture... The word 'production' or =produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and resid....
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.... 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 within the meaning of the proviso to Section 8(a), so as to preclude the assesses from being entitled to deduct from their turnover under Section 8(a), the value of the tea purchased by them. The High Court of Bombay held that different brands of tea purchased by the assesses could not be regarded as 'processed' within the meaning of the proviso to clause (a) of Section 8, because there was "not even application of mechanical force so as to subject the commodity to a process, manufacture, development or preparation" and the commodity remained in the same condition. The argument of the Revenue before us was that this decision of the Bombay High Court was on all fours with the present case and if the blending of different brands of tea for the purpose of producing a tea mixture in accordance with a formula evolved by the assesses could not be regarded as 'processing' of tea, equally on a parity of reasoning, blending of ore of....
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.... 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 of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing for the different brands of tea, because these brands of tea experienced, as a result of mixing, a qualitative change, in that the tea mixture which came into existence was of a different quality and flavor than the different brands of the tea which went into the mixture; (vi) There are, it is true, some observations in the judgment of the Bombay High Court which seem to suggest that if instead of manual application of energy in mixing the different brands of tea, there had been application of mechanical force in producing the tea mixture, the court might have come to a different conclusion and these observations were relied upon by the assessee, since, in the present case, the blending was done by application of mechanical force, but that is not the correct test to be applied for the purpose of determining whether the operati....
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....a 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 which covers even processing and, therefore, blending and packaging of tea for export was treated as 'manufacture' or 'production' of an article qualifying for exemption. Hon'ble Kerala High Court considered the contention of the assessee that the scheme of income tax exemption available to units in the SEZ u/s 10A 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 10B of the Act are very similar in nature and the wordings of the statutory provisions are similar in nature. Hon'ble Kerala High Court also considered the judgment in the decision of Supreme Court in Tara Agencies (292 ITR 444 (SC) relied upon by the Sr. Standing Counsel for the revenue, wherein Hon'ble Supreme Court clearly held that blending of tea does not amount to 'manufacture' or 'production' of an article or thing, but is only processing. Hon'ble High Court allowing the appeal of the a....
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....nding 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 the definition clause of section 10B of the Income-tax Act and the Department has no case that the assessee's unit engaged in export of tea bags and tea packets is not a 100 per cent export oriented unit. So much so, in our view, if exemption is denied on the ground that products exported are not produced or manufactured in the industrial unit of the assessee's 100 per cent export oriented unit, the same would defeat the very object of section 10B. Further, industrial units engaged in the very same activity, i.e., blending, packing and export of tea in the special economic zones and free trade zones, will continue to enjoy tax exemption under section 10A and section 10AA respectively. The still worse position is that the appellant would be denied of export exemption available under section 80HHC even to a merchant exporter. In our view, the decision of the Supreme Court in Tara Agencies' case [2007] 292 ITR 444 (SC) is not applicable for the purpose ....
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....reof, 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 assessee was engaged in the business of manufacturing, processing, exporting and dealing in various commodities, more particularly tea, coffee, jute, pepper, chillies, cardamom, turmeric and similar other spices, etc. The assessee, as per the claim is a 100% EOU within the meaning of section 10B of the I.T. Act, 1961 and claimed exemption under that section. The assessee buys tea from auctions held in Tea Board recognized Auction centres at Kolkata, Guwahati, Siliguri, Cochin, Coimbatore and Coonoor. The assessee conceded the factual position that it imports small quantity of tea of the type and quality not produced in India. It further conceded the factual position that it does not grow or manufacture any tea. According to the assessee, tea so bought in different auctions is processed with a view to remove all dust and foreign substances and thereafter it blends different varieties of tea to make it of 'uniform and consistent' quality throughout the year. Ther....
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....cture" 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, repacking, polishing and labeling. Manufacture, for the purpose of this Policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining." But the only difference between the Exim Policy of 2002-07 and of 2000 is that words "and segregation" which were appearing in the definition of the expression 'manufacture" in the Exim policy of 2000 was deleted in the Exim Policy of 2002-07. Further, even in Prevention of Food Alternation Rules, 1955, it has been inter alia stated that "Tea used in the manufacture of flavoured tea shall conform to the standards of tea. The flavoured tea:manufacturers shall register themselves with the Tea Board before making flavour tea In The Tea (Distribution & Export) Control Order, 1957 issued by the Government of India, Ministry of Commerce & Industry (Department of Commerce) the expressions "flavour tea", "green tea" "instant tea", "packet tea" ....
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....y 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 Mt. in terms of Registration Certificate dated 26th December, 1995, inter alia, with the condition that its 100% production (excluding rejects not exceeding 5%) would have to be exported and that its registered EOU Unit shall make value addition to a minimum extent of 79%. Undisputedly, the exported consumer products, blended by Assessee in its said factory premises is a case of substantial value addition, as compared to the unblended black tea in granule and dust form normally available for sale in the open retail market throughout India. 34. The subject for consideration under sections 10A and/or 10B of the said Act is manufacture / production of tea ; the object being grant of benefits of tax exemption to exporters carrying out their operations in FTZ, EOU, EPZ & SEZ areas in accordance with the Exim Policy declared by the Government of India in Parliament and in the light of allied and governing laws; in the light of allied laws e.g. The Tea Act, 1953, The Preventi....
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....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 very object of sections 10B of the Act. 36. We, in view of the above, hold that when the products for which the assessee's unit is recognized as a 100% EOU are tea bags, tea in packets and tea in bulk packs and the assessee is exclusively engaged in blending and packing of tea for export may not be manufacturer or producer of any other article or thing in common parlance. However, for the purpose of Section 10A, 10AA and 10B, we have to consider the definition of the word "manufacture" as defined in Section 2(r) of SEZ Act, Exim Policy, Food Adulteration Rules, 1955, Tea (Marketing) Control Order, 2003, etc. We also find that the definition of 'manufacture' as per Section 2(r) of the SEZ Act, 2005 is incorporated in Section 10AA of the Income-tax act with effect from 10.02.2006. Hon'ble Kerala High Court in the case of Girnar Industries (supra) had held such amendment in Section 10AA to be of clarificatory in nature. The definition of 'manufacture'....
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....hat 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 case the question before the Hon'ble Supreme Court was: When the assessee was engaged in the activity of cutting jumbo roll films into flat and small rolls in desired sizes, whether such activity undertaken by the assessee was manufacture or production" In this case, the Hon'ble Supreme Court after discussing various cases, the provisions of different Acts and the dictionary meaning took the view that the assessee was engaged in manufacture / production. While holding so under para 12 of its order, Hon'ble Supreme Court has given the same analogy for the purpose of eligibility of deduction under section 80HH and 80-I as has been given by the Kerala High Court in the case of Tata Tea discussed herein above for the purpose of section 10B, that if there was no manufacturing activity, then the question of referring to item 10 of Eleventh Schedule for the purpose of exclusion does not arise. From this judgment, thus, it is apparent that the Hon'ble Apex Court accepted that manu....
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....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 Section 80IA of the Income Tax Act, 1961." 45.2 In this case also, Hon'ble Supreme Court took the view that cutting and polishing of the marble blocks is the activity which constitutes =manufacture or production' as after processing marble block no more remains as marble block. This decision has also duly considered, in our opinion, whether the activity of processing is manufacture / production. 45.3 Now, we would like to deal with the submissions of the revenue whether this issue should be sent to Special Bench or not. We have gone through the decision of this Tribunal in ITA No. 162/PNJ/2006 dt. 12th July, 2007 read with Misc. Application in MA No. 23/PNJ/2007 dt. 19th July, 2007 in the case of Chowgule & Co. In this case we noted that the coordinate Bench of the Tribunal has interpreted the decision of the Hon'ble Supreme Court in the case of Sesa Goa 271 ITR 331 that extraction and processing of mining ore amounts to production; and one should read the expression =extracti....
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....OU 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 coordinate Bench is binding on us in view of the settled judicial principles in the various decisions even relied on by the Ld. CCIT but there are certain exceptions to this cardinal principle of judicial discipline. Once the decision of Special Bench or Third Member has come on similar issue subsequently, the decision of the Special Bench will be binding on us. If the decision of jurisdictional high court / supreme court has come subsequently on the similar issue, in view of the Article 141 of the Constitution of India that decision will be binding on us. Even this will be regarded a mistake of law in view of the decision of Hon'ble Supreme Court in the case of CIT vs Saurashtra Kutch Stock Exchange 305 ITR 227 (SC).If there is no jurisdictional high court decision and subsequently any other high court has decided the similar issue, this is the settled principle of law that the decision of that high court has to be followed as the high court is always superior to the tribunal in prefer....
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....nufacture" 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 of the decision of Hon'ble Supreme Court in the case of Sesa Goa 271 ITR on the basis of Co-ordinate bench decided the case of Chowgule & Co. Even these provisions were not in the statute during the assessment year 2002-03 to which year the co-ordinate bench was entrusted with the issue of claim of exemption u/s 10B. The co-ordinate bench could not have any occasion to consider the same even though the clause (iii) of explanation 1 to section 10AA has already come into force after the decision of Hon'ble Apex court in the case of Sesa Goa Ltd 271 ITR 331 when the decisions was rendered but was not inserted with retrospective effect. Even the provision of Section 2(29BA) was also inserted after the decision of Hon'ble Supreme Court in the case of Sesa Goa Ltd(supra). Both these amendments are in the statute as on today and are to be considered for the impugned assessment year. The decision of Supreme Court in the case of Chowgule & Co as cited by us earlier was also not considered by the c....
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....s 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 issue by taking help from the decisions of the Supreme Court and if there is no direct authority of the Supreme Court on the point then of the jurisdictional High Court and lastly of any other High Court." 45.7 We noted that the coordinate Bench in the case of Chowgule & Co. Ltd. ITA No. 162/PNJ/2006 decided the issue only on the basis of the decision of the Supreme Court in the case of CIT Vs. Gem India Manufacturing Co. 249 ITR 307, while the said decision has not been followed by the Supreme Court in their subsequent decisions. Even the case relate to A.Y.2002-03. No contrary decision subsequent to the decision of the Special Bench, Kerala High Court and that of the Supreme Court rendered in the case of India Cine Agency (supra) as well as Arihant Tiles & Marbles (Supra) was brought to our knowledge which may have taken a different view that 100% EOU approved by the competent authority if engaged in processing activity for upgrading a commodity for the purpose of marketability for export would not ....
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....essing 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 ITR 285 (Ker.) which took the view that 100% EOU engaged in processing cannot be denied exemption on the basis that the units are not engaged in manufacture or production. Moreover, on facts exactly similar to the facts of the assessee, in the case of Chowgule & Co. Pvt. Ltd. Vs Union Of India (1981) 1 SCC 653 AIR 1981 SC 014, Hon'ble Supreme Court were concerned with the question whether the blending of ore, whilst loading it in the ship by means of the mechanical ore handling plant, constituted 'manufacture' or 'processing' of ore for sale within the meaning of section 8(3)(b) and Rule 13 of Central Sales Tax Act, 1956. The Hon'ble Supreme Court, in construing the expression "processing" allowed the appeal of the assessee, in Chowgule & Co. Pvt. Ltd. (supra), holding, inter alia, that where any commodity is subjected to a process or treatment with a view to its "development or preparation for the market" it would amount to processing of the commodity within the meaning of Central Sales T....
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....ucted 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:- Fin.Year Amona Chitradurga Codli 1999-2000 9,00,78,574 2002-03 3,96,10,020 2005-06 93,84,633 (Phase-I) 2006-07 35,67,257 (Phase-II) 2008-09 7,03,82,158 (Phase-III) Total: 3,96,10,020 8,33,34,046 (All Phs) 9,00,78,574 The contention of the assessee is that it had set up all these units as new units and had also got the approval for them from the competent authority as 100% EOU units. The old machinery and part of old machineries wherever used, the value of these machineries were less than 20% in each units. The old units situated in Amona, Chitradurga and Codli were eroded, non-productive and non-economical. The revenue has strongly contended that none of these units even though 100% EOU but were setup long ago. The assessee had merely renovated these units during the period as claimed by the assessee. The revenue on the other hand accepted that the assessee had invested in Amona plant Rs. 3,96,10,020/- during the....
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.... 45.11 These evidences clearly prove, in our opinion, that the assessee made huge investments in these units. Even the assessee submitted the evidences for selling the old and obsolete dismantled machines as scrap sales. We do agree that the assessee had not reduced the block of assets with these amounts but this in our opinion will not change the true character of the transaction. We find force in the submission of the assessee that in the case of Amona EOU, old unit set-up in 1985 had become outdated, obsolete, even dangerous and uneconomical to run after a span of 17 years. Therefore, the assessee had to take an immediate action to either abandon it or revamp it entirely. This fact is also proved with the fact that the production capacity of this plant which was 1 MTPA earlier got doubled at 2 MTPA coupled with further flexibility created to increase it more in future after setting up new unit. The newly increased production capacity had not been denied by the revenue. The cost of new plant and machinery for all major / critical processes and civil structures for those plants amounted to Rs. 3,96,10,020/- during the FY 2002-03, whereas the WDV of the old plant used in the new u....
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.... plant & machinery at Chitradurga was just Rs. 6,93,596/- which was either dismantled completely or wherever structural steel was usable it was utilized in the erection of new machinery. The cost of new machinery acquired in FY 2005-06 was Rs. 93,84,633/-. Thus, the value of plant & machinery existing as on 01/04/2005 was merely 7.4% of the cost of new plant & machinery; which is also within the permissible limit. The accounts books in that year were duly audited and were not rejected by the Assessing officer in those assessment years. Now coming to Codli UFR unit, we noted that neither the assessing officer nor the CIT (Appeals) has disputed the capital investment made in new plant & machinery in the FY 1999-2000, they have merely expressed their dissatisfaction on the evidences furnished by the assessee in respect of the date of commencement of manufacturing or production, which was stated as 08/03/2000 by the assessee on the strength of documentary evidences such as the Approval from the Board of Approvals, intimation of commencement of commercial production on 08/03/2000 to the Ministry of Industries, etc., which have discussed separately in this order by us. The main contentio....
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....Proceeds" for which attention was drawn to P & L account and accordingly these meager sums were not reduced from the schedule of fixed assets. In this regard, our attention was drawn to Schedule 14 of the profit & loss account for the years ended on 31/03/2003 and 31/03/2006 and also the break-up of "Service and Other Proceeds" provided at page nos. 1356 and 1365 of the paper book for the said two financial years respectively. Gross receipt from sale of scrap for Goa (Amona unit) amounting to Rs. 71,41,971/- was declared in the FY 2002-03; and that of Rs. 4,67,163/- was declared for the year ended on 31/03/2006 in respect of Karnataka (Chitradurga unit). We find substance in the explanation of the Ld. AR that the said contention of the Revenue does not, therefore, hold good in our opinion. Otherwise also, we have noted that the value of the existing plant was much below the threshold limit of 20% required for substantial investment for setting-up of a new unit for the purpose of section 10B. 45.13 With regard to the contention of the Revenue that in the case of Chitradurga unit, some bills were found for undertaking fabrication, erection and other such works which appear to be rev....
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....ctural steel and crusher hopper respectively were also stated (page nos. 1443-1445 of the Additional paper book Vol.III). In the case of the assessee we noted and as has been accepted by the revenue itself that the extraction division and EOU units are entirely different, and the dispute before us relate only to the EOU units whether they are new or not, therefore in our view, revenue is not correct in adding the value of the extraction division for determining 20% threshold limit of old plant and machinery for establishing the new unit. On the one side, the revenue is taking the contention that extraction division is not the part of 100% EOU, therefore the assessee's EOU units cannot be regarded to have been engaged in extraction of ore and iron ore processing, on the other hand, while determining the threshold limit of 20% of old plant and machinery, the revenue cannot be permitted to take a contrary contention. We are of the firm view that while determining the eligibility of a particular unit u/s 10B, its only the value of old plant and machinery installed in that very unit will be considered for determining the threshold limit of 20%. Thus, this contention of the revenue stand....
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....ittle scope for describing what emerges as a reconstruction of the business. (See CIT v. Gaekwar Foam and Rubber Co. Ltd. [1959] 35 ITR 662 [Bom.] 14. From the perusal of Section 80-IA of the Act it is clear that the statute itself has envisaged and approved of a situation in which an old existing smaller industrial undertaking is absorbed by a new much bigger industrial undertaking. 15. In the present case, only capacity was increased and there was expansion of old business with some modifications. As for reconstruction of the business, it is nowhere evident that the old industrial unit was split up or damaged or destroyed that was supposedly reconstructed as a new unit by the assessee. What the assessee has done is to set up an industrial undertaking with latest technology and with increased capacity and of course, with a fairly good amount of fresh investment." (ii) Mettur Chemicals & Industrial Corporation Ltd. Vs. CIT (1996) 217 ITR 768 (SC) "11. It is found as a fact that the appellant had begun to manufacture or produce articles in the previous year ended on 31-3-1957 with the help of thirty hooker cells. It is true that rectifier had not been installed in the year 1957-....
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....there had been no business in the old unit of the assessee for over five years before the start of production by the new EOU. That being so, the new EOU of the assessee cannot, in any manner, be said to be formed by the reconstruction or splitting up of a business already in existence. Then, the authorities below have observed that mere registration as a one hundred per cent EOU is not the sole criterion for grant of deduction under s. 10B of the Act. This observation itself amounts to an admission of the unit being registered as a one hundred per cent unit with the Development Commr., NEPZ. Explanation 2(iv) to s. 10B of the Act provides for a one hundred per cent EOU to mean an undertaking which has been approved as a one hundred per cent EOU by the board appointed in this behalf by the Central Government in exercise of the powers conferred by s. 14 of the Industries (Development and Regulation) Act, 1951 and the Rules made thereunder. For facility, the said Expln. 2(iv) to s. 10B is being reproduced as follows:- "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....
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....fit attributable to the new outlay of capital in a separate and distinct unit is essential to earn the benefit of Section 80-I. The fact that an assessee by establishment of a new industrial undertaking expands his existing business which he certainly does, would not on that score deprive him of the benefit under Section 80-I. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is a new identifiable endeavour where substantial investment of fresh capital is made to enable earning of profit attributable to that new capital. In the circumstances, the question referred for the opinion of this Court is answered in the negative, i.e., against the Revenue and in favour of the assessee..." (v) Bajaj Tempo Ltd. Vs. CIT (1992) 104 CTR (SC) 116 Deduction under s. 15C of 1922 Act (s. 80J of 1961 Act) - Allowability - Industrial undertaking established in a building taken on lease used previously for other purpose - Tools and implements worth Rs. 3,500 of the previous undertaking also transferred - Relief under s. 15C is allowable - Cla....
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....2007) 109 TTJ (Mum.) 440 on this issue. It is not denied by the revenue that the assessee has filed the report in accordance with sec.10B(5) of the IT Act, 1961. We therefore, dismiss this claim of the revenue. 45.19 We noted that in respect of the Amona plant the assessee has duly informed the DC, SEZ Bombay vide his letter dated 9.3.2008 i.e., commercial production started on 8.3.2000 and copy of the said letter was duly sent to Customs Department which was not disputed by these competent authorities. 45.20 In the case of Chitradurga plant also we noted that the assessee vide its letter dated 14.7.2008 duly intimated to the DC, SEZ that the converted 100% EOU is started commercial production on 6.6.2008. The premises of the said unit was bonded and the licence no.1/2008 dated 5.6.2008 was issued u/s 58 of the Customs Act. Similarly, we noted that in the case of Codli Unit the assessee has duly intimated to the Ministry of Industry vide letter dated 9.3.2000 that the commercial production is started on 8.3.2000. None of the aforesaid Government authority has disputed that the assessee has not started commercial production on that date. 45.21 In view of the aforesaid discussion,....
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....market value is nil for the purpose of computation of profit eligible for exemption u/s 10B from this unit. We find force in the submission of the assessee but in the interest of justice and fair play to both the parties, in respect of this unit also we direct the assessing officer to recompute the profit of this unit eligible for exemption after satisfying himself about the fair market value of =tailings' after giving proper and sufficient opportunity to the assessee to prove the market value of the tailings used in the Codli unit and allow the assessee exemption to the assessee u/s 10B of the Income-tax Act, 1961 for Codli unit on the profit so recomputed accordingly. The assessee is directed to adduce the necessary evidence on which it may rely to prove the market value of inputs before the assessing officer. Thus, the ground nos. 7, 8 & 9 are partly allowed." 5.4.5 We, therefore, in view of our decision in ITA Nos.72/PNJ/2012 & 85/PNJ/2012 and the fact that the finding of CIT(A) in the case of the Assessee has already become final during the A.Y. 2006-07 vide its order dt. 9.12.2009, hold that the Assessee has established a new industrial undertaking. 5.4.6 So far as the ques....
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....of section 2(r) of the SEZ Act, 2005 (which inter alia includes 'processing'), the assessee is entitled for full deduction under section 10B of the Act on it's activity of purchasing, processing and exporting the iron ore. (iii) It is not open for the revenue to deny deduction under section 10B of the Act for the first time in the penultimate year of the claim by holding that the Appellant is not engaged in manufacture after 8 years. 5. (i) The CIT(A) erred in confirming the disallowance made by the AO under section 14A of the Act r.w.r. 8D of the I.T.Rules, 1962 when Rule 8D was brought into statute with effect from assessment year 2008-09. (ii) Without prejudice, the disallowance by application of Rule 8D may directed to be restricted (a) by calculating the average investment value taking into consideration only those investments on which the assessee earned exempted dividend and (b) by excluding the bank charges and commission while considering the proportionate disallowance of interest under Rule 8D(2)(ii)." whereas the following common grounds of appeal have been taken by the Revenue in both the A.Ys except for the figures : "1. The Ld. Commissioner of Income-Tax ....
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....g the reasons which are undated and were provided to the Assessee alongwith letter dt. 8.2.2012 in response to the letter of the Assessee dt. 6.2.2012, copy of which is available at pg. 3-4 of the paper book. The Assessee objected for the initiation of the proceedings u/s 147 vide his letter dt. 20.2.2012 by stating that the AO is factually incorrect in stating in the reasons that the claim u/s 10B was disallowed in the assessment completed for the A.Y 2002-03. The claim u/s 10B was allowed during the A.Y 2002-03 after thorough investigation. That assessment was subsequently re-opened on the premise that no new unit had been set up by the Assessee and the additional plant and machinery installed by the assessee merely amounted to expansion of the existing unit. For A.Y 2003-04 to 2005-06, assessments were completed u/s 143(3) allowing exemption to the Assessee u/s 10B of the Income Tax Act. CIT invoking the provisions of Sec. 263 set aside those orders but in appeal, this Tribunal quashed on all the three orders passed u/s 263. Against the orders passed by ITAT, the revenue has filed the appeals before High Court and matter is pending before the Hon'ble High Court. In the A.Y 2....
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....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 such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financ....
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....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." 8.3 From the reading of this section, it is apparent that this section empowers the AO to assess or re-assess income chargeable to tax if he has 'reason to believe' that income for any assessment year has escaped assessment. This section authorizes the AO not only to re-assess but also to assess the Assessee in respect of an income which escaped assessment. For initiating the proceedings under this section, no doubt there must be 'reason to believe' as has been pointed out by us in the preceding paragraphs while disposing off the appeal for the A.Y. 2002-03. 'Reason to believe' would mean cause or justification. If the AO has cause or justification to know or suppose that income has escaped assessment, it can be said that assessing officer has 'reason to believe' that the income has escaped assessment. The Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) has categorically held that processing of the return u....
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....decision of the Hon'ble Delhi High Court in the case of CIT vs. Orient Craft, 354 ITR 536 (Del.) (supra). No doubt in that decision the Hon'ble Delhi High Court under para 17 while dealing with the specific argument of the Revenue that an intimation cannot be equated to an assessment, took the view that the submission of the ld. DR acted to be self-defeating because if an intimation is not an assessment, then, it can never be subjected to Sec. 147 proceedings as the section covers only an assessment and we wonder if the Revenue would be prepared to concede that position. In our opinion, Sec. 147 authorises the AO not only to re-assess but to assess any income chargeable to tax which has escaped assessment for any assessment year. The word 'chargeable to tax has escaped assessment' is defined under explanation 2 under sub-clause (b). Sub-clause (b) clearly states that where return has been filed 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 shall be deemed to be a case where income chargeable to tax has escaped assessment. We do not find that the ....
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.... down under para 17 of its decision that under the substituted Sec. 147 existence of only the first condition is sufficient. If the AO, for whatever reasons, has reason to believe that income has escaped assessment, it confers jurisdiction to re-open the assessment. It is further stated that both the conditions must be fulfilled if the case falls within the ambit of proviso to Sec. 147. No doubt the ingredients of Sec. 147 are to be fulfilled. The ingredients of Sec. 147 nowhere requires that in case a return is furnished u/s 147 there must be tangible material which should come to the possession of the AO subsequent to the issue of the intimation. In our opinion, the material which is available with the AO even alongwith the return at the time of the processing of the return can be the basis for 'reason to believe' as in view of clause (b) of explanation 2 it can be deemed that income chargeable to tax has escaped assessment. Clause (b) of explanation 2 does not require that the assessment must precede before taking any action u/s 147. We noted that the Hon'ble Supreme Court in the case of Raymond Wollen Mills Ltd vs. ITO, 236 ITR 34 when a similar question had come be....
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....ritorial jurisdiction. (c) The position in regard to the binding nature of the decisions of a High Court on different Benches of the same court, may be summed up as follows : (i) A single judge of a High Court is bound by the decision of another single judge or a Division Bench of the same High Court. It would be judicial impropriety to ignore that decision. Judicial comity demands that a binding decision to which his attention had been drawn should neither be ignored nor overlooked. (ii) A Division Bench of a High Court should follow the decision of another Division Bench of equal strength or a Full Bench of the same High Court. If one Division Bench differs from another Division Bench of the same High Court, it should refer the case to a larger Bench. (iii) Where there are conflicting decisions of courts of co-ordinate jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decisions. (iv) the decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its territorial jurisdiction." 8.7 Although we are of the opinion that the issue is duly covered by the decision of the Hon....
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....) empowers the AO to assess or re-assess the escaped income, where the AO has reason to believe, due to the omission or failure of the Assessee to make a return of his income u/s 22 or to disclose fully and truly all the material facts necessary for his assessment. U/s 34(1)(a) 'reason to believe' is qualified by the words 'omission or failure'. Sub-clause (b) applies to a case where there may be no omission or failure but the AO, in consequence of information in his possession, has reason to believe about the escaped income. U/s 34(1)(b) thus the reason to believe for escapement of the income must have arisen in consequence of the information coming in the possession of the AO. The Hon'ble Supreme Court has analysed the word 'information' as used in Sec. 34(1)(b) in the case of Kalyanji Mavji and Co. vs CIT, 102 ITR 287 (SC) and has categorically held in the following manner : "The word "information" in section 34(1)(b) is of the widest amplitude and comprehends a variety of factors. Nevertheless, the power under section 34(1)(b), however wide it may be, is not plenary because the discretion of the Income-tax Officer is controlled by the words "reason to believe". Information....
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....n 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, 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 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 or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). 8.11 In this section also, for the purpose of 'reason to believe' it is necessary that the 'reason to believe' must have arisen in consequence of the information in the possession of the AO. The information must precede the reasons to believe if we read the provisions of Sec.147(b). We noted that the Hon'ble Supreme Court had occasion to interpret the word =information' as used in Sec. 147(b) ....
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.... information be such that it could have been obtained during the previous assessment from an investigation of the material on record, or the facts disclosed thereby, or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected." 8.12 From the provisions of Sec. 34(1)(b) and 147(b) which were under the Income Tax Act prior to 1.4.1989 it is apparent that for arriving at 'reason to believe' that income chargeable to tax has escaped assessment it was necessary that the AO must have information in his possession prior to arriving at reasons to believe that income escaped assessment. This information has been interpreted by the courts from time to time in the form of tangible fresh material or facts but when we looked into the provisions of Sec. 147 which has been substituted w.e.f. 1.4.1989, we noted that there are drastic changes in this section. Now, the only condition which requires to be fulfilled is that the AO must have 'reason to believe' that any income chargeable to tax has escaped assessment. This section does not talk that 'reason to believe' must be based or must have b....
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....rs Pvt. Ltd., 291 ITR 500 (supra) further held that there being no assessment u/s 143(1) of the Act, the question of change of opinion does not arise. The Hon'ble Supreme Court also held that Sec. 147 permitted the AO to assess or re-assess the income chargeable to tax when he has reason to believe income escaping assessment. The mere failure to take steps u/s 143(3) would not render the AO powerless to initiate proceedings u/s 147 of the Act even when intimation u/s 143(1) had been issued. Thus, with the amendment brought to Sec. 147 of the Act on and from 1.4.1989 and the elucidation on the scope of the authority and jurisdiction of the officer u/s 147 of the Act, we are of the firm view that the proceedings initiated by the AO u/s 147 are valid and the AO could have taken the action u/s 147 on the basis of the material available and filed alongwith the return. There is no need of any fresh tangible material for coming to the 'reason to believe' that the income has escaped assessment in view of explanation 2 clause (b) of Sec. 147. 8.13 In view of the aforesaid discussion, ground no. 2 taken by the assessee in both the A.Ys. 2007-08 and 2008-09 stands dismissed. 9. ....
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....We noted that the AO only discussed the provisions of Sec. 14A(1) and has not made out any satisfaction whatsoever how the expenditure incurred by the Assessee during the year relate to the income not forming part of the total income of the Assessee. No whisper what to talk of the relationship of the expenditure with the exempt income is mentioned. The AO straightaway jumped to applying Rule 8D relying on the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT, 328 ITR 81 (Mum) (supra) holding that Rule 8D pertains to both direct and indirect expenditure incurred on earning tax exempt income and in the judgement it was held that no deduction shall be allowed in respect of expenditure incurred by the Assessee in relation to such income which does not form part of the total income under the Act by virtue of provisions of Sec. 14A(1) and Rule 8D of the Income Tax Rules. CIT(A), we noted, has also not dealt with the submissions of the Assessee with regard to the satisfaction being recorded by the AO before applying Rule 8D. The main contention of the Assessee while is that there cannot be any disallowance under this provision. We ....
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....ch satisfaction, the AO must give regard to the accounts of the assessee. He must record deficiency in the accounts with regards to the claim of the assessee. Sub-sec.(3) provides that provisions of sub-sec.(2) shall also apply where assessee claims that no expenditure had been incurred in relation to income not forming part of the total income. This is not the case of the assessee as in the case of the assessee, assessee himself estimated the expenses relating to the exempt income and disallowed the same. Rule 8D was inserted by gazette notification dated 24/3/2008 in view of the power conferred under sub-sec (2). This Rule prescribes the method for computing the expenditure incurred in relation to the income not forming part of the total income. This is an undisputed fact that in this case, the assessee has invested in debts mutual funds. The assessee computed disallowance u/s 14A(2) at Rs. 25,78,156/- and disallowed the same, while computing its total income. The working of the said disallowance claimed by the assessee is given herein above in the submissions made by the assessee. The AO was not satisfied with the correctness of the claim of the assessee especially the explanati....
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....ch does not form part of the total income (page 21). 4. The insertion of sec.14A was curative and declaratory of the intent of the Parliament. The basic principle of taxation is that only net income, namely, gross income minus expenditure that is taxable. Expenses incurred can be allowed only to the extent that they are relatable to the earning of taxable income (pages 22-23). The test which has been enunciated in Wallfort for attracting the provisions of sec.14A is that there has to be a proximate cause for disallowance which has its relationship with the tax exempt income. Once the test of proximate cause, based on the relationship of the expenditure with tax exempt income is established, a disallowance would have to be effected under section 14A (page 28) 5. What merits emphasis is that the jurisdiction of the AO to determine the expenditure incurred in relation to such income which does not form part of the total income, in accordance with the prescribed method, arises if the AO is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not form part of the total ....
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....the decision of the Hon'ble Supreme Court in the case of CIT Vs Wallfort Shares & Stock Brokers Ltd., 233 CTR (SC) 42 was referred to. In this decision, we noted that the Hon'ble Supreme Court in that case upheld the view of the Hon'ble Mumbai High Court in the case of Wallfort Shares & Stock Brokers Ltd. Vs ITO 310 ITR 421. The Hon'ble Supreme Court in this decision, at page-31 of the order held as under; "To attract Sec.14A there has to be proximate cause for disallowance which has its relationship with the tax exempt. Pay back or return of investment is not such proximate cause. Hence, Sec.14A is not applicable in the present case. Thus, in the absence of such proximate cause for disallowance, Sec.14A cannot be invoked". 16. The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs DCIT (supra) therefore at page-28 has clearly laid down that there must be proximate cause based on the relationship of the expenditure that tax exempt income is established, only then a disallowance would have to be effected u/s 14A of the IT Act. Therefore, in view of the decision of the jurisdictional High Court and the decision of the Hon'ble Supreme Co....
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....the correctness of the disallowance made by the assessee even though he has accepted the explanation of the assessee that no interest is incurred with regard to exempt income. He rejected the explanation of the assessee that no administrative expenditure incurred on earning dividend income considering the magnitude of the investments and dividend income received and the disallowance according to him made by the assessee u/s 14A towards administrative expenditure is very less. The assessing officer nowhere pointed out the proximate connection of other expenses not apportioned by the assessee for the earning of the dividend income. He merely observed that the administrative expenses disallowed by the assessee is very less but how they are less and how the other expenses incurred by the assessee related to the dividend income has not been brought on record. Even the AO has not pointed out the expenses excluded by the assessee for disallowance has proximate connection with dividend income. In our opinion, the assessing officer before rejecting the disallowance computed by the assessee must give a clear cut finding having regard to the accounts of the assessee how the other expenditure ....
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....h, Rule 8D of the Rules was not appropriately applied by the AO as correctly held by the CIT(A). It has not been done by the AO that any expenditure had been incurred by the assessee for earning its dividend income. Merely, an adhoc disallowance was made. The onus was on the AO to establish any such expenditure. This onus has not been discharged. In .CIT Vs. Hero Cycles. (P&H) 323 ITR 518, under similar circumstances, it was held that the disallowance u/s 14A of the Act requires a clear finding of incurring of expenditure and that no disallowance can be made on the basis of presumptions. In .ACIT Vs. Eicher Ltd.., 101 TTJ (Del.) 369, that it was held that the burden is on the AO to establish nexus of expenses incurred with the earning of exempt income, before making any disallowance u/s 14A of the Act. In "Maruti Udyog Vs. DCIT, 92 ITD 119 (Del.), it has been held that before making any disallowance u/s 14A of the Act, the onus to establish the nexus of the same with the exempt income, is on the revenue. In "Wimco Seedlings Limited Vs. DCIT., 107 ITD 267 (Del.) (TM), it has been held that there can be no presumption that the assessee must have incurred expenditure to earn tax free ....
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....sdiction to issue writs and the only jurisdiction exercised by the High Court in the first instance decides whether or not substantial question of law arises from the order of the Tribunal, it cannot be said that the High Court does not exercise the appellate powers or that there is no decision on merit when the high court dismisses an appeal holding that no substantial question of law arises from the order of the Tribunal. It was held that whenever an order of the subordinate forum is carried in appeal before the higher appellate forum/court, operative part thereof merges into the judgment, decision or order of the higher court after the confirmation, modification or reversal, as the case may be, and the decision of the lower court or forum has no independent existence thereafter in relation to the issue which was carried before the appellate court or forum. It was held that where the High Court comes to the conclusion that no substantial question of law arises on a particular issue, it cannot be stated that the subject matter of controversy between the parties has not been dealt with by the High Court. It was held that when the decision of the Tribunal is affirmed on the issue br....
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.... the insertion of provision of sec.14A(2) of the IT Act,1961. The decision of ACIT Vs Premium Consolidated Capital Trust 83 TTJ (Bom.) relates to assessment year 1991-92 prior to insertion of 14A(2) hence will not assist the revenue. The other decision relied on are also not applicable to the facts of the case, except the decision of jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs DC IT & Another 328 ITR 81(Bom.). In view of our aforesaid discussion and respectively following the decision of the jurisdictional High Court in the case of Godrej & Boyce Mfg. co. Ltd. Vs. DCIT & another 328 ITR 81 (Bom), we delete the disallowance made u/s 14A r.w. Rule 8D and accordingly, the ground taken by the assessee in this regard is allowed. The finding given by this Tribunal in the aforesaid decision under para 17 are equally applicable in the case of the Assessee as in the assessment order we do not find any whisper whatsoever which proves that the AO was not satisfied with the correctness of the claim of the Assessee in respect of expenditure which the Assessee claims to have incurred in relation to income which does not form part of total income having regard to th....