AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1005
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....ue of advance license amounting to Rs. 74.17 lakhs cannot be reduced from raw material cost of the Rifampicin undertaking and should rather be excluded from the profits and gains of this industrial undertaking while computing deduction under section 80-IB. 2. (ii) The learned CIT(A) erred in confirming that the value of advance license is not any profit/gains derived from any industrial undertaking and shall not be eligible for deduction under section 80-IB. 2. (iii) The learned CIT(A) failed to appreciate that advance license scheme which is meant to reduce the cost of goods to be exported and therefore, it is directly related to the activity of the industrial undertaking and hence, need to be considered for determining the profit under section 80-IB." 2. The brief facts of the case are that the assessee is a limited company and is engaged in the business of manufacture and sale of formulations and bulk drugs. Assessment u/s 143(3) was completed on 30.3.2006 assessing the total income at Rs. 58,77,06,709/- under normal provisions and Rs. 78,68,15,426/- as book profits u/s 115JB of the Income Tax Act, 1961 (in short "the Act"). As tax on total income under norm....
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....ssessee includes any Profits & Gains derived from a newly established undertaking, which goes into production after 31.03.1991, the assessee is entitled to a deduction of 30% of profits subject to the fulfillment of certain conditions. For determining the quantum of deduction, profits and gains of the eligible business shall be computed as if such profits and gains were the only source of income of the assessee during the relevant previous year. In this case, assessment was completed u/s. 143(3) on 30.03.2006 determining taxable income at Rs. 58,77,06,709/-. On verification of the case records, it is seen that assessee company has claimed deduction u/s.80lB amounting to Rs. 214.44 lakhs being 30% of profits and gains of Rs. 714.80 lakhs in respect of Rifampicin Manufacturing unit. The profits and gains of Rs. 719.80 lakhs was arrived at after reducing the export incentive of Rs. 368 lakhs earned by the Rifampicin unit for the purpose of computing 80 lB deduction. In the assessement, the profit determined from Rifampicin unit was determined at Rs. 7,41,25,014/- and deduction under section 80IB was allowed on it @ 30% amounting to Rs. 2,22,37,504/-. It is s....
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....ieve that income chargeable to tax, as mentioned above, has escaped assessment within the meaning of section 147. Proceedings u/s. 147 is initiated herewith." Apart from the above reproduction, the Ld. AR also drew our attention to para 5.1 from pages 5 to 17 which contains the reply filed by the appellant vide their letter dated 2.11.2007 before the Assessing Officer in respect of reasons for reopening. The Ld. AR further argued that the Assessing Officer has not considered the legal submissions made by the assessee and has wrongly reopened the assessment in violation of the provisions of the Act as well as the judicial pronouncements. The Ld. AR further argued that the CIT(A) has also erred in confirming the reopening of the assessment u/s 147 without appreciating that reopening of assessment is not permitted under the facts of the present case. 4. The Ld. AR relied upon the detailed submissions made by the assessee before the CIT(A) and, apart from taking other grounds, the Ld. AR challenged the order of Assessing Officer of reopening on the ground that the Assessing Officer ought to have passed a separate speaking order disposing of the objections raised by the assessee a....
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....ce and requested to provide reasons for reopening the assessment. Simultaneously, the appellant also objected to the reopening proceedings. Thus, the case of the appellant was transferred to LTU, Mumbai. The ACIT (LTU) without passing a speaking order dealing with the objections raised by the appellant straightaway passed reassessment order. Thus, the said reassessment order passed by the Assessing Officer without disposing of the appellant"s objections through a speaking order shall be treated as bad in law and void ab initio. It was further argued by the Ld. AR that even while disposing of the objections in the reassessment order, the Assessing Officer did not give any finding as to how he has come to the conclusion that he has valid reasons for reopening of the assessment. 7. On the other hand, the Ld. DR relied upon the orders passed by the Assessing Officer as well as the CIT(A). Further, it was argued by the Ld. DR that notice u/s 142(1) and copy of reasons recorded was given to the assessee on 29.9.2008 but even inspite of receipt of the copy of reasons recorded, the assessee has not made any compliance. However, after sufficient gap of almost a month notice has been give....
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.... passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years." 9. Next, we refer to the judgment of Hon"ble Delhi High Court in the case of Tupperware India Pvt. Ltd., ITA 415 of 2015 (Del. HC) dated 10th August 2015 (supra). The relevant portions of the said judgment are at para 6, 12, 13, 15, 17 & 20 which are reproduced as under:- "6. The Court is of the considered view that after having correctly understood the decision of the Supreme Court in G.K.N. Driveshafts (India) Ltd. (supra) as mandatorily requiring the AO to comply with the procedure laid down therein and to dispose of the objections to the reopening order with a speaking order, the CIT(A) committed an error in not quashing the reopening order and the consequent assessment. 12. At the outset it requires to be factually noticed that the reopening order of the AO only refers to the report of Statutory Auditor under Section 44AB of the Act which report was already enclosed with the return filed by the Assessee. Therefore, factually, there was no new material that the AO came across so as to have "reasons to believe that the income had escaped asses....
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....at an intimation cannot be equated to an assessment, relying upon certain observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be self-defeating, because if an "intimation" is not an "assessment" then it can never be subjected to Section 147 proceedings, for, that section covers only an "assessment" and we wonder if the revenue would be prepared to concede that position. It is nobody"s case that an "intimation" cannot be subjected to Section 147 proceedings; all that is contended by the assessee, and quite rightly, is that if the revenue wants to invoke Section 147 it should play by the rules of that section and cannot bog down. In other words, the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under Section 143(3) and another applicable where an intimation was earlier issued under Section 143(1). It follows that it is open to the assessee to contend that notwithstanding that the argument of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleg....
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....frame the assessment. This court in M/s. Haryana Acrylic Manufacturing Co. (P) Ltd. had observed that the requirements regarding recording the reasons to believe; communicating the same to the Assessee; permitting the Assessee to file the objections; and passing a speaking order disposing of the objections are all designed to ensure that the AO does not reopen assessments, which have been finalized, on his mere whim and fancy and that he does so only on the basis of lawful reasons. It was further held that a deviation from the directions issued by the Supreme Court in G.K.N. Driveshafts (India) Ltd. would entail nullifying the proceedings. Although the AO is required to provide reasons, receive objections and pass a speaking order thereon, only after the notice under Section 148 has been issued; these requirements are an integral part of the safeguards which have been inbuilt for ensuring that the assessments are reopened only for lawful reasons and in a transparent manner. If the said safeguards are flouted, it would invalidate the exercise of jurisdiction u/s 147 and 148." 11. From the co-joint reading of all the aforementioned judicial pronouncements it is clear that the Asse....
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....of March, 2008 vide letter dated 17.3.2008 which was filed on 19.3.2008. Therefore, calculating the date for seeking reasons from the Assessing Officer and from actually getting the reasons recorded by the Assessing Officer there is a gap of approximately 8 months. Hence, under these circumstances we are of the view that the Ld. DR was justified in arguing that after filing objections by the assessee, the Assessing Officer did not have sufficient time. In the peculiar facts the Assessing Officer took approximately 7 months to give reasons to the assessee. From the perusal of the record it is quite clear that there was also some delay on the part of the assessee to file objections as the present case was a time barring case and the time barring date of this reopening proceeding was 31.12.2008. Therefore, the Assessing Officer had passed the order well within time, but at the same time we have also noticed that the Assessing Officer has violated the principles of natural justice as well as the principles laid down by the above judicial pronouncements as while passing the order of assessment u/s 143(3) r.w.s. 147 of the Act after considering the objections of the assessee, the Assessi....
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....sessment must imply a full and true disclosure of all material facts must be rejected out of hand in the light of the provisions of Explanation (1), according to which mere production of the books of account or other evidence from which the Assessing Officer could have, with due diligence, discovered the material evidence does not necessarily amount to a disclosure within the meaning of the proviso. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it has drawn, it can well be said that the authority has not applied its mind to the issue before it nor formed any opini....
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....ing Foods 237 ITR 579 (SC). In both the decisions, the apex court have held that the deduction inter-alia under section 80I is available only in respect of such profits and gains which have a direct and proximate nexus with the activity of manufacture or production. Any other profit or gain which is not 'derived from' an industrial undertaking though 'attributable to' the business of the industrial undertaking would not be entitled to deduction. The profit and gain must accrue in the course of or arise from the manufacture or production of the industrial undertaking. There must be for the application of the words " Derived from" a direct nexus between the profits and the industrial undertaking, a view taken by the apex court in the case of Sterling Foods. In the said decision the court have further observed that to claim the benefit the assessee has to establish that the profits and gains were derived from industrial undertaking and it was just not sufficient that commercial connection between the two was established. The industrial undertaking has to be the source of profits. The business of the industrial undertaking has directly to yield the profits. The industri....