TaxTMI 
TaxTMI 
2016 (7) TMI 436
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....ins derived from such business under section 10AA of the Income Tax Act, 1961 ('the Act' for short). 3. The petitioner had filed the return of income for the assessment year 2008-09 on 28.09.2008. The return was taken in scrutiny by the Assessing Officer who after detailed examination of the various claims made by the assessee framed scrutiny assessment under section 143(3) of the Act on 11.05.2010. The declaration of income as per the return was accepted. 4. In order to reopen such assessment, the Assessing Officer issued impugned notice on 27.03.2015. This notice was thus, issued beyond a period of 4 years from the end of relevant assessment year. The Assessing Officer had recorded his reasons for reopening of assessment, which read as under: " The assessee firm was engaged in the business of manufacturing of precious metal. The assessee filed its return of income 28.9.2008 declaring income of Rs. 74,590/- after availing deduction of Rs. 179,06,89,136/- u/ s. 10AA of the I.T.Act 1961. The income was assessed to Rs. 74,590/- u/ s 143(3) on 11.05.2010. 2. As per the copy of partnership deed dated 8.5.2006 the assessee is a partnership firm consisting of two part....
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....ear assessee firm had purchased 2,17,00,000 gram of gold (purity 0.995 per gram) on various occasions amounting to Rs. 2164,58,45,237/- ($ 53,86,95,383/- ) from AEL, a sister concern and partner (partner sharing 99% profit). Scrutiny of the purchase records of gold by the assessee from AEL revealed that on most of the occasions the purchase of gold was made by the assessee at lower price than the prevailing market rate available for that day. Thus, by purchasing gold at lower rate from the partner of the firm, the assessee firm had more profits than reasonable profits which would have accrued to the firm under normal course of business and consequently resulting into higher claims of deduction u/s 10AA of the Act. Moreover, by this act the partner AEL had less profit in its individual capacity resulting into less tax liability in its capacity as company. However, the resultant profit so earned by the assessee firm was diverted back to the partners AEL (99%) and AAPL (1%) in the form of exempted income u/s 10(2A). Thus, owing to the close connection between the assessee firm and partner, the assessee earned more profit to the extent of Rs. 28,48,40,727/- ( as detailed in Statement 7....
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.... objections. The Assessing Officer while disposing of such objections did not deal with the assessee's grounds regarding the discrepancies in the price of gold purchased from AEL. Thus, he accepted the objections of the assessee and dropped the ground recorded in the reasons. 7. On the other hand learned counsel for the department opposed the petition contending that the Assessing Officer has applied his mind independently on the issues brought to his notice by the audit party. Only upon being satisfied that the income chargeable to tax had escaped assessment, he had recorded his reasons and issued notice for reopening. The assessee failed to disclose true and full facts in the return filed as well as during the assessment proceedings. Mere production of books of accounts upon minute scrutiny of which evasion of tax could be detected, would not amount to true and full disclosure. There was no scrutiny on the two aspects mentioned by the Assessing Officer in the reasons, on the basis of which, the assessments have been reopened. 8. In background of such contentions, we may peruse the reasons recorded by the Assessing Officer more minutely. From such reasons, we gather that....
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....ts. Though the immediate response of the Assessing Officer to this letter is not known, we have a letter dated 31.12.2013 written by him to the audit party, in which he referred to the comments offered by the assessee clarifying the so called discrepancy in the price of gold i.e. the rate at which the assessee purchased from AEL at the prevailing market price and conveyed as under: " It is further submitted by the assessee in his letter dated 26.12.2013, rate referred in column No.8 of the table is 'Rate as per MCX Ahmedabad (1.00 fineness)' and in column No.9 of the table is 'Rate as per MCX Ahmedabad (0.995 Fineness)'. The difference as worked out in column No.19 is difference between 'Total market rate per gram as per MCX rate for 1.00 fineness (column No.16)' and 'Total market rate per gram with 0.995 fineness (column No.18)', which is nothing but notional difference over the fineness rate and it is not difference in the books of the assessee firm or AEL. On consideration of the above explanation, your honour will find a fact that the figure of Rs. 11.01 crore is nothing but notional difference and the audit objection requires to be dropped....
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.... copies of comparable purchase and sale invoices of gold bar of AEL as against the said purchases the AEL has purchased gold bar from overseas buyers. From the above details your honour will appreciate that the AEL has more or less charged very nominal amount towards their services. In other word the transaction are at arm length price. (Annexure C)" 13. With respect to non payment of interest to the partners on the borrowed capital, counsel for the petitioner submitted that though the original partnership deed dated 01.06.2006 provided for such interest, this deed was amended on 06.01.2007 which deleted any reference to payment of interest to the partners. It is not clear whether this amended deed was on record before the Assessing Officer during the original assessment. However, whether same was produced or not, in our opinion, would make no difference. If such amendment was not produced, it would imply that the Assessing Officer was guided by a partnership deed which made a specific provision for payment of interest to the partners for the borrowed capital. The fact that despite said covenant in the partnership firm, no such interest was paid was very much before him during t....