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MOSER BAER INDIA LIMITED Vs. DEPUTY COMMISSIONER OF INCOME TAX & ORS.
December, 21st 2012
           IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                 RESERVED ON :16.08.2012
                                               PRONOUNCED ON:06.12.2012

+                                 WP(C) 7677/2011

MOSER BAER INDIA LIMITED                                ...... Petitioner

       Through: Mr. Ajay Vohra & Ms. Kavita Jha, Advoctes

                         versus

DEPUTY COMMISSIONER OF INCOME TAX & ORS ..... Respondents

       Through: Mr. Sanjeev Sabharwal, Sr. Standing counsel with
                Mr. Puneet Gupta, Jr. Standing Counsel

CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR

MR. JUSTICE S.RAVINDRA BHAT
%

1.     The petitioner (hereinafter referred to as "assessee") by these writ
proceedings claims a direction for quashing the impugned notice dated
23.07.2010 issued by the first respondent under Section 148 of the Income
Tax Act proceedings as well as further orders including the order dated
07.09.2011 dismissing its objections. The assessee filed its income tax




WP(C) No.7677/2011                                                          Page 1
return for assessment year 2004-2005 declaring a loss of `.83,36,69,556/-
under the normal provisions of the Act, it declared a book loss under Section
115 JB to the tune of `.99,53,40,660/-. The assessee had computed and
declared income in respect of its 3 units. All the three are 100% Export
Oriented Units (EOU). The first one located at 66 Noida Special Economic
Zone (NSEZ) yielded profit of `.10,65,03,063/- in respect of which
deduction under Section 10A was claimed. For the second unit (another
EOU) at A-164, Sector 80, Noida, the profit of `.2,24,72,84,842/- was
declared and a deduction under Section 10 B was claimed for this entire
amount. In respect of the third unit i.e. 100% EOU at 66 Udyog Vihar,
Greater Noida, the assessee declared loss of `.50,53,96,992/- and did not
claim any deduction. In the concerned form i.e. 56G, as against the column
seeking particulars regarding eligibility for deduction under Section 10A, the
assessee declared "Nil". The assessee later filed a revised return of income
and declared `.86,29,74,037/- under normal provisions of the Act and stated
that it had inadvertently omitted to claim deduction on previously incurred
expenses. In the revised return it made the following claims for deductions
under Sections 10A and 10B respectively :


Particulars of the Unit   Profit/(Loss) (In Rs.)     Remarks
66, NSEZ, Noida           10,65, 03,063              Deduction u/s 10A
                                                     claimed
A-164, Sector-80,         2,21,68, 52,725            Deduction u/s 10B
Noida                                                claimed


WP(C) No.7677/2011                                                       Page 2
66, Udyog Vihar,            (50, 75, 39, 374)           No deduction claimed ­
Greater Noida                                           In Form 56G, amount
                                                        eligible for deduction
                                                        u/s 10A declared at NIL

2.     It is averred that the petitioner annexed note 1(c) to its return detailing
reasons why it was not claiming any deductions under Section 10B in
respect of the EOU at 66 Udyog Vihar, Greater Noida. The reasons stated
by it was as follows:
       "No deduction under section 10B of the Act has been claimed in view
       of a loss situation. The required report in Form 56G in respect of
       said unit is enclosed."

3.     The revised return of the income of the asessee was selected for
scrutiny and assessment was completed under Section 143(3) of the Income
Tax Act by an order dated 29.12.2006 at a loss of `.89,11,28,550/-.
Apparently the A.O. applied his mind and made detailed enquiry into
various aspects after framing the assessment order.
4.     In the assessment order the A.O. noted the claim for deduction and
discussed the assessee's justification and thereafter formed the opinion that
aggregation of scrap sales amounting to `.11,94,474 and `.4,64,24,305 had
to be reduced from the eligible income derived from the EOU, the total of
those two amounts worked out to `.4,76,18,779/- which was disallowed
from the deductions under Section 10B. The book profit was assessed at
`.141,56,63,623/-.


WP(C) No.7677/2011                                                          Page 3
5.     After completion of assessment, on 23.07.2010, the assessee was
issued with a notice under Section 148 by the first respondent stating that he
had reasons to believe that the assessee's income had escaped assessment
and consequently, proposed to re-assess the income.           The petitioner
requested that its revised return of income filed earlier on 30.03.2006 could
be treated as return in response to the notice under Section 148 and further
requested for a copy of the reasons recorded by the first respondent to re-
open the assessment. On 27.06.2011 the first respondent furnished a copy of
the reasons recorded under Section 147, for re-opening the assessment. The
reasons are as follows :
       "i) While making the assessment order under section 143 (3) the
       income from other sources and short term capital gains of
       Rs.8,54,39,339/- was not added in the total income. The mistake
       resulted in over assessment of loss of Rs.8,54,39,339/- involving
       potential tax of    Rs.3,06,51, 369/-.

       ii)    The assessee had claimed and was allowed deduction of
       Rs.227,57,37,009/- u/s 10A & 10B in respect of two units. However,
       the loss of Rs.50,75,39,374/- of third unit was not reduced from the
       profit of other two units. Thus the assessee has claimed excess
       exemption u/s 10B of Rs.50,72,19,040/-. This has resulted in over
       assessment of loss of Rs.50,72,19,040/- involving potential tax effect
       of Rs.18,19,65,133/-. Further the assessee has paid tax u/s 115JB and
       excess allowance of exemption u/s 10B has resulted in
       underassessment of book profit of Rs.50, 72, 19, 040/- involving tax
       effect of Rs. 5,18,92,728/-."




WP(C) No.7677/2011                                                      Page 4
6.     The petitioner objected to re-opening of the assessment contending
that no grounds were validly made out; the first respondent rejected the
objections on 15.07.2011. That action was impugned in a writ petition (i.e.
WP(C) No.5183/2011). By an order dated 02.08.2011 this Court set aside
the rejection of the petitioner's objection (by the first respondent's order
15.07.2011) and directed the latter to hear the objections afresh and pass
fresh order dealing with them. The petitioner again approached the first
respondent through letter dated 24.08.2011 objecting to assumption of
jurisdiction contending inter alia that as regards the question of short term
capital gains mentioned in the reasons i.e. of pertaining to the sum of
`.8,54,39,339/- the mistake had been rectified by the A.O. through order
dated 22.07.2010, i.e. one day prior to the issuance of notice under Section
148 and that as regards the other issue, it really amounted to change of
opinion and there was no new information received by the first respondent to
proceed to continue with re-assessment proceedings.
7.     The first respondent by his letter/order dated 27.09.2011 rejected the
assessee's contention. The relevant part of the order is as follows :
       "8. In the submissions made on behalf of the assessee company, the
       AR of the assessee, in his letter dated 24.08.2011 has also submitted
       that the assessee has three units eligible for claim of deduction under
       section 10A/10B of the Act. These are i) 66, NSEZ, Noida, ii) A-164,
       Sector-80, Noida & iii) 66, Udyog Vihar, Greater Noida. Deductions
       under section 10A/10B of the Act were claimed in respect of units at
       66, NSE2 and A-164. Sector-80, which had profits. Since third Unit
       at 66, Udyog Vihar, Greater Noida had suffered losses, no deduction
       under Sections 10A/10B of the Act was admissible nor claimed in

WP(C) No.7677/2011                                                      Page 5
       respect of such units. The factum that the assessee had three units
       which were eligible for deduction u/s 10A/10B of the Act, the fact of
       deduction being awaited qua profits of two units only, without setting
       off the losses suffered in the third unit, was duly disclosed in the
       return of income. It has further been submitted by the AR of the
       assessee that even assuming for the sake of the argument, though not
       conceding that the profits of the eligible units have to be set off by the
       losses suffered in the third eligible unit and deduction under sections
       10A/10B of the Act quantified with reference to the aggregate profit of
       all the units, it was not the duty of the assessee to suggest, the
       inference to be drawn from the primary facts, viz. that the assessee
       had three units eligible for deduction under section 10A/10B of the
       Act, out of which two units had derived profits while the third unit had
       suffered losses. It is also been submitted that while claiming
       deduction qua this stand alone profits of the eligible unit (s) and
       ignoring losses suffered by the third eligible unit, the assessee could
       not been said to have made in correct computation of reduction under
       Sections-10A/10B of the Act.




       9.     I have carefully considered these submissions made on behalf
       of the assessee company. The issue under consideration is the
       computation of deduction allowable under section 10B of the IT Act,
       1961. For this purpose, a reference to sub-section 4 to 8 of section
       10B of the IT Act, considered necessary. The provisions of clause (ii)
       of sub-section 6 of section 10B provide for carry forward and set off
       of losses pertaining to the 100 % export oriented units eligible for
       deduction under the said section. When the facts of the present cases
       are analyzed in the light of the provision of sub-sections (3) to (8) of
       sub-section 10B, more particularly clause (ii) of sub-section 6, the
       losses of eligible units are to be set off against the profits of such
       eligible unit. Reliance is placed on the ratio laid down by the Hon'ble
       Karnataka High Court in the case of CIT vs. Himatasingike Seide
       Ltd. 286 ITR 0255 and of Hon'ble ITAT Chennai in the case of Sword
       Global (I) P Ltd Vs. ITO 306 ITR (AT) 286. Therefore, the assessee

WP(C) No.7677/2011                                                         Page 6
        was not correct in not setting off of losses of one eligible unit against
        the profits of another eligible unit, which is against the scheme of the
        provisions of section 10B of the IT Act.

        10. In view of the above, in pursuant to the directions of the
        Hon'ble High Court of Delhi, the assessee's objection to initiation of
        proceedings under section 147 and issuance of notice under section
        148 stands disposed off. The assessee is now, therefore, again
        requested to comply with the proceedings initiated under section
        147/148 in their case for the year under consideration."

8.      The Petitioner argued that the Respondents' reason for re-opening
assessment, as given in letter dated 27.06.2011, was two fold, i.e:

     1. The income from other source and short term capital gains of
        `.8,54,39,339 was not added in the total income.
     2. The loss of the third unit was not reduced from the profit of the other
        two units which resulted in excess exemption u/s 10A/10B.

Counsel submitted that the first reason for re-opening assessment does not
exist as the Income Tax Office by order dated 22.07.2010 rectified the
assessment to correct the aforesaid mistake; the mistake was rectified before
issuance of Section 148 notice dated 23.07.2010. As far as the second reason
goes, the Assessing Officer at the time of the original assessment was fully
aware that NIL deduction was claimed in respect of the Udyog Vihar Unit
therefore re-opening of assessment on that ground is bad in law. The
Petitioner submitted that at the time of the original assessment the Petitioner
submitted the return of income wherein Petitioner had claimed deductions


WP(C) No.7677/2011                                                         Page 7
u/s 10A/10B in respect of two units whereas NIL deduction was claimed in
respect of the third unit. Further, the return of income was accompanied by
Form 56F/56G wherein the Petitioner had specifically claimed deduction u/s
10A/10B in respect of profits of two units whereas NIL deduction for the
third unit. Further, in a note dated 12.01.2005, (filed along with the return),
the Petitioner specifically disclosed at Point 1(c) that,

       "1. Claim of benefit u/s 10A/10B of the Income -tax Act, 1961 ("the
       Act")

       (c) 66, Udyog Vihar, Greater Noida- The said unit is
       registered as a 100% Export Oriented Unit (on November 28,
       2001) and is accordingly eligible for claiming tax-holiday
       benefits u/s 10B of the Act. No deduction u/s 10B of the Act
       has been claimed in view of a loss situation. The required
       Report in Form 56G in respect of the said unit is enclosed."

9.     It is also urged that in response to a query raised by Respondent No.1,
the Petitioner by letter dated 21.02.2005 furnished information regarding the
units eligible for deduction u/s 10A/10B. In the reply the Petitioner listed all
3 units as units eligible for claiming deduction. The issue of deduction u/s
10A/10B was specifically examined by the Assessing Officer during the
original assessment. Many queries regarding deduction u/s 10A/10B were
raised by the Respondent No.1 and the same were replied to by the
Petitioner. The Assessing Officer after having gone through the return of
income filed, replies to the queries and the notes annexed to the return of
income reached the conclusion that the Petitioner was entitled to deduction

WP(C) No.7677/2011                                                        Page 8
u/s 10A/10B as claimed subject to certain modifications. As a result, the re-
assessment proceedings are bad in law and impermissible as being barred by
limitation. In this regard, it is contended that Section 147empowers the
assessing officer to reassess the income chargeable to tax if he has reason to
believe that the income for such assessment year has escaped assessment.
However the proviso to Section 147 restricts the powers of the assessing
officer to initiate reassessment proceedings beyond 4 years from the end of
the relevant assessment year unless the income has escaped assessment due
to the failure of the assessee to disclose fully and truly all material facts
necessary for assessment. The proviso to Section 147 permits action after
expiry of 4 years from the end of the relevant assessment year, only if

       "... 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 to
       disclose fully and truly all material facts necessary for his
       assessment for that assessment year."

In the present case the notice for re-assessment was issued on 23.07.2010 i.e.
more than 5 years from the relevant assessment year. Therefore as per
section 147 no reassessment of income is permissible as 4 years have lapsed
from the end of the relevant assessment year i.e. 2004-05. The proviso to
section 147 allows reassessment after expiry of 4 years from the end of the
relevant assessment year only where income chargeable to tax has escaped
assessment "by reason of the failure on the part of the assessee to make a


WP(C) No.7677/2011                                                        Page 9
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." It is argued
that in this case there was no failure on the part of the Petitioner to disclose
fully and truly all material facts therefore no reassessment of income of
Petitioner is permissible after expiry of 4 years from the end of the relevant
assessment year.

10.    It was contended that in the present case all material facts were
disclosed and the Petitioner submitted various documents relating to the
deductions available under Section 10A/10B. The Petitioner submitted that:

  i.   The return of income wherein deduction was claimed from two units
       and NIL deduction was claimed from the third unit (Udyog Vihar
       unit).
 ii.   Form 56F/56G was also submitted along-with the return of income. In
       the forms the Petitioner had specifically claimed deduction u/s
       10A/10B in respect of profits of two units whereas NIL deduction for
       the third unit.
iii.   In a Note dated 12.01.2005, appended to the return of income,
       Petitioner specifically disclosed at Point 1(c) that, the claim for
       benefit under Sections 10A/10B of the Act, in respect of 66, Udyog
       Vihar, Greater Noida- (registered as a 100% Export Oriented Unit on
       November 28, 2001) was eligible for claiming tax-holiday benefits u/s
       10B of the Act. No deduction under Section 10B of the Act was
       claimed in view of a loss situation. The Report in Form 56G for the
       said unit was enclosed. Further on 27.12.2006 the Petitioner filed
       approval letter from the competent authority regarding eligibility of

WP(C) No.7677/2011                                                       Page 10
       the units for deduction u/s 10A/10B; approval letters regarding all
       three units were submitted.

11.    It was emphasized that the Assessing Officer after examining the
return of income, documents accompanying the return of income, Form
56F/56G, notes and various other documents submitted in the course of the
original assessment accepted the deduction claimed u/s 10A/10B after some
modification. The Assessing Officer applied his mind and after taking into
consideration all documents on record passed an assessment order dated
29.12.2006 wherein he specifically altered the deduction claimed u/s
10A/10B. At the time of the original assessment, the Assessing Officer was
aware that there were three units which were eligible for claiming deduction
under Sections 10A/10B. The Assessing Officer was also aware of the fact
that NIL deduction was claimed with respect to one unit. Therefore the
reassessment under Section 147 is unjustifiable. The petitioner relied on
Calcutta Discount Company Limited v Income-tax Officer & others, (AIR
1961 SC 372) to the effect that:

       "11. Does the duty however extend beyond the full and truthful
       disclosure of all primary facts? In our opinion, the answer to this
       question must be in the negative. Once all the primary facts are before
       the assessing authority, he requires no further assistance by way of
       disclosure. It is for him to decide what inferences of facts can be
       reasonably drawn and what legal inferences have ultimately to be
       drawn. It is not for somebody else - far less the assessee - to tell the
       assessing authority what inferences, whether of facts or law, should
       be drawn. Indeed, when it is remembered that people often differ as


WP(C) No.7677/2011                                                      Page 11
       regards what inferences should be drawn from given facts, it will be
       meaningless to demand that the assessee must disclose what
       inferences - whether of facts or law - he would draw from the primary
       facts.

       12. If from primary facts more inferences than one could be drawn, it
       would not be possible to say that the assessee should have drawn any
       particular inference and communicated it to the assessing authority.
       How could an assessee be charged with failure to communicate an
       inference, which he might or might not have drawn?"

12.    Further, Section 147 does not allow reopening of a completed
assessment merely on change on opinion. The Assessing Officer does not
have the power to review the previous assessment order. The Assessing
Officer has to have "reason to believe" that the income has escaped
assessment. In this connection, reliance was placed on the judgment of the
Supreme Court in Income tax Officer, Calcutta and Ors.Vs. Lakhmani
Mewal Das (AIR 1976 SC 1753) to the following effect:

       "7-Another requirement is that before notice is issued after the expiry
       of four years from the end of the relevant assessment years, the
       Commissioner should be satisfied on the reasons recorded by the
       Income-tax Officer that it is a fit case for the issue of such notice. We
       may add that the duty which is cast upon the assessee is to make a
       true and full disclosure of the primary facts at the time of the original
       assessment. Production before the Income-tax Officer of the account
       book or other evidence from which material evidence could with due
       diligence have been discovered by the Income-tax Officer will not
       necessarily amount to disclosure contemplated by law. The duty of the
       assessee in any case does not extend beyond making a true and full
       disclosure of primary facts. Once he has done that his duty ends. It is

WP(C) No.7677/2011                                                       Page 12
       for the Income-tax Officer to draw the correct inference from the
       primary facts. It is no responsibility of the assessee to advise the
       Income-tax Officer with regard to the inference which he should draw
       from the primary facts. If an Income-tax Officer draws an inference
       which appears subsequently to be erroneous, mere change of opinion
       with regard to that inference would not justify initiation of action for
       reopening assessment."

13.    It is lastly urged that the Supreme Court while upholding the view of
the Full Bench of this Court, in Commissioner of Income Tax, Delhi Vs.
Kelvinator of India Limited (2010) 2 SCC 723 observed that,

       "6. On going through the changes, quoted above, made to
       Section 147 of the Act, we find that, prior to Direct Tax Laws
       (Amendment) Act, 1987, re-opening could be done under above two
       conditions and fulfillment of the said conditions alone conferred
       jurisdiction on the Assessing Officer to make a back assessment, but
       in Section 147 of the Act [with effect from 1st April, 1989], they are
       given a go-by and only one condition has remained, viz., that where
       the Assessing Officer has reason to believe that income has escaped
       assessment, confers jurisdiction to re-open the assessment. Therefore,
       post-1st April, 1989, power to re-open is much wider. However, one
       needs to give a schematic interpretation to the words "reason to
       believe" failing which, we are afraid, Section 147 would give
       arbitrary powers to the Assessing Officer to re-open assessments on
       the basis of "mere change of opinion", which cannot be per se reason
       to re-open. We must also keep in mind the conceptual difference
       between power to review and power to re-assess. The Assessing
       Officer has no power to review; he has the power to re-assess. But re-
       assessment has to be based on fulfillment of certain pre-condition and
       if the concept of "change of opinion" is removed, as contended on
       behalf of the Department, then, in the garb of re-opening the
       assessment, review would take place. One must treat the concept of

WP(C) No.7677/2011                                                      Page 13
       "change of opinion" as an in-built test to check abuse of power by the
       Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has
       power to re-open, provided there is "tangible material" to come to the
       conclusion that there is escapement of income from assessment.
       Reasons must have a live link with the formation of the belief. Our
       view gets support from the changes made to Section 147 of the Act, as
       quoted hereinabove. Under the Direct Tax Laws (Amendment) Act,
       1987, Parliament not only deleted the words "reason to believe" but
       also inserted the word "opinion" in Section 147 of the Act. However,
       on receipt of representations from the Companies against omission of
       the words "reason to believe", Parliament re-introduced the said
       expression and deleted the word "opinion" on the ground that it would
       vest arbitrary powers in the Assessing Officer. We quote herein below
       the relevant portion of Circular No. 549 dated 31st October, 1989,
       which reads as follows:

       7.2 Amendment made by the Amending Act, 1989, to reintroduce the
       expression `reason to believe' in Section 147.--A number of
       representations were received against the omission of the words
       `reason to believe' from Section 147 and their substitution by the
       `opinion' of the Assessing Officer. It was pointed out that the meaning
       of the expression, `reason to believe' had been explained in a number
       of court rulings in the past and was well settled and its omission from
       Section 147 would give arbitrary powers to the Assessing Officer to
       reopen past assessments on mere change of opinion. To allay these
       fears, the Amending Act, 1989, has again amended Section 147 to
       reintroduce the expression `has reason to believe' in place of the
       words `for reasons to be recorded by him in writing, is of the opinion'.
       Other provisions of the new Section 147, however, remain the same."

14.    In the present case the Assessing Officer passed the assessment order
knowing that there were three units eligible for deduction u/s 10A/10B and
that only 2 of the 3 units had claimed deduction; the third unit claimed NIL


WP(C) No.7677/2011                                                      Page 14
deduction. The Assessing Officer passed the assessment order and
specifically altered the deduction claimed u/s 10A/10B. At the time of the
original assessment the Assessing Officer did not think of setting off the loss
of the third unit with the other two units and therefore the reassessment on a
mere change of opinion is invalid.

15.    Counsel for the revenue relied on the reasons given by the AO in
rejecting the Petitioner's contentions. It was argued that the fact that the
assessee had three units which were eligible for deduction under Sections
10A/10B of the Act, the fact of deduction being awaited in respect of profits
of two units only, without setting off the losses suffered in the third unit, was
not as clearly disclosed in the return of income as is sought to be argued by
the petitioner.      Counsel for the revenue argued that the issue under
consideration was the computation of deduction allowable under Section
10B of the Act. For that purpose, he relied on Section 10-B (6) (ii) which
provided for carry forward and set off of losses pertaining to the 100 %
export oriented units eligible for deduction under the said section. When the
facts of the present cases were seen in the light of the provision of sub-
sections (3) to (8) of sub-section 10B, more particularly Section 10-B (6) (ii)
the losses of the units were to be set off against the profits of such eligible
unit. It was contended that this view was supported by the decisions relied
on by the AO, i.e. CIT vs. Himatasingike Seide Ltd. 286 ITR 0255 and of
the Chennai Bench of the Tribunal in Sword Global (I) P Ltd Vs. ITO 306


WP(C) No.7677/2011                                                        Page 15
ITR (AT) 286. Therefore, the assessee was not correct in not setting off of
losses of one eligible unit against the profits of another eligible unit, which
is contrary to the scheme of Section 10B. This clearly constituted failure on
the part of the assessee to make full and true disclosure, which necessitated
re-opening of assessment, under Sections 147/148.
16.    The primary duty of the AO, while invoking his power under Sections
147/148 is to be satisfied, on the basis of something on the record ("r easons
to believe") that the assessee had withheld particulars, which led to income
escaping assessment. The AO's reasoning appears to be that the assessee
acted incorrectly in not setting off losses of one eligible unit against the
profits of another eligible unit. However, the "reasons to believe" note,
which initiated the reassessment proceeding, is silent as to what were the
materials which persuaded the revenue to invoke the extraordinary powers
under proviso to Section 147 of the Act. Now, Kelvinator of India (supra) is
authority that the Assessing Officer can re-open assessment under Section
147 of the Act, only if there is 'tangible material' to show that income has
escaped assessment. The Assessing Officer is not allowed to arbitrarily re-
open assessment.     This aspect had been emphasized much earlier, in
Lakhmani Mewal Das that
       "The expression 'reason to believe' does not mean a purely subjective
       satisfaction on the part of the Income Tax Officer. The reason must be
       held in good faith. It cannot be merely a pretence. It is open to the
       court to examine whether the reasons for the formation of the belief
       have a rational connection with or a relevant bearing on the


WP(C) No.7677/2011                                                      Page 16
       formation of the belief and are not extraneous or irrelevant for the
       purpose of the section."

17.    In the present case, the original return of the assessee was subjected to
scrutiny assessment, under Section 143 (3). The assessee was apparently
closely questioned on various aspects, including its claim for treatment of
the three units, under Sections 10-A/10B of the Act. In response to a query
raised by Respondent No.1, the Petitioner by letter dated 21.02.2005
furnished information regarding the units eligible for deduction u/s
10A/10B. In the reply the Petitioner listed all three units as units eligible for
claiming deduction. The issue of deduction under Sections 10A/10B was
specifically examined by the Assessing Officer during the original
assessment. Furthermore, Form 56F/56G was also submitted along-with the
return of income. In the forms the Petitioner had specifically claimed
deduction u/s 10A/10B in respect of profits of two units whereas NIL
deduction for the third unit. Furthermore, in a Note (dated 12.01.2005),
appended to the return of income, the writ petitioner specifically disclosed at
Point 1(c) that, the claim for benefit under Sections 10A/10B of the Act, in
respect of 66, Udyog Vihar, Greater Noida- was eligible for claiming tax-
holiday benefits under Section 10B of the Act. No deduction under Section
10B of the Act was claimed in view of a loss situation. The Report in Form
56G for the said unit to was enclosed. On 27.12.2006 the Petitioner filed an
approval letter from the competent authority regarding eligibility of the units



WP(C) No.7677/2011                                                        Page 17
for deduction u/s 10A/10B; approval letters regarding all three units were
submitted.

18.    In the above background of facts, when there was intensive
examination in the first instance in respect of the issue, which was the basis
for re-opening of assessment, it was necessary for the AO to indicate, what
other material, or objective facts, constituted reasons to believe that the
assessee had failed to disclose a material fact, necessitating reassessment
proceedings. That is precisely the "tangible material" which have to exist
on the record for the "reasons" (to believe" bearing a "live link with the
formation of the belief" as spelt out in Kelvinator. When the assessment is
completed, as in the present instance, under Section 143 (3), after the AO
goes through all the necessary steps of inquiring into the same issue, the
reasons for concluding that reassessment is necessary, have to be strong,
compelling, and in all cases objective tangible material. This court discerns
no such tangible materials which have a live link that can validate a
legitimate formation of opinion, in this case. It is not enough that the AO in
the previous instance followed a view which no longer finds favour, or if the
latter view is suitable to the revenue; those would squarely be change in
opinion. Perhaps, in given fact situations, they can be legitimate grounds for
revising an order of assessment under Section 263; but not for re-opening it,
under proviso to Section 147.




WP(C) No.7677/2011                                                      Page 18
19.    As a result of the above discussion, it is held that the impugned notice,
under proviso to Section 147, and consequent reassessment proceedings, are
beyond jurisdiction. They are unsustainable, and are hereby quashed. The
writ petition is allowed in these terms, without any order as to costs.



                                                             S. RAVINDRA BHAT
                                                                       (JUDGE)



                                                                    R.V. EASWAR
 th
6 December, 2012                                                         (JUDGE)




WP(C) No.7677/2011                                                        Page 19
 
 
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