TaxTMI 
TaxTMI 
2016 (7) TMI 522
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....ompleted under section 143(3) of the Act vide orders dated 06.12.2007 and 17.02.2008 respectively wherein the income was assessed at NIL after accepting the assessee's claim for deduction under section 10A of the Act. Subsequently, proceedings under section 147 of the Act were initiated and notices under 148 of the Act were issued to the assessee after recording almost similar reasons for these assessment years, basically relating to the view that the assessee's claim for deduction under section 10A in these years was not genuine since the similar claim for A.Y. 2009-10 was found to be not genuine. For the purpose of clarity, we extract hereunder the reasons recorded by the Assessing Officer (AO) for A.Y. 2005-06: - "The reasons for reopening are as under: In this case the original return of income was filed on 30.10.2005 showing total income at Rs.NIL. Assessee has claimed exemption u/s. 10 but during assessment proceedings for A.Y. 2009-10, it was noticed that the claim is not genuine. 2. In view of this facts and circumstances of the case, I am satisfied that income of Rs. 39,32,001/- chargeable to tax has escaped assessment within the meaning of secti....
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....that assessment u/s 143(3) was originally completed by the AO after due scrutiny of the appellant's claim of deduction u/s 10A. It is further stated that the re-opening of the assessment has been done only on the basis of the denial of the claim u/s 10A for A.Y. 2009-10 and that there is nothing to show that the appellant had not made a full or complete disclosure of the material facts. 5.1.1 As per the facts of the case, the original assessment for A.Y. 2005 - 06 was completed u/s 143(3) vide order dated 06/12/2007 accepting the returned income of Rs. Nil. In the said order the AO discussed the requirements for claim u/s 10A, observing as follows: "On verification of detailed submitted by the assessee during the course of assessment proceeding and return of income filed, the firm has fulfilled the above conditions laid down by the Act. Hence exemption claimed u/s 10A of the I.T. Act is allowed. " 5.1.2 In the impugned assessment order, the reasons recorded for reopening of assessment are as follows: "In this case the original return of income was filed on 30.10.2005 showing total income at Rs. Nil. Assessee has claimed exemption u/s 10 but d....
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....e a live link with the formation of belief." In the case of Aventis Pharma Ltd. vs ACIT reported at 323 ITR 570, the Hon'ble Bombay High Court dealt with a case where the revenue sought to reopen an assessment in order to withdraw a deduction allowed while computing long term capital loss and also to revise the rate of depreciation disallowed earlier. The Court held that where the material facts relating to these issues were already before the Assessing Officer at the time of the completion of the original assessment, such reopening would amount only to a change in opinion. In its decision in the case of CIT vs Usha International ITA 2026/2010 dated 21.09.2012, the Hon'ble Delhi High Court held as follows: "13. It is, therefore, clear from the aforesaid position that: (1) Reassessment proceedings can be validly initiated iin case return of income is processes under section 143(1) and no scrutiny assessment is undertaken. In such case there is no change of opinion. (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour or the assessee. Reassessment proceedings in t....
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....four years of the end of the relevant assessment year. Both the grounds which have been formulated by the Assessing Officer for reopening the assessment pertain to events which have taken place after the order of assessment was passed. The first of those is the judgment of the Special Bench of the Tribunal which was delivered on 30 June 2010, according to which unabsorbed depreciation for the period up to 1996-97 could be carried forward and set off against the income under any head for a maximum period of eight assessment years. Consequently according to the Assessing Officer unabsorbed depreciation pertaining to Assessment Year 1994-95 could not have been set off against the income for Assessment Year 2005-06. The second of those events is a legislative amendment brought about by the Finance Act of 2009 with retrospective effect from 1 April 2001. According to the Assessing Officer income was computed under section 115JB without any addition being made on account of provision for diminution in the value of investment and provision for doubtful debts and advances. Both the reasons which have been indicated by the Assessing Officer may be reflective of the fact that there is an esc....
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....o be reopened as a result of a retrospective amendment to Section 80HHC introduced by the Taxation Laws Amendment Act, 2005 with effect from 1 April 1998. The Division Bench held that if the Legislature amends the provisions of the Act with retrospective effect, it cannot be said that there was a failure on the part of the assessee to disclose fully and truly all material facts relevant for the purposes of assessment. A similar view was taken by the Division Bench in its recent judgment dated 24 January 2012 in DIL Ltd. v. Asstt. CIT [2012] 18 taxman.com 290 (Bom.) dealing with the retrospective amendment of Section 115JB by the Finance Act of 2009 with effect from 1 April 2001. The Division Bench noted that clause (i) of Explanation 1 was introduced to include the amount or amounts set aside as provision for diminution in the value of investment. In view of the retrospective amendment of law by Parliament, the Court held that the Assessing Officer may have reason to believe that income has escaped assessment. But that in itself was not held to be sufficient for reopening an assessment beyond a period of four years unless there was a failure on the part of the assessee to fully and....
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....scaped assessment, must be determined with reference to the reasons recorded by the Assessing Officer. The reasons which are recorded cannot be supplemented by affidavits. The imposition of that requirement ensures against an arbitrary exercise of powers under section 148." In this judgment, the Hon'ble Court also referred to the observations in the decision rendered in the case of in Hindustan Lever Ltd. V/s. R.B. Wadkar, elaborating that the reasons should be clear and unambiguous. The relevant extract is as follows: "11. The same principle was reiterated in a judgment of the Division Bench of this R Court in Hindustan Lever Ltd. V/s. ,B, Wadkar2 :- "...the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose an open his mind through reasons recorded by him. He has to speak through his reasons.... The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestatio....
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....e claim for deduction was duly allowed in the original assessment order passed u/s 143(3) after verification of details submitted by the appellant and the return filed for the year under consideration. In view of the fact that the appellant's claim for deduction u/s 10A for A.Y. 2009-10, has been allowed vide appeal order no. CIT(A)-31/IT-371/ITO-20(3)(1)/11-12 dated 07/03/2013 and that the impugned order reflects no other reason for the reopening of the assessment than the disallowance of the claim u/s 10A for A.Y. 2009-10, the disallowance made is deleted on merits also and the ground raised by the appellant is allowed. 6. In the result the appeal is allowed. A.Y. 2006-07 7. The common grounds raised by the appellant have already been reproduced in para 2 of this common order earlier. The facts of the case for the year under consideration are that the appellant, a firm, filed its return of income for A.Y. 2006- 07 on 31/10/2006 declaring total income of Rs. Nil after claiming deduction of 46,03,760/- u/s 10a. The return was processed and selected for scrutiny and assessment was completed u/s 143 (3) vide order dated 17/12/2008 accepting the returned....
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.....2005 showing total income at Rs. Nil. Assessee has claimed exemption u/s 10 but during assessment proceedings for A. Y. 2009-10, it was noticed that the claim is not genuine." Thus the sole basis for reopening the assessment in the present case is the disallowance of the appellant's claim during the assessment for A.Y. 2009-10. 5.1.2 Under section 147, the primary condition to be satisfied is that the Assessing Officer must have 'reason to believe' that income chargeable to tax has escaped assessment and it must not be a mere change of opinion on which re-assessment is initiated. 5.1.3 In the case of Prashant S. Joshi v ITO reported at 324 ITR 154 the Bombay High Court held that even if there is no assessment u/s 143(3), reopening u/s 147 is bad if there are no proper 'reasons to believe' and that the only reasons that can be considered for reopening are the reasons recorded by the AO. The Court held as follows: "9. Section 147 provides that 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 163, assess or....
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....sons recorded by him. He has to speak through his reasons.... The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the AO. The reasons recorded should be self- explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The AO, in the event of challenge to the reasons must be able to justify the same based on material available on record.... 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 of making oral submission, otherwise, the reasons which are lacking in material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced." 5.1.4 In the decision rendered in the case of CIT v Sfil Stock Broking Ltd. reported at 325 ITR 285, the Hon'ble Delhi High Court adjudicated upon a case where reopening of an assessment was held to be unjustified sin....
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....sessment during the said year. The reasons recorded do not show any application of mind by the AO. Accordingly, the reopening in this case cannot be held as valid and the impugned assessment is therefore quashed. The grounds raised by the appellant are therefore allowed. 5.2 In Grounds No. 3 and 4, the appellant has challenged the disallowance of the claim u/s 10A on merits. As noted earlier, the assessment is re-opened purely on the basis of the denial of the claim u/s 10A in a subsequent assessment year. In view of the fact that the appellant's claim for deduction u/s 10A for A.Y. 2009-10, has been allowed vide appeal order CIT(A)-31/IT-371/ITO-20(3)(1)/11-12 dated 07.03.2013 and that the impugned order does not contain any new facts, the disallowance made is deleted on merits also and the grounds raised by the appellant is allowed. A.Y. 2008-09 6. The common grounds raised by the appellant have already been reproduced in para 2 of this common order earlier. The facts of the case are that the appellant a firm, filed its return of income for A.Y. 2006-07 on 31/10/2006 declaring total income of Rs. Nil after claiming deduction of 46,03,760/- u/s 10A. ....
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....t in quashing of the orders of assessment for these years, as well as on the merits of the assessee's claim for deduction under section 10A of the Act. At the outset the learned A.R. for the assessee submitted that the basis for reopening the assessments for these four assessment years was admittedly the finding rendered by the AO in the order of assessment for A.Y. 2009-10 that the assessee's claim for deduction under section 10A of the Act was not genuine. In this regard, the learned A.R. for the assessee brought to the notice of the Bench that a Coordinate Bench of this Tribunal in the assessee's case for A.Y. 2009-10, in its order in ITA No. 3941/Mum/2013 dated 11.12.2015, has upheld the order of the CIT(A) granting the assessee its claim for deduction under section 10A of the Act. Contending that the activities of the assessee firm for assessment years 2005-06 to 2008-09 were similar to the activities carried on in A.Y. 2009-10 wherein the assessee's claim for deduction under section 10A of the Act is now held to be in order by the order of the ITAT for A.Y. 2009-10 (supra), the learned A.R. argued that the basis for reopening of the impugned assessment years, i.e. the denial ....
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....n the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing to allow exemption u/s. 10A of I.T. Act, 1961 without appreciating that neither A.O. nor CIT(A) has done any comparative study about the genuineness and reasonableness of expenses and profit earned. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that the assessee has declared very high and abnormal profit and claimed it as exempt u/s 10A, this aspects needs detailed investigation especially in view of the fact that USA firm and the assessee has common direct control jointly by one individual and his relatives. 3. The appellant prays that the order of Ld.CIT(A) on the above ground be set aside and matter be restored to the Assessing Officer. 4. The appellant craves leave to amend or to alter, any ground or add a new ground, which may be necessary." 3. The brief facts of the case are that during the assessment proceedings, the Assessing Officer (hereinafter referred to as the AO) observed that the total expenses of the assessee for the year under consideration were Rs. 2.34 crores as again....
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....space. The firm uses cost effective MTNL triband facility which is much cheaper than other options. As regards various expenses the firm has produced various Internet connection bills of MTNL, TATA etc., which has been used for the business. As regards, salary to staff it is seen that the assessee has 2 units one at Mumbai and at Nasik, total strength of the firm in human resource is totaling to about 88 employees. From the details of employees and qualifications, it is seen that the employees are all qualified to do the requisite firms work." Relying upon the remand report of the AO, the Ld. CIT(A) allowed the claim of the assessee observing that the assessee had satisfied the conditions for eligibility to claim exemption under section 10A of the Act. He has observed that the assessee's claim has also been allowed for the two assessment years following its inception. The assessee has duly proved by various evidences that the business was actually carried out by the assessee and that there were 88 employees employed by the assessee and they were having the requisite expertise and qualification required for the work of the assessee and that the as....