AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2016 (1) TMI 1341
X X X X Extracts X X X X
X X X X Extracts X X X X
.... book profits of Rs. 67,08,71,105/ and the assessee company paid Minimum alternate tax of Rs. 5,16,76,089/ . 3. Assessment under section 143(3) of the Act was completed on 28.12.2006 at an income of Rs. 60,75,16,480/- by making addition of Rs. 1,00,00,000/- on account of disallowance of advertisement expenses, Rs. 8,48,033/- on account of foreign travel expenses, Rs. 24,50,893/- on account of bad debts and Rs. 27,98,173/- on account of repair and maintenance. Deduction under section 80IC was also restricted to Rs. 31,10,33,397/-. 4. On an application dated 09.01.2007 filed by the assessee company before the CIT-IV, New Delhi for revision of the assessment order, the assessment order was set aside vide order dated 29.01.2007 passed under section 264 of the Act. Pursuant thereto, assessment was reframed on 28.03.2007 at an income of Rs. 3,57,82,200/ wherein claim of deduction under section 80IC was allowed at Rs. 85,59,98,358/-. In computing the income, disallowances of Rs. 2,00,000/- under section 14A, Rs. 4,31,154/- on account of foreign travel expenses and Rs. 2,50,500/- on account of ROC charges were made. In an appeal filed by the assessee, disallowance of ROC fee was dele....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ive deduction under section 80IC of the Act by attributing entire value addition to the Guwahati unit, being the eligible unit and thereby contravening the provisions of section 80IA(8) of the Act, by not transferring the goods and services held for the purpose of the eligible units to any other business carried out by the assessee and vice versa at the market value of such goods and in the process showing more than normal profits of the eligible undertaking and so, reassessment proceedings under section 147 of the Act were initiated. It is noted in para 8 of the impugned reassessment order of AO that he has after recording reasons and obtaining due sanction under section 151 of the Act, a notice under section 147 of the Act dated 29.03.2011 was served upon the assessee company. The AO takes note that in compliance to the said notice under section 147 / 148, the assessee company filed the same return that was originally filed under section 139(1) of the Act. The reasons recorded for reopening of the assessment proceedings was sought by the assessee company and was provided to it on 03.06.2011 (however ld. CIT DR after perusal of the assessment records has stated that the date is 24....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned reassessment order, even though notice U/S 143(2) was not served within the statutory allowable period. 5. That in any case and in any view of the matter, action of Ld. CIT(A) in not quashing the impugned reassessment order framed by Ld. AO is bad in law and against the facts and circumstances of the case, more so when Ld. CIT(A) himself admitted that the notice u/s 143(2) was not served. 6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in sustaining the disallowance of Rs. 3,895/- out of total disallowance of Rs. 20,54,172/- allegedly being prior period expenses, more so when such disallowance could not have been made in the proceedings u/s 147. 7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition in the value of stock of WIP and has erred in not deleting the entire addition of Rs. 2,94,83,915/- and has further erred in not giving direction to adopt enhanced closing stock as opening....
X X X X Extracts X X X X
X X X X Extracts X X X X
....discharged and has further erred in observing as under:- (a) Ld. CIT(A) directing to Ld. AO in estimating the profit margin @ 2% instead of @ 10% on the value of goods transferred which are not processed at all and not allowing the deduction u/s 801B/801C in this regard. (b) Ld. CIT(A) has erred in confirming the action of Ld. AO in loading of manufacturing expenses at the estimated rate of 37.85% and charging of profit margin @ 10% on the amount of goods called Kathha (Catechu) which gets processed through job worker and not allowing the deduction u/s 801B/801C in this regard. (c) Ld. CIT(A) has erred in confirming the action of Ld. AO in loading of manufacturing expenses at the estimated rate of 37.85% and charging of profit margin @ 10% on the amount of goods called Cardamom (Elaichi) and not allowing the deduction U/S 801B/801C in this regard. 13. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs. 1,16,39,096/- on the ground that 'can pack' transferred from 'can pack' division to eligible units have not been transf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imitation. 20. That in any case and in any view of the matter, impugned additions/disallowances and impugned assessment order are bad in law, illegal, unjustified, barred by limitation, contrary to facts & law and based upon recording of incorrect facts and finding, without giving adequate opportunity of hearing, in violation of principles of natural justice and the same deserves to be quashed. 21. That in any case and in any view of the matter action of Ld. A.O in framing the impugned assessment order is contrary to law and facts, void ab initio, beyond jurisdiction and the same is not sustainable on various legal and factual grounds 22. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest 234B and 234D of the Income Tax Act, 1961. 23. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other." 12. The grounds of appeal raised by the revenue read as under :- "1. On the facts and in the circumstances of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in the circumstances of the case, the CIT (A) has erred in deleting addition of Rs. 2,94,83,915/- made by the AO on account of increase in the value of stock of work in progress, finished goods and unpacked goods. 9. On the facts and in the circumstances of the case, the CIT (A) has erred in deleting disallowance of Rs. 47,55,262/-, out of total addition of Rs. 71,48,144/- made by the AO on account of 14A of the Income Tax Act, 1961. 10. The order of the CIT (A) is erroneous and is not tenable on facts and in law. 11. The appellant craves leave to add, alter or amend any of the grounds of appeal before or during the course of the hearing of the appeal." 13. First, we will deal with the assessee's appeal. The ld. AR filed the written synopsis which are reproduced below for the sake of clarity of legal issues :- "1. The original assessment in this case was completed u/s. 143(3) vide order dtd. 28/12/2006 at an income of Rs. 60,75,16,480/-. The statutory deduction u/s. 80IC claimed in the original return at Rs. 97,37,28,085/- on the basis of certificate of statutory auditor in Form No. 10CCB was restricted to Rs. 31,10,33,397/-. In support of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of pan masala (Rajnigandha), is performed at Guwahati. Key ingredients of the Rajnigandha Pan Masala are as follows:- i) Catechu (Katha) ii) Beetle nut (Supari) iii) Cardamom Seed (Elaichi Seed) iv) Sugandhi. During the course of search, it was noticed that functions performed at Guwahati are that of drying up of processed Beetle Nut (processed supari) received from Head Office, Noida and packing. All the raw materials, namely, catechu, beetle nut, cardamom and sugandhi are procured at head office situated in Noida. Catchcu (katha) is procured and processed at Noida, cardamom is procured and its seeds are extracted from the shell, beetle nut (supari) is procured at Noida, then chopped into smaller pieces & processed and other materials too are procured at Noida. At Guwahati, processed supari is dried in the ovens, and mixed with various ingredients received from Head Officer at Noida. This mixture is then packed and dispatched to destination ordered by the Head Office. It appears that assessee is attributing the entire value addition to the Guwahati to claim higher amount of deduction u/s. 80IC. By doing so the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a 4.4.3 has taken note of various communications and relevant details in relation to issue of claim u/s 80IC during original assessment proceedings : Page 18 Para 4.4.3 (CIT(A)'s Order) Ld. AR argued on the basis of following documents that the assessee has disclosed all material facts regarding deduction u/s 80IC earlier proceedings u/s 143(3)/264 or appellate proceedings: " Following pleadings and evidences would show that the issue of deduction u/s 80IC was extensively considered in original assessment passed u/s 143(3) dated 28-12-2006 (PB 177-186 at PB 178-182) and in the assessment order passed u/s 143(3)/264 dated 28.03.2007 (PB 300-310 at 303-308). It is important to submit that there was even a revision order u/s 264 dated 29- 01-2007 (PB 187-198 at 187-190) on this issue. 1. PB 59-62 at 59-60 is questionnaire dated 13.01.2006 from Learned Assessing Officer issued in original assessment u/s 143(3) asking about procurement of raw material from different units/divisions and about deduction u/s 80IC, excise duty. 2. PB 63-85 is assessee's letter dated 02/02/2006 giving details of inter unit transfers and that Delhi office h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s nothing but change of opinion on the same set facts which is not permissible in the eyes of law in view of the above mentioned catena of judicial decisions and in view of the latest judicial decision from Hon'ble Delhi High Court in the case of CIT vs Usha International Ltd. 348 ITR 485 (Del)(FB) and by Hon'ble Supreme Court CIT vs ICICI Securities Primary Dealership Ltd. 348 ITR 299 (SC). 7. Further, it is relevant and appropriate to make reference to letter dated 13.03.2007 issued by the assessing officer at the time of assessment proceedings pursuant to order u/s 264. As per this letter, the AO has specifically made reference to modus operandi of the assessee along with in-depth note on provisions of section 80IC. The relevant portion of the letter dated 13.03.2007 is extracted hereunder for your kind reference: "MODUS OPERAND! FOR PANMASALA & GUTKA * Set up packaging units at Bumani Maidan Gwvahati * Labour engaged for packaging - 300 (Largely contract workers) * Investment in Plant & Machinery in all the units which are around 8 at Bumani Maidan, Guwahati -10 crores * Process adopted at Guwahati. * Cul Su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r unit transfer and manufacturing at Guwahati unit and Agartala Unit in the light of provisions of section 80IC and as such there is absolutely no ground or basis to reopen the completed assessment which has already been thoroughly scrutinized under section 143(3), 264, 143(3) r.w.s. 264 proceedings. 9. At the time of hearing, the Ld. DR was making allegation that assessing officer did not had any knowledge of inter unit transfer of material and therefore in absence of such crucial piece of information, the assessment was framed erroneously and as such the reopening of assessment is justifiable on this very ground. 10. It will be appreciated that the above allegation was misconceived and on the basis of distorted facts used selectively without taking note of detailed investigation carried out during various stages of proceedings. The issue of inter unit transfer and the justification of claim u/s 80IC was duly considered as per details of questionnaire and various submissions extracted above. 11. In addition to case laws referred to in our earlier submission, reference may also be made to the following latest decision on the issue of reopening u/s 147: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Assessing Officer. 'Reasons' should be such that any person of ordinary prudence should be in a position to make a belief about escapement of income on the basis of facts narrated and material referred to, in the 'Reasons' recorded. The 'Reasons' should show that, there is rational nexus and cause & effect relationship between the material sought to be relied upon in the Reasons and belief sought to be formed by the AO about escapement of income. (iii) In case reopening is sought to be done by the AO after expiry of four years from the end of the relevant assessment year and the original assessment was framed u/s 143(3) then reasons can be recorded only if there was failure on the part of the assessee in disclosure of material of facts, as has been envisaged in first proviso to section 147. (iv) Before issuing notice u/s 148, the AO has to obtain, on the reasons recorded by him, sanction for reopening of the case, from the competent authority as envisaged u/s 151 viz. Additional Commissioner or the Commissioner of Income Tax, as the case may be. Before granting its sanction, the sanctioning authority is required to record its satisfaction ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AO cannot assume jurisdiction to reopen already concluded assessment. (c) In the present case, it has already been discussed that admitted facts are that there was no fresh material coming into the possession of the AO, at the time of recording of the 'Reasons'. These facts have not been rebutted by Ld DR also. The case law relied upon by Ld DR in the case of Dr. Amin's Pathology, supra is not applicable on the issue being decided here. The issue that in absence of any fresh material, whether AO can proceed to record Reasons, was not before Hon'ble High Court, therefore Hon'ble High court had decided the issue of Change of opinion in that case. In the case before us, as discussed above, we are not going into that issue. In our considered opinion, at this stage, we need not go into the other aspect i.e. whether there was change of opinion or not. This issue has been aptly clarified by Hon'ble High Court in the case of Madhukar Khosla, (supra), wherein it has been held by their lordships that external facts or material constitute the driver, or the key which enables the AO to legitimately reopen the completed assessment and in absence of this objecti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IT (A) erred in not appreciating the contentions raised before him in respect to the very legality of reopening of the original assessment which was carried out under section 143 (3) of the Act. According to him, there is no dispute about the fact that in the instant case re-opening is sought to be done by the AO after the expiry of four years from the end of the relevant assessment year and since the original assessment was framed u/s 143(3), then reasons for reopening can be recorded only if there was failure on the part of the assessee in disclosure of material facts, as has been envisaged in first proviso to section 147 of the Act, and in this case according to the ld. AR, there is no whisper in the reasons recorded about what material fact was not fully and truly disclosed and according to him, the material facts which were not disclosed by the assessee during the original assessment proceedings must have been emanating from the reasons recorded. And, according to ld. AR, the AO before recording the reasons must have in his possession fresh tangible material which should have been the basis on which the completed original assessment u/s 143(3) is sought to be reopened which sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee itself vitiates the impugned order. Thereafter, the ld. AR took our attention to the sanction granted by Commissioner and Additional CIT under section 151 of the Act, wherein our attention was taken to the reasons recorded and the sanction granted by the Addl.CIT wherein he has written. "I am satisfied" and Commissioner has written the very same words "Yes. I am satisfied". He took our attention to the fact that both the authorities have granted the sanction on the very same day i.e, on 28.03.2011. Mr. Singhvi pointed out that there has been no discussion whatsoever was noted in the said records by both these authorities and wondered as to how two senior officers can decide to re-open the original assessment completed u/s 143(3) after expiry of four years from the relevant assessment year, when the original assessment has gone through the hands of DCIT, Additional CIT u/s 144A and CIT u/s 264 of the Act, without even caring to ask the AO what was the material fact not disclosed by the assessee during the original assessment and the CIT and Addl. CIT did not enquire as to what was the fresh tangible material on which the reasons recorded is based upon to reopen the orig....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... A. Order sheet entry: > Perusal of records of A.Y. 2004-05 clearly shows that notice u/s 143(2) was issued vide order sheet entry dtd. 24.11. 2011 as there is an entry to that effect in the order sheet. Copy of note sheet was provided to the Hon'ble Members during the course of hearing and the original order sheet was also put up for their perusal. > The immediate order sheet noting thereafter, i.e. on 28.11.2011, also shows that the Director of the company, Mr.Anil Aggarwal and Sh.Siddhart Goel, GM, Taxation, appeared before the AO. The order sheet noting dated 28.11.2011 is also signed by both - the Director and the GM (Taxation). Also both these notings on order sheet are in seriatim and appear on the same page. Hence the fact that notice u/s 143(2) had been issued was written large before them. It was never refuted by them during the course of assessment proceedings thereby implying in the affirmative that notice was issued and served upon the assessee. Their appearance on 28.11.2006 is clearly indicative of their compliance to notice u/s 143(2). > The ld. Counsel of the assessee stated before the Hon'ble Bench that the appearance on 28....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nds mention in the same para. This clearly implies that the assessee had very well accepted the fact during assessment proceedings itself that notice u/s 143(2) was issued and was received by it, and that it had also made compliance to the same. • An order u/s 142(2A) of the I.T.Act for conducting Special Audit, was passed in this case by the AO on 29.12.2011, where again the same set of facts were brought to the notice of the assessee at 'page 4 para 6' of the said order. The same are being reproduced below- "6. Subsequently notice u/s 143(2) was issued to the assessee immediately on centralization. Sh.Anil Agarwal, Director of the company along with Sh.Siddhart Goel, GM, Taxation appeared on 28.11.2011 and filed objections to the reopening proceedings initiated vide the reply of even date. ............... Meanwhile the hearing continued on 09.12.2011, 12.12.2011, 16.12.2011, 20.12.2011, 23.12,2011 calling for various details and books of accounts were also examined. THE ASSESSEE MADE COMPLIANCE TO THE NOTICES ISSUED AND FILED VOLUMINOUS DETAILS." The above para was read out from the original records before the Hon'ble Memb....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... • By accepting the show cause notice u/s 142(2A) & order u/s 142(2A), wherein there is categorical mention of notice u/s 143(2) and its compliance, followed by participation of the assessee in special audit proceedings as well as in re-assessment proceedings regarding queries based on special audit report, the assessee has lost its right to appeal that no notice u/s 143(2) was issued and served upon it. The assessee's contention on this issue therefore leads to absolute contradiction and is not permissible under any law, much less derive any mileage out of it. • Special audit is a costly affair and the cost is borne by the revenue. In terms of resources, the department has to pay a heavy price for conducting it. The assessee has duly participated in the same and was specifically informed during the course of special audit proceedings that notice under 143(2) has been issued to it. It was further affirmed by the AO in the order passed u/s 142(2A) on 29.11.2011. By now alleging that notice u/s 143(2) was not issued /served, the assessee is also vitiating the proceedings u/s 142(2A) which were never challenged by the assessee at any point of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 143(2) of the Act, be it for the purpose of regular assessment under Section 143(3) of the Act or for the purpose of a block assessment under Chapter XIV-B or for the purpose of an assessment under Section 153A, such a plea has to examined thoroughly and in depth by taking a practical reasonable view of the matter, not inconsistent with the statutory provisions, keeping in mind the basic principle that the liability to pay tax which is founded on the charging provisions of the statue, is not to be nullified on specious or unjustified pleas taken by the assessee. (Para 19) b. NARINDER KUMAR & ORS. vs. COMMISSIONER OF INCOME TAX -VII, Hon'ble HIGH COURT OF DELHI (2014) 369 ITR 0049 (Delhi) vide order dtd. July 3 '2014, has held - "............There is distinction between precluding a person who has not raised the plea of non-receipt of notice during the assessment proceedings, from subsequently raising such plea, and a case where the assessee has not controverted a statement during the assessment proceedings that it had duly received the notice under Section 143(2) of the Act In the latter case, where an assessee does not controvert an affirmative state....
X X X X Extracts X X X X
X X X X Extracts X X X X
....met; i.e. the income of an Assessee has escaped assessment on account of failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment. As the above position of law is settled by way of various judicial pronouncements including that of Hon'ble Apex Court and Hon'ble jurisdictional high court, various judgments supporting the same are not being discussed/cited as that would unnecessarily make the submissions bulky. 2. BASIS FOR PRIMA FACIE BELIEF BY AO THAT INCOME HAD ESCAPED ASSESSMENT It is important to refer to the satisfaction recorded by the AO and the same is discussed hereunder:- A. SATISFACTION OF THE ASSESSING OFFICER A copy of reasons recorded by the AO u/s 147, has already been provided to the Hon'ble bench as part of Paper-book filed by the assessee (Page 40). Contentions of Revenue: * A perusal of the reasons recorded by the AO shows that the AO's opinion is based upon findings of search and is not borne out of suspicion or imagination. * Reasons recorded by AO The reasons recorded by AO on standalone basis are - â€....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment with regard to the Assessment Year under consideration". The reasons recorded above are strictly on standalone basis and no information has been added or imported into it. They have been written in stages only to show how the AO formed the prima facie belief on the basis of tangible information available, that income has escaped assessment. • The AO has strictly relied on annexure "A" (cogent/tangible material) which it had received from the Investigation wing. The Investigation wing had conducted the search and had physically verified all the premises at Delhi/Noida and Guwahati during search to find out how raw material is being procured and how various processes in manufacturing of panamasala are being carried out by Delhi/Noida as well as at Guwahati units. It is only on the basis of intrusive means of Search that the various stages of manufacturing have been categorized from A to H (Annexure A) to demonstrate the considerable role of Noida/Delhi office in the manufacturing process of pan masala. This information was passed on to the AO by the inv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ring the course of hearing and copies of the same were also furnished. In view of the above discussion the AO has satisfied the primary criteria of having a prima facie belief that income has escaped assessment in this assessment year and has also establish the live link between the belief and the tangible material available before him. . B. SATISFACTION OF COMMISSIONER OF INCOME TAX U/S 151 OF THE ACT : The assessee has alleged that the satisfaction of the Ld. Commissioner while giving approval u/s 151 is without application of mind. In this regard reference is being made to Hon'ble Supreme Court's judgement in the case of S. NARAYANAPPA & ORS. Vs COMMISSIONER OF INCOME TAX, wherein their Lorship's have held that " There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the CIT to accord sanction to proceed under s. 34 must also he communicated to the assessee." The said order has endorsed the view of the Hon'ble Madras High court in the case of THE PRESIDENCY TALKIES LTD. VS. FIRST ADDL ITO. Both the case laws are reproduced below: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot necessary to state in the notice itself at the initial stage the period for which reassessment is sought Held "............. There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the CIT to accord sanction to proceed under s. 34 must also be communicated to the assessee. The requirement regarding the communication of the reasons to the CIT is, in our opinion, intended to safeguard the interests of the assessee against any hasty action on the part of the ITO under s. 34 or an action without any justification. It is not intended by the proviso that the reasons should be communicated to the assessee. The satisfaction mentioned is the satisfaction of the CIT and the adequacy of the reasons is not a matter for consideration of the Court, and it is not open to the assessee to agitate the question, that the reasons were inadequate to sanction the initiation of the proceedings under s. 34 by the CIT." In the case of the assessee, the Ld. Commissioner has duly accorded his approval by stating that "I am satisfied". He has not used words such as "....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Income. b. Questionnaires issued by AO: • The AO issued the 1st questionnaire on 13.01.2006, calling for following details: " 1. ............... Wherefrom each of the unit/division procures the different raw materials being used by it and what is the role of Delhi office in making procurement of raw material..............." (refer to Paper book page 166): • In response to the same assessee filed a reply dtd.2nd February 2006 ( pg.170 to 180 of paperbook) stating as under- "As regards the procurement of various raw materials and other inputs being used in various finished products of the company, we submit that these are procured from various suppliers located across the country. This is also to confirm that our Delhi office has no role to play in procurement process. " (top para, page 171 of paper book) • Again vide order sheet entry dtd.16.11.2006 (Annex 2), at point 3 , the assessee was asked -"16.11.2006 1.......... 2.......... 3. Details and note on movement of raw material - whether it is sent direct to the unit from the supplier or routed through Head office. Adj. to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....procured by Delhi/Noida unit and is being partiallv processed and then sent to Guwahati. Hence the assessee deliberately suppressed the facts during the course of original assessment proceedings by resorting to lies which were unveiled in search and were also admitted by the assessee in the course of proceedings u/s 147 which are under consideration. • All the other replies filed by the assessee during the course of assessment proceedings also do not utter a word about the procurement and processing of raw material by the assessee from Delhi/Noida unit for sending to Guwahati unit. • The replies filed by the assessee during the course of original assessment are placed at pages 170 to 256 of paper book filed by the assessee and the Hon'ble Bench was taken through each and every reply during the course of hearing. • Since the above replies of the assessee were also found to be in conformity with form 10CCB which was part of audited accounts, hence the AO in all good faith, and in the absence of any contrary material on record, accepted the reply of the assessee to that extent in the original assessment proceedings and the case proceeded on o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 80IC in the same order. • The Id.CIT, vide order dated 29.01.2007, only examined the limited issues raised and set aside the original assessment order with directions to re-examine the same issues after giving reasonable opportunity to the assessee. Inference drawn : During proceedings u/s 264, the issue of procurement by Delhi/Noida office and processing of raw material before sending it to Guwahati was NEVER examined at ail by the Ld.CIT and deduction u/s 80IC remained confined to limited issue of certain incomes not to be included for the * of deduction u/s 80IC as contested in the application. 3. ORDER u/s 143(3) r/w sec. 264 The above order was passed on 28.03.2007. Important aspects are discussed hereunder: • On receiving the order u/s 264, proceedings were again initiated u/s 143(3). • Replies were filed by the assessee on various dates, which are part of paperbook filed by the appellant (pages 257 to 279). The Hon'ble bench was taken through all these replies during the course of hearing and it was specifically pointed out that in none of these replies filed by the assessee was it disclosed that raw material is being pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essing of raw material by Delhi/Noida units and its subsequent transfer to Guwahati unit has been examined in earlier assessment proceedings but it could not point out a single reply wherein such details were divulged before the AO in any of the assessments or 264 proceedings. Hence during assessment proceedings u/s 143(3), and assessment proceedings u/s 143(3) r/w sec.264, the assessee failed to disclose fully and truly all the material facts despite being categorically asked to do so, and in the course of assessment proceedings it resorted to lies in order to suppress the facts and misguide the AO, which would have otherwise helped AO to form an opinion on the issue of role played by the Delhi/Noida units in procuring and processing raw material before sending it to the Guwahati unit particularly with reference to section 80IA(8) and excessive deduction u/s 80IC. In the absence of any details filed by the assessee during the original assessment and assessment proceedings r/w sec. 264, assessments were made were made without forming any opinion on this issue. If there was no opinion then how can there be a change of opinion subsequently ? In proceedings before ld.CIT u/s ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e claim of deduction u/s 80IC and contravention of provision of section 80IA(8). Reference is again made to step by step discussion of satisfaction note made in earlier paras in detail on standalone basis. • Based on above the AO had a reason to believe and not a reason to suspect. • The assessee neither contested nor established that there in fact existed no belief or that the belief was not a bonafide one or was based on vague, irrelevant and non-specific information. • The reasons recorded have been examined on standalone alone basis and nothing has been imported or added to it. The statements of key persons have been relied upon in addition to the reasons recorded on standalone basis and without prejudice to the examination of the satisfaction note on the standalone basis. • It is settled law that the Court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the ITO. It has been demonstrated that AO had prima facie reasons to believe and the sufficiency of the reasons cannot be questioned at this stage. • The condition, that an assessment, which has been concluded ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....city Co. (P) Ltd. vs. CIT (1970) 78 ITR 466 (SC) where the Court observed : "It is true that if the ITO had made some investigation, particularly if he had looked into the previous assessment records, he would have been able to find out what the written down value of the assets sold was and consequently he would have been able to find out the price in excess of their written down value realised by the assessee. It can be said that the ITO if he had been diligent could have got all the necessary information from his records. But that is not the same thing as saying that the assessee had placed before the ITO truly and fully all material facts necessary for the purpose of assessment. The law casts a duty on the assessee to "disclose fully and truly all material facts necessary for his assessment for that year". The Hon'ble Gujarat high court in the case of YOGENDRAKUMAR GUPTA vs. INCOME TAX OFFICER, May 6, 2014 (2014) 366 ITR 0186 (Guj) has held that - "What needs to be emphasized is that the obligation on the assessee to disclose the material or what are called, primary facts-a mere disclosure but a disclosure which is full and true. A false disclosure....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of Guwahati unit if the eligible unit thereby contravening the provisions of section 80IA (8) of the Act, by not transferring the goods and services held for the purpose of the eligible units to any other business carried on by the assessee and vice versa at the market value of such goods and in the process showing more than normal profits in the eligible undertakings. The AO had reopened the assessment the reasons were furnished to the assessee and objection raised by the assessee had been repelled by the AO with a speaking order. Ld. DR submitted that the ld. CIT (A) has taken note of the fact that the form10CCB filed along with the return of income has not been properly filled and the goods and services transferred from non-eligible units to eligible units had not been disclosed in these respective column of form no.10CCB in entirety. These declaration of manufacturing goods / services had direct nexus of manufacturing process at various units of the assessee company. According to her, the ld. CIT (A) has taken note of the fact that in column 20 of the audit report of 10CCB are not disclosing inter unit transfers to eligible units. So, the ld. DR submitted that the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssued and served on the assessee. She also pointed out that the assessee had vehemently opposed the special audit by filing letter dated 26.12.2011, however, there is no whisper of non-receipt of 143(2) notice in the said objections raised before the AO. So, according to the ld. CIT DR, now after participating in the reassessment proceedings, the assessee cannot turn back and say that it had not received the copy of the 143(2) notice. 18. Thereafter, the ld. CIT DR took our attention to section 292BB and contended that the said section has been introduced by Finance Act, 2008 w.e.f. 01.04.12008 and all pending proceedings including the reopening and reassessment in this case was admittedly after 01.04.2008, so section 292BB is fully applicable in the case in hand and therefore, since the AO in the order sheet entry dated 24.11.2011 has clearly stated that he has issued the said notice, the assessee after participating in the said proceedings cannot raise it in appellate proceedings without raising the same before the completion of the reassessment proceedings and for buttressing her said contention, she referred to the decisions of Hon'ble Kerala High Court reported in 82 CCH 30....
X X X X Extracts X X X X
X X X X Extracts X X X X
....notice under section 143 (2) cannot be countenanced because it is clearly written in the order sheet entry that the said AR appeared on 28.11.2011 for filing the objections against reopening. The ld. AR also stated that the mentioning of issuance of notice under section 143(2) in the notice before special audit cannot have any relevance because even the special audit could not bring out any adverse materials against the assessee. According to him, merely by stating that notice has been issued in a show cause notice that too for special audit cannot determine the fact whether 143 (2) notice has been issued or copy of which should have been found in the records of the department. In the absence of the same or in the absence of the dispatch register mentioning about the mode of dispatch etc. leaves no doubt in the mind of any prudent person that said notice has not been issued at all. The ld. AR cited the case of ACIT vs. Hotel Blue Moon - (2010) 321 ITR 362 (SC) and contended that now, the issue whether 143 (2) notice is mandatory or not is no longer res integra. The Hon'ble jurisdictional High Court in CIT vs. Lunar Diamonds Ltd. - (2006) 281 ITR 1 (Del.) has also reiterated that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... transferred from one unit/branch to another unit/branch in the course of local movement as well as Inter State Transfers, which has been reflected in the P&L account under the head 'Inter-Unit Transfers' and explained that Gross Sales have been reduced by Inter-Unit Transfers and also stated that since the transaction falls in the nature of transfer for captive consumptions, hence the transfers have been recorded in the books of account on cost to cost basis and no notional profit is being generated at transferring branch and also brought to our attention the fact that the claim under section 80IB and 80IC has been claimed by the assessee for the first time in assessment ear 2000-01 and the facts are pari materia from that assessment year onwards, therefore, all the materials were on record, so now the reassessment canvassed by the AO can only be called as a change of opinion. No new facts has emerged after the search, therefore, the reasons recorded by the AO without even elaborating on what material he has laid his hands on afresh for the assessment year under consideration has erroneously come to an opinion, that there is an escapement of income and the assessee has not disclos....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... through the reasons." Their Lordships added that "The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide link between conclusion and the evidence....". Therefore, the reasons are to be examined only on the basis of the reasons as recorded. 25. The next important point is that even though reasons, as recorded, may not necessarily prove escapement of income at the stage of recording the reasons, such reasons must point out to an income escaping assessment and not merely need of an inquiry which may result in detection of an income escaping assessment. Undoubtedly, at the stage of recording the reasons for reopening the assessment, all that is necessary is the formation of prima facie belief that an income has escaped the assessment and it is not necessary that the fact of income having escaped assessment is proved to the hilt. What is, however, necessary is that there must be something which indicates, even if not establishes, the escapement of income from assessment. It is only on this basis that the Assessing Officer can form the belief that an income has escaped assessment. Merely because some further investigatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ltimately word by word. It is not in dispute that the Assessing Officer does not have any jurisdiction to review his own order. His jurisdiction is confined only to rectification of mistakes as contained in section 154 of the Act. The power of rectification of mistake conferred upon the Income-tax Officer is circumscribed by the provisions of section 154 of the Act. The said power can be exercised when the mistake is apparent. Even a mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Income-tax Appellate Tribunal has limited jurisdiction under section 254(2) of the Act. Thus when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake. It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income-tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong." 27. It is necessary to examine whether there was any "reason to believe" to have had such an exercise. The term "reason to believe" cannot be considered or evaluated in a water tight compartment and scope and applicability may vary from case to case, depending upon the facts and circumstances. The power under sections 147 / 148 comes into existence if he had reason to believe that income has escaped assessment. Formation of reason to believe ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wherein, the following question was raised :- "Furnish detailed note on business activities carried out from each of the division/unit/office of the company mentioning complete mailing address of each one of the business premises. With reference to each of the unit/division furnish detailed note on items manufactured/traded by it alongwith details of manufacturing processes involved. Wherefrom each of the unit/division procures the different raw materials being used by it and what is the role played by Delhi office in making procurements of raw material. Where books of accounts of each of the manufacturing unit and division of the company are being maintained." III. In reply to the aforesaid question, the assessee company replied as below :- "In reply, it is submitted that the company is engaged in the manufacturing and distribution of Pan Masala, Pan Masala containing Tobacco, Chewing Tobacco, Spices and Salt, Mouth Freshener etc. which are being manufactured in its Manufacturing units located at Noida, Guwahati, Barotiwala, Delhi and Agartala mainly." The details of product manufactured by each unit Noida, in various sectors, Solan in Himachal Pradesh, Aga....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o such Inputs is being moved through the Corporate Office of the assessee company located in Noida (UP)" VI. Thereafter, on 27.11.2006, the assessee company on queries raised by AO on 20.11.2006 replied to the specific query as to the inter-unit transfer of goods specifically replied that while confirming inter-unit transfer of unbranded goods replied that no notional profit is generated/accrued at transferor branch, which is reproduced below (page 247 of paper book) :- "We confirm in reply to your query that our finished unbranded goods are transferred from one Unit/branch to another unit/branch in the course of local movement as well as Inter State Transfer's, which has been reflected on the face of the profit and loss account. Since the transaction aforesaid falls in the nature of transfer for Captive consumption, hence no notional profits is being generated /accrued at Transferor branch. The goods which may be subject to transfer in the aforesaid nature, includes Pan Masala and Flavored to bacco in unbranded form. As regard to the Mixing process and person responsible are concerned for the same process, we wish to clarify that normally the Mixing Process of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....00) * Grinding of Catechu is also done at Noida and then brought to Guwahati (Labour engaged - 50) * Grinding of Lime is also done at Noida and then brought to Guwahati (Labour engaged - 50) * (All these processing and storage units of Supari Catechu & Lime are at Sector 3, 4 &58, Noida and job workers are also DS Group associate firms and companies) * Perfumery compound is from DS Limited, Perfumery unit at Okhla Industrial Estate, Phase-Ill, New Delhi (Labour engaged- 100) * All these ingredients after cutting/grinding/blending are brought to Guwahati by truck/goods train. * Cut Supari is dried in ovens. * All these ingredients are mixed in 'Rori' Mixers. * Raw tobacco and Kiwam which are also sent from Noida to Guwahati are added in these ingredients, while making Gutka. * Pan Masala/Gutka is then packed in lamination pouches/boxes by FFS machines. * PAN Masala/Gutka is then cleared and excise benefit of 300 crores annually availed. " MODUS OPERANDI FOR CHEWING TOBACCO PACKAGING UNITS OF PS GROUP SET UP AT ARUNDHUTI NAGAR, AGARTALA. TRIPURA IN THE NAMES OF PS LIMITED, DHARM....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act. During the course of search & seizure operation conduced at the group companies of the assessee on dtd. 21/01/2011 it was noticed that the assessee company follows processing of Pan Masala as per Annexure 'A'. In the flow chart, the entire process has been segregated into stage A to stage H. not a single stage 7 process which is very crucial in the preparation of pan masala (Rajnigandha), is performed at Guwahati. Key ingredients of the Rajnigandha Pan Masala are as follows:- i) Catechu (Katha) ii) Beetle nut (Supari) iii) Cardamom Seed (Elaichi Seed) iv) Sugandhi. During the course of search, it was noticed that functions performed at Guwahati are that of drying up of processed Beetle Nut (processed supari) received from Head Office, Noida and packing. All the raw materials, namely, catechu, beetle nut, cardamom and sugandhi are procured at head office situated in Noida. Catchcu (katha) is procured and processed at Noida, cardamom is procured and its seeds are extracted from the shell, beetle nut (supari) is procured at Noida, then chopped into smaller pieces & processed and other materials too are procured at ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from search proceedings suggested that the claim of deduction under chapter VIA of the act made by the assessee company was grossly incorrect. On the strength of evidences collected during the course of search and seizure proceedings, initiating action u/s 148 of the Act for the assessment year 2004-05 was also recommended. After satisfying himself, that the income for the relevant assessment year has escaped assessment, the DCIT Circle 10(1) New Delhi has duly initiated reassessment proceedings for the said assessment year. Pursuant to the notice under section 148 of the act, reassessment of total income the assessee company is to be made before 31.12.2011. In the circumstances, it is requested that copies of all the materials collected during the course of search which is relevant for the assessment year 2004-05, or has a bearing on the pending reassessment proceedings or would be useful in the exercise of powers by the Assessing Officer under section 80IA(8) of the Act, may kindly be provided to this officer urgently." Ld. CIT (A), after perusing the letter, held as under :- "A perusal of the above it reveals that the Assessing Officer was satisfied on the b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ough the letter of ADIT (Inv) dated 24.03.2011. (ii) In the said letter, the ADIT (Inv) has informed the AO, the finding of search for deduction u/s 80IC. (iii) ADIT (Inv) further requested the AO to see the relevant documents to satisfy himself before reopening. (iv) CIT(A) after going through the ADIT (Inv) dated 24.03.2011 has given a finding that "No document was sent along with the letter." (v) Then CIT (A) observes that it is a usual practice that ADIT/DDIT (Inv) conducting searches gather evidences and sends complete evidences on the conclusion and finalization of appraisal report. (vi) In the light of the above, CIT(A) was of the opinion that "it cannot be concluded that AO was not having sufficient information at the time of initiating action u/s 147 for forming reason for escapement of income." 32. A conjoint reading of the aforesaid letters i.e. 24.03.2011 of ADIT (Inv) to AO which as per the DR was the basis of reopen and the letter dated 01.12.20011 of AO to DDIT (IV) and the CIT(A) conclusion we find that : (i) Vide letter dated 24.03.2011, the ADIT(Inv) has stated about the search conducted on assessee on 20.01....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onclusion that there is escapement of income from assessment. 33. In the light of the facts and circumstances discussed above, we can see that only based on the "recommendation" of the ADIT (Inv.) dated 24.03.2011, the AO has initiated report for sanction u/s 151 and issued notice, which is nothing but "borrowed belief". It has been held by the Hon'ble Supreme Court in Anirudhsinhji Karansinhji Jadeja & Anr. vs. State of Gujarat - (1995) 5 SCC 302, that "if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or in compliance with some higher authority's instructions, then it will be a case of failure to exercise discretion all together." It has to be kept in mind that satisfaction recorded should be "independent" and "not borrowed" or "dictated" satisfaction. Thus, we find there was no fresh tangible material for the AY 2004-05 with the AO and he has simply issued notice on borrowed belief of ADIT (Inv.). 34. In the light of the above, we hold that there was no fresh tangible material forwarded by the ADIT (Inv.) vide letter dated 24.03.2011 which was the foundation on w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essment year under consideration. (We will deal with this Stage 'A' to 'H' in detail later on in our order, when we deal with the proviso to section 147 i.e. true and full disclosure by assessee during original assessment.) The reasons recorded for reopening the assessment do not make out a case that the assessee had suppressed any material factor or misguided the AO during original assessment completed u/s 143(3). As we do not have the liberty to examine these reasons on the basis of any other material or fact, other than the facts set out in the reasons so recorded, it is not open to us to deal with any other material when we examine the reasons on a standalone basis to look in to the question as to whether the income has escaped assessment. The Assessing Officer has opined that income has escaped assessment of income because there is violation of 80IA (8) and assessee has claimed excess deduction u/s 80IC but then such an opinion proceeds without going through the original assessment proceedings completed u/s 143(3)/144A and 264 of the Act and overlooks the fact that the assessee had replied to the queries raised and all material facts necessary for the original assessment was o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k, the territorial Head clearly brings out the fact that only Stage 'G' & 'H' out of Stages 'A' to 'H' are performed at Guwahati unit of the assessee group. This argument of the ld. CIT DR cannot be accepted for two reasons, firstly that Shri Pritam Singh Charak was appointed in assessee company as territorial Head in Guwahati w.e.f. 05.01.2009 and he was not employed with the assessee company in the FY 2003-04 i.e. relevant assessment year before us. Therefore, his statement made if any can only be suggesting of certain facts from the year of his assuming the office as territorial Head from that day onwards; and secondly, this fact is not emerging from the reasons recorded and we have to look at the reasons recorded at a standalone basis without adding or omitting anything from it, as held by Hon'ble Bombay High Court in Hindustan Lever Limited (supra). The AO in his reason has not indicated any tangible material suggesting escapement of income other than stating the functions of various units under the assessee company by way of a flow chart which we find that the assessee had himself has disclosed and submitted, so by again mentioning of a similar chart (except for terming the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an impermissible review. It has been further observed that : "The foundation of the AO's jurisdiction and the raison d'etre of a reassessment notice are the "reasons to believe". Now this should have a relation or a link with an objective fact, in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective "trigger", the AO does not possess jurisdiction to reopen the assessment. It is at the next stage that the question, whether the re-opening of assessment amounts to "review" or "change of opinion" arises. In other words, if there are no "reasons to believe" based on new, "tangible materials", then the reopening amounts to an impermissible review. Here, in the instant case before us, there is nothing to show what triggered the issuance of notice of reassessment - no information or new facts which led the AO to believe that full disclosure had not been made (Kelvinator of India Ltd [(2010)320 ITR 561 (SC)] and Orient Craft Ltd [(2003)354 ITR 536 (Delhi)] followed, Usha International [(2012)348 ITR ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....our 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:" Though, in the last few lines of the reasons recorded, the AO has made an averment that "Thus the income chargeable to tax has escaped assessment for the A.Y. 2004-05 I am also satisfied that the income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment with regard to the Assessment Year under consideration." This bald statement cannot satisfy the requirement of law. The Hon'ble Bombay High Court has held that in those cases, where the first proviso to section 147 is applicable, the reopening cannot be done unless there is allegation in the reasons that there was failure on the part of the assessee in disclosure of material facts. Hon'ble Bombay Hig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om no legal infirmity, the court is of the view that on the face of it, the reasons for reopening of the assessment in both the cases did not satisfy the basic requirement of the law, in at least in two aspects. One was that the reopening was of assessment beyond four years after the AY for which the original assessment was framed and yet the reasons for reopening did not categorically state that there was a failure by the Assessees to disclose any material particulars on the basis of which there were reasons to believe that the income has escaped assessment. This Court has recently, in a decision dated 22nd September 2015 in ITA No.356 of 2013 (CIT v. Multiplex Trading & Industrial Co. Ltd.), clearly stated in cases where reopening of assessment is beyond four years from the end of the relevant assessment year "the condition that there has been a failure on the part of the Assessee to truly and fully disclose all material facts must be concluded with certain level of certainty." 6. Secondly, the Court finds that at least in respect of one of the issues, viz., payment of interest on fixed deposits, the Assessees drew the attention of the Assessing Officer (`AO') to the fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....form the basis on which he could draw the reason to belief escapement of income, in the absence of such a fresh material in the hands of the AO, the Hon'ble Apex Court has upheld the orders of the Tribunals and Hon'ble High Court halting the misadventure of the AO in reopening the assessment. 42. Now let us examine this case as to whether the proviso to section 147 is satisfied before the AO regarding reopening the assessment, i.e. as to whether the twin condition that whether the assessee had disclosed truly and fully primary facts necessary for completion of assessment during the original assessment. 43. From a reading of the said reasoning given by the AO, it can be seen that a search conducted on 21.01.2011 i.e. in FY 2010-11 i.e., the AY 2011-12, is the fulcrum on which the AO is basing his reasons to reopen, we do not find in the aforesaid reason a whisper of any material which could be the basis on which it could suggest that the assessee failed to disclose fully and truly all material facts necessary for the assessment which in turn facilitated escapement of income. 44. We take note that the CIT (A) as well as the AO were having a view that manufacturing process an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re the AO. Further, unit-wise closing stock and comparative analysis of yield of betel nut in various units as compared to other units were also submitted. While submitting these details, the opening stock of raw material as well as work-inprogress and purchases made during the year resulting into the consumption of material as well as closing stock of raw material or work-in-progress in quantity were submitted. Further, vide letter dated 20.11.2006, assessee submitted details in response to a specific query that the movement of raw material and other inputs are concerned against the purchase orders raised for and by various industrial undertakings located in various parts of the country, and that the materials are directly supplied to the unit and no such input is being moved through the corporate office of the assessee company located at Noida, Uttar Pradesh. Further, vide letter dated 27.11.2006, the assessee submitted that finished unbranded goods are transferred from one unit/branch to another unit/branch in the course of local movement as well as inter-state transfers which have been reflected on the face of the profit & loss account. Further, assessee also stated that these ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... according to which it has shown opening stock of raw material, purchases, closing stock of raw material and material consumed along with the opening and closing stock of raw material and material consumed along with opening and closing stock of work-in-progress. Assessee has also disclosed the opening stock and closing stock of finished goods and its valuation methodology. Based on this, quantitative details for each of the unit and yield of the material produced are also explained. Coupled with the above quantitative information, assessee has submitted comparative gross profit and net profit too, therefore, in our considered opinion, assessee has disclosed fully and truly the flow of goods as well as manufacturing process of raw materials to finished goods unit-wise. 48. The ld. DR vehemently argued that in Form No.10CCB filed with the AO for claiming exemption, the assessee has not furnished inter unit transfer of eligible units in Column No.20 of Form No.10CCB. At Sl. No.20 of the audit report, the assessee has not mentioned anything about inter-unit transfer of the goods. Here also, we would like to point out that this deficiency point out in Form 10CCB is not emerging from....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Form No.10CCB has been contained therein the balance sheet of each unit. The AO himself has examined these aspects in a proper manner during the original assessment proceedings and being satisfied has not taken any adverse view that too under the watchful eyes of the additional Commissioner u/s 144A of the Act. Since such information has already been gathered by AO/additional Commissioner during the course of assessment proceedings in more exhaustive manner, and in the light of the fact that audited balance sheets are part of Form No.10CCB there is no merit in the allegation that there was omission or failure on the part of the assessee in disclosing the primary facts. 49. We wish to make it clear that the statutory threshold provides for an obligation on the AO to spell out in clear terms which facts were not fully and truly disclosed at the time of original assessment by the assessee. A bald assertion to the said effect does not satisfy the said threshold as held in the case of Atma Ram Properties Pvt. Ltd. vs. DCIT - 343 ITR 141(Del), wherein the Hon'ble Jurisdictional High Court held as under: Page No.218 " The reasons recorded above do state that the appellant ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on behalf of the company that the sales of shares in that year were "casual transactions" and were in the nature of "mere change in investments"; that in the assessment for the years 1945-46 and 1946-47 profits earned by sale of shares were included in the total assessable income of the company, it having been discovered that the company was in fact carrying on the business of selling shares contrary to its earlier representations; and that by its memorandum and articles of association, the company was authorized to carry on business of diverse kinds, especially to hold and deal in shares and securities and to carry on business as financiers; and asserted that he had reasons to believe that by reason of the omission or failure of the company to disclose fully and truly all material facts necessary for the assessment, income chargeable to income-tax had been under-assessed and that he had recorded his reason in that behalf in the reports submitted by him to the Commissioner. 51. The Hon'ble Supreme Court Constitution Bench by a majority laid the law as to what constitutes full and truthful disclosure and held in page 201 as under :- " Does the duty, however, extend beyo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r we do not think that this is the correct position in law." 53. In the said case, the Hon'ble Supreme Court to meet the point of the ITO that during the original assessment, the assessee had made a statement that the profits of the company arising out of dealings in shares were not taxable as the company was not a dealer in shares and securities and the dealings in shares were casual transactions and were in the nature of mere change in investments and thus, the profits resulting therefrom were not taxable and, therefore, based on that statement, the original assessments were made on the basis that assessee was not carrying on any business dealings in shares. However, in the assessments for 1945-46 and 1946-47, the profits on sale of shares were included in the total assessable income of the assessee it having been then discovered that the assessee was in fact carrying on business in shares contrary to its representation that it was not. Therefore, the ITO had reasons to believe that by reason of the omission or failure of the assessee to disclose fully and truly all material facts necessary for the assessments, therefore, the reopening was justified. The Hon'ble Supreme Court ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fore, be held that the AO, who issued the notices, had not before him any non-disclosure of a material fact and so he could have no material before him for believing that there had been any material non-disclosure by reason of which an escapement of income had taken place. 56. Ld. DR took our attention to page 247 of PB wherein the assessee had replied dated 27th November, 2006 to the AO, the following of which reads as under:- "We confirm in reply to your query that our finished unbranded goods are transferred from one Unit/branch to another unit/branch in the course of local movement as well as Inter State Transfer's, which has been reflected on the face of the profit and loss account. Since the transaction aforesaid falls in the nature of transfer for Captive consumption, hence no notional profits is being generated /accrued at Transferor branch. The goods which may be subject to transfer in the aforesaid nature, includes Pan Masala and Flavored to bacco in unbranded form. As regard to the Mixing process and person responsible are concerned for the same process, we wish to clarify that normally the Mixing Process of all Inputs viz perfumery compounds, Raw Ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t order passed u/s 143(3) /264 dated 28.03.2007 (P.B. 300-310 at 303-308). Further, we find that there was even a revision order u/s 264 dated 29-0102007 (P.B.187-198 at 187-190) on this issue. A perusal of PB 59-62 at 59-60, we find that questionnaire dated 13/01.2006 from Ld. AO issue in original assessment u/s 143(3) asking about procurement of raw material from different units/divisions and about deduction u/s 80IC, excise duty. And PB 63-85 is assessee's letter dated 02.02.2006 giving details of inter unit transfers and that Delhi office has no role in procurement process and detailed explanation of section 80IC and about income from eligible and non-eligible units, excise duty paid in Guwahati and Agartala units in peculiar circumstances and about royalty payment to M/s Flosyn Fragrances (P) Ltd. Excise notifications together with annexure 'A', 'B', 'C' (PB 74-76, 77-81, 82-85). And PB 86-93 at 86-87 is copy of letter dated 10.02.2006, the assessee has submitted about details of excise duty refund in respect of Guwahati Unit and its relevance for deduction u/s 80IC together with Annexure 'A', 'B' (PB-90-91, 92-93). We take note that PB 94-124 is copy of assessee's reply dated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....before all the authorities as discussed above. There being nothing found out during the course of search which could have shown any thing adverse to the assessee or different as is clear from the plain reading of the reading of the reason recorded, the impugned reassessment is nothing but change of opinion on the same set facts which is not permissible in the eyes of law in view of the above mentioned catena of judicial decisions and in view of the latest judicial decision from Hon'ble Delhi High Court in the cases of CIT vs. Kelvinator India Ltd. (supra), CIT vs Usha International Ltd. 348ITR485(Del)(FB) and by Hon'ble Supreme Court CIT vs ICICI Securities Primary Dealership Ltd. 348ITR299 (SC) and so, the reassessment done is bad in law and has to be struck down. 62. Now let us examine the sanction granted by the Commissioner of Income-tax u/s 151 of the Act and see whether the CIT & Addl.CIT has granted sanction in a mechanical manner or due application of mind was there taking into consideration the history of the original assessment. 63. Ld. DR while countering the argument of the assessee that the satisfaction of the Ld. Commissioner while giving approval u/s 151 is wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... reopened because intended reopening is after 4 years so has to satisfy the provisio of sec 147. That is if the assessee had disclosed fully and truly material facts necessary for assessment then, even if the AO has taken an erroneous view it cannot be reviewed after 4 years as held by Hon'ble Supreme Court in CIT, Calcutta v. Burlop Dealers Ltd. - 79 ITR 609 (SC). The rationale behind is that legislature has taken care of a situation wherein, the AO commit error, then Commissioner has been empowered u/s 263 to suo-motto to interfere and protect the interest of Revenue. So the completed assessment u/s 143(3) after 4 years, if the assessee has disclosed true and full disclosure of material facts, then the AO cannot review the original assessment completed u/s 143(3) of the Act. 66. It has to be kept in mind that the entire assessment record pertaining to the AY 2004-05 was before the AO, and if he had gone through the voluminous document filed before him by the assessee for claiming 80IC and question raised by the Additional Commissioner u/s 144A as reproduced above and queries of AO and replies furnished by the assessee and the AO's own letter dated 13.03.2007 (supra) describing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Hon'ble Supreme Court in a similar case in Chhugamal Rajpal vs. S.P. Chaliha & Ors. - 79 ITR 603 (SC) and Hon'ble High Court of Madhya Pradesh in Arjun Singh vs Asstt. Director of Income Tax (M.P.) reported in (2000) 246 ITR 363 (MP). Thus, we are not satisfied that AO had any material before him which satisfies the requirements of section 147. Therefore, he could not have issued notice u/s 148. Further, the report submitted by him u/s 151 does not mention any reason and does not mention which facts were not disclosed by the assessee. We are also of the opinion that the commissioner has mechanically accorded permission. If only he had read the report and seen the history of the original assessment, he would not have granted permission. The safeguard against reopening u/s 151 of the Act has been done by both the superior authorities very lightly and as held by the Hon'ble Supreme court in Chugamal Rajpal (supra), the authorities substituted form over substance. Thus, we hold that the sanction granted by the Commissioner u/s 151 is invalid and so, the notice of the AO dated 29.03.2011 is bad in law and has to be necessarily struck down. 69. Now let us look into the contention ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d on the assessee. Rather than doing that, we find that the CIT (A) has simply stated that 143(2) notice is not required in 153A proceedings and has dismissed this ground of the assessee in a very casual manner which cannot be countenanced for the simple reason that the ld. CIT (A) erred in not appreciating the fact that first of all the impugned order has nothing to do with section 153A of the Act. In this case, reassessment is for AY 2004-05 which was reopened u/s 148/147 of the Act and 143(2) notice is mandatory requirement of law as held by the Hon'ble Supreme Court in Hotel Blue Moon (supra) wherein the Hon'ble Supreme Court has said that in reassessment proceedings, 143(2) notice is mandatory and is not a curable defect. Reliance is placed on the following orders :- "ACIT & Anr. vs. Hotel Blue Moon: [(2010) 321 ITR 362 (SC)] HELD: "It is mandatory for the AO to issue notice u/s 143 (2). The issuance and service of notice u/s 143 (2) is mandatory and not procedural. If the notice is not served within the prescribed period, the assessment order is invalid Reassessment-----Notice-----Assessee intimating original return be treated as fresh return---Reassessment ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cal issue that of the present issue, has recorded its findings as under: "5. We have considered the rival submissions and the material on record. It is not in dispute that the assessee filed original return of income and at the reassessment proceedings, the assessee contended before the AO that the original return filed earlier may be treated to have been filed in response to the notice u/s. 147, which is also supported by order sheet entry dated 09.08.2006 (PB-20). It is also not in dispute that AO never issued any notice u/s. 143(2) of the IT Act. The Revenue merely contended that the CIT (A) should have appreciated the provisions of section 292BB of the IT Act. Section 292 BB of the IT Act provides as under: "292BB. Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(supra), we are of the view that the reassessment's made for the assessment years under consideration have become invalid for not having served the mandatory notice u/s 43(2) of the Act on the assessee. It is ordered accordingly. 7.10 We have since decided that the re-assessment proceedings concluded u/s 147 r/w 143(3) of the Act were invalid for the AYs under dispute, the issues raised by the revenue in its appeals and also the Cross objections of the assessee firm based on the invalid assessment orders have not been addressed to." We also rely on the order of the Hon'ble jurisdictional High Court wherein their Lordships have upheld the order of the Special Bench in Kuber Tobacco Pvt. Ltd. vs. DCIT (supra) wherein the Tribunal held that section 292BB is prospective in operation and so is applicable from AY 2008-09 onwards. Since the present appeal before us is relating to AY 2004-05, and as we are bound by the decision of the Hon'ble jurisdictional High Court, so section 292BB of the Act cannot come to the rescue of the revenue in respect to issuance / receipt of notice u/s 143(2) of the Act. 71. Now, in the present case, the ld. DR could produce before us only ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Hon'ble jurisdictional High Court in CIT V Kabul Chawla - 61 Taxmann.com 412 (Delhi). If that is so, whether the AO can reopen an assessment without any incriminating material, which would suggest escapement of income of the Year which he proposes to re-open. Here when we again peruse the reasons recorded we do not find any whisper of any tangible material or trace of any incriminating material which could arm the AO invoke section 147/148 of the Act. Moreover, the assessee's sister concern, Dharampal Premchand Ltd., was also searched in January 2011, and similar additions were made on similar grounds alleging violation of section 80IA(8) for eligible unit claiming 80IC/80IB and appeal preferred by it in ITA Nos.5079, 5080 & 5081/Del/2013 for AY 2005-06 to AY 2007-08 was heard by us and we have held as under :- "24. Based on this we have come to conclusion that :- a. None of the material seized during the search relates to the year under appeal. b. None of the material found relate to the goods transfer to one unit from other for the period. c. None of the material relates to the purchases from sister concerns. d. None of the mater....