TaxTMI 
TaxTMI 
2017 (9) TMI 52
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....the Pune unit is a 100% a export oriented unit, set up for coating of raw beads and producing commercially usable goods and the Delhi unit has been set up for importing and trading/sale of crystal and crystal related products. 3. The Petitioner had filed its return for AY 2007-08 declaring a loss of Rs. 5,36,96,344/-, after claiming benefit of Rs. 4,67,89,966/- as deduction under Section 10B of the Act in respect of the Pune unit. The Petitioner was issued notice by the Assessing Officer ('AO') under Section 143 (2) of the Act. The AO also made a reference of the Petitioner's case to the Transfer Pricing Officer ('TPO') under Section 92 CA of the Act. Post the TPO's report, a draft order under Section 144 C of the Act was passed by the AO. Thereafter, the final assessment order under Section 143 (3) of the Act came to be passed by the AO on 28th January, 2011. The further proceedings arising from the said assessment order are currently pending before the Income Tax Appellate Tribunal ('ITAT'). It is relevant to point out that in the draft assessment order, passed under Section 144 C of the Act, the Petitioner was given the benefit of the deduction under Section 10B of the Act. 4....
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....for the AY 2007-08:- "(ii) It is observed that the assessee company is running two units viz Delhi unit which is doing trading whereas the Pune unit is doing manufacturing activities. The assessee has shown taxable income of Rs. 4,70,17,800/- from Pune unit on which exemption u/s10B has been claimed at 4,67,89,966. The assessee has also shown loss from Delhi Unit amounting to Rs. 5,39,24,178. Over all the assessee has a negative profit in the Gross total income amounting to Rs. 69,06,378/-. It is clear that when the Gross total income of the assessee is negative, the assessee is not entitled to exemption of income from the 10B unit separately and to carry forward the loss of the non 10B unit only. (iii) It is also noticed that the assessee is not bringing any sale proceeds in India and only providing manufacturing services to its AEs and receiving charges on cost plus basis. It is also contended that the practice adopted by the assessee, legal position and submission of the assessee was not held covered by the provision of section 10B. Same view as taken by the AO in the A Y 2008-09 & 2009-10 and exemption u/s 10B was disallowed by the then AO. In view of this the deduction of 4,....
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....lating to the adjustment of the losses of the Delhi unit against the profits of the Pune unit. The detailed bifurcation of the returned and assessed brought forward losses, between the Pune unit and Delhi unit for the previous assessment years, was also disclosed vide letters dated 10th/18th December, 2012. On merits, Mr. Syali relies upon the judgment of the Supreme Court in Yokogawa (supra) to submit that the present case is similar to the case decided by the Supreme Court in Yokogawa (supra). As regards the first reason for re-opening he submits that Yokogawa (supra) is the authority on the proposition that the deduction under Section 10B has to be with reference to the gross total income of the eligible undertaking, which in this case is the Pune unit of the Assessee. Such deduction has to be made before arriving at the total income of the Assessee. 10.2 Insofar as the second reason for re-opening, viz., that the Assessee merely merely providing manufacturing services to its AEs on cost plus basis, at the Pune Unit, Mr. Syali explained that this was factually incorrect. He relies upon the Transfer Pricing Report to submit that the Assessee was not rendering its services on th....
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....19-20/2006 (Silver Oak Laboratories Pvt. Ltd. & Anr. v. DCIT) (hereafter 'Silver Oak') 12. Mr. Syali relied upon the DCIT v. Simplex Concrete Piles (India) Ltd., (2013) 358 ITR 129 (SC) (hereafter 'Simplex Concrete') to argue that merely on the basis of a subsequent opinion of a higher forum, an assessment cannot be re-opened under Section 148 of the Act. According to Mr. Syali, there was no basis for the reasons to believe and he relies upon Swarovski India Pvt. Ltd. v. DCIT 368 ITR 601 (hereafter 'Swarovski India') and Hindustan Lever Ltd. v. R. B. Wadkar 268 ITR 332 (hereafter 'Hindustan Lever'). Mr. Syali places heavy reliance on the view taken by this Court in Orcale India Pvt. Ltd. v. ACIT 2017 SCC OnLine Del 9360 (hereafter 'Oracle India') to submit that the jurisdictional requirement for reopening of the assessment is not satisfied. Mr. Syali further relies upon Hindustan Lever (supra) to submit that there exists some vital link to safeguard against arbitrary reopening of a concluded assessment and that oral submissions cannot be used to strengthen the reasons to believe recorded by the AO. Respondent's Submissions 13. Mr. Zoheb Hossain, learned Senior Standing Couns....
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....duction of account books or other evidence before the AO would not per se be sufficient disclosure. He relies on Explanation 2 to Section 142 of the Act and the judgment of this Court in Rakesh Agarwal v. ACIT (1996) 221 ITR 492 (hereafter 'Rakesh Agarwal'). Analysis and Findings 16. The undisputed facts in the present case are that a detailed analysis of the Assessee's accounts, financial statements, computation etc. was undertaken as part of the original assessment proceedings. The Assessee had, during the original assessment proceedings, disclosed the existence of its Pune unit and the exports undertaken therefrom. It had made a full disclosure of the facts relating to its Delhi unit. Thus, all the facts were well within the knowledge of the AO since inception. 17. The notice under Section 154 of the Act, questioning the deduction claimed and allowed under Section 10B was also issued on the same basis. However, the said notice does not appear to have been pursued further after the Assessee filed its submissions in response thereto. 18. While the proceedings under Section 143 (2) had culminated into an order under Section 143 (3), the issuance of the notice under Section 148 ....
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....manufacturing services to its AEs and receiving charges on a cost plus basis. (ii) Reason no. 3 - that the AO in the subsequent AY 2008-09 has disallowed the exemption under Section 10B of the Act. Each of the reasons is considered hereinafter. 22. Insofar as the first reason is concerned, it is the admitted position that during the assessment proceedings a questionnaire dated 27th October, 2010 had been issued to the Assessee wherein the Assessee had provided all the details relating to income, the exempted income as also background of the business and revenue streams of the Assessee. In its computation of income filed with the AO, the Assessee had disclosed the position of losses under the Delhi unit and profits of the Pune unit. The detailed bifurcation of the returned and assessed brought forward losses, between the Pune unit and Delhi unit for the previous AY, were also disclosed. The AO had, in the order dated 28th January, 2011 under Section 143 (3) of the Act, assessed the Assessee at an income of Rs. 6,85,24,800/- and hence the first reason of the income being negative is plainly contrary to the record. 23. In any event, while allowing deduction under Section 10B, the d....
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....f the TPO had been accepted by the AO in the order passed under Section 143 (3) of the Act. Moreover, the audited financial statement of the Assessee clearly reflects the purchases made by the Assessee for its Pune unit as is also reflected in the Form 3CEB. In respect of the transactions entered into by the Assessee with its AEs and the relationship between the Assessee and its AEs, it was discussed in detail that the Assessee has purchased the goods including chemicals, packing material, twinklet material, touchstone material etc. and has sold the same after duly manufacturing the final products. The impugned notice has misconstrued the term manufacturing, inasmuch as, for any process to constitute manufacturing, it is not essential that the entity ought to be involved in manufacturing of the finished article alone. 26. It is settled law that any process which renders the commodity or article fit for use constitutes manufacture. This Court has in Lovlesh Jain (supra), after discussing the entire law on the subject held : "...10. The word "manufacture" can be given, both a wider as well as a narrower connotation. In wider sense, it simply means to make, fabricate or bring into ....