IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH `A', CHANDIGARH
BEFORE SHR I T.R.SOOD, ACCOUNTANT MEMBER
AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No.436/Chd/2013
Assessment Year : 2003-04
Flexfit Industries, Vs. The A.C.I.T.,
B-XXIX/1063, Circle-V,
Industrial Area "C", Ludhiana.
Dhandari Kalan, Ludhiana.
PAN: AAAFF2966 L
(Appellant) (Respondent)
Appellant by : Shri Sudhir Sehgal
Respondent by : Shri Akhilesh Gupta, DR
Date of hearing : 10.03.2014
Date of Pronouncement : 16.04.2014
O R D E R
Per SUSHMA CHOWLA, J.M. :
The appeal filed by the assessee is against the order of the
Commissioner of Income Tax (Appeals)-II, Ludhiana dated 18.02.2013
against the order passed under section 143(3) of Income Tax Act, 1961
(in short `the Act').
2. The assessee has raised the following grounds of appeal:
"1. That the learned CIT(A) has erred in upholding the
action of the Assessing Officer in initiating re-
assessment proceedings and issuing notice U/s 148 of the
Income Tax Act, 1961.
2. That the learned CIT(A) has erred in upholding the
action of the Assessing Officer in allowing deduction of
Rs.35,85,593/- U/s 80HHC in re-assessment proceedings
against deduction of Rs.40,57,270/- originally allowed
in assessment proceedings U/s 143(3) of the Act.
3. That the deduction of Rs.35,85,593/- U/s 80HHC as
against deduction of Rs.40,51,270/- has been wrongly
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upheld by the learned CIT(A) and our submission has not
been considered properly.
4. That the Appellant craves leave to add or amend the
grounds of appeal before the appeal is finally heard or
disposed off."
3. The ground No.1 raised by the assessee is against re-opening of
assessment under section 147/148 of the Act.
4. The brief facts of the case are that the assessee had furnished
return of income declaring income of Rs.25,63,400. The assessment in
the case was completed under section 143(3) of the Act at Rs.38,34,833/-
Thereafter reasons were recorded for reopening of assessment under
section 147 of the Act and notice was issued under section 148 of the
A c t r e q u i s i t i o n i n g t h e a s s e s s e e t o f u r n i s h r e t u r n o f i n c o m e f o r t h e ye a r
u n d e r c o n s i d e r a t i o n w i t h i n 3 0 d a ys . In pursuance to the notice issued
under section 148 of the Act the assessee filed return in protest
declaring total income at Rs.38,34,833/-. The assessee firm was engaged
i n t h e m a n u f a c t u r i n g , t r a d i n g a n d e x p o r t o f c yc l e p a r t s , m o t o r s , a u t o
parts and hardware items. The assessee had claimed deduction under
sections 80IB and 80HHC of the Act. The deduction under section
80HHC of the Act was claimed without reducing amount of deduction
alread y claimed under section 80IB of the Act. As the assessee had
claimed deduction under sections 80IB and 80HHC of the Act out of
100% of profits under both the sections, the assessee was found to have
violated the provisions of section 80IB(13) r.w.s. 80IA(9) of the Act.
The deduction allowable under section 80HHC of the Act was thus
recomputed resulting in addition of Rs.4,65,677/-.
5. The CIT (Appeals) upheld the reopening of assessment in view of
the ratio laid down by the Chandigarh Bench of the Tribunal in King
Ex ports Vs. ACIT in ITA No.1005/Chd/2011 order dated 4.1.2012.
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6. The assessee is in appeal against the order of the CIT (Appeals).
The learned A.R. for the assessee pointed out that in the original
assessment proceedings completed under section 143(3) of the Act, the
deduction under section 80HHC of the Act was claimed and allowed by
the Assessing Officer and no query was raised under section 80IA (9) of
the Act. It was pointed out by the learned A.R. for the assessee that the
r e - a s s e s s m e n t p r o c e e d i n g s i n t h e p r e s e n t c a s e h a v e b e e n i n i t i a t e d b e yo n d
f o u r ye a r s o n a d e b a t a b l e i s s u e a n d a s t h e r e i s n o f a i l u r e o n t h e p a r t o f
the assessee, the reopening of assessment was bad in law. Reliance was
placed on the following judgments:
1) Carlton Overseas (P) Ltd. Vs. ITO
[318 ITR 295 (Del)]
2) Purit y Tech Textile (P) Ltd. Vs. ACIT
35 DTR (Bom) 257
3) CIT Vs. Indian Sugar & Gen. Ind. Ex
303 ITR 155 (Del)
4) IC IC I Bank Ltd. Vs. K.J. Rao Vs. DCIT
268 ITR 203(Bom)
7. It was fairl y pointed out b y the learned A.R. for the assessee that
the CIT (Appeals) had in turn relied upon the ratio laid down b y the
Chandigarh Bench of the Tribunal in King Exports Vs. ACIT (supra).
8. The learned D.R. for the Revenue pointed out that the facts in the
case were identical to the facts in King Exports Vs. ACIT (supra) and
the re-assessment proceedings initiated in the case were violated in law.
9. It was fairl y pointed out b y the learned A.R. for the assessee that
the issue on merits was covered against the assessee in view of the ratio
l a i d d o w n b y t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n F r i e n d s
Casting P. Ltd. Vs. CIT [340 ITR 305 (P&H)].
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10. We have heard the rival contentions and perused the record. The
issue arising vide ground of appeal No.1 is against initiation of re-
assessment proceedings under section 147 r.w.s. 148 of the Act. The
original assessment in the case was completed under section 143(3) of
the Act vide order dated 21.3.2006. Thereafter notice under section 148
of the Act was issued on 20.3.2009. The first objection raised by the
a s s e s s e e i s a g a i n s t r e o p e n i n g o f a s s e s s m e n t b e yo n d f o u r ye a r s o n a
debatable issue, where there was no failure on behalf of the assessee.
Section 147 of the Act provides that if the Assessing Officer has reason
to believe that any income has escaped assessment for any assessment
year, then subject to the provisions of section 148 to 153 of the Act, the
Assessing Officer may assess or re-asses such income and also any other
income chargeable to tax, which had escaped assessment and which
comes to his notice subsequently in the course of proceedings under this
section. The section also empowers the Assessing Officer to recompute
the losses or the depreciation allowance or any other allowance as the
c a s e m a y b e f o r t h e a s s e s s m e n t ye a r c o n c e r n e d . The proviso to section
147 of the Act provides that where any assessment under section 143(3)
o f t h e A c t h a d b e e n m a d e i n t h e r e l e v a n t a s s e s s m e n t ye a r , t h e n n o a c t i o n
s h a l l b e t a k e n u n d e r t h i s s e c t i o n , a f t e r t h e e x p i r y o f f o u r ye a r s f r o m t h e
e n d o f t h e r e l e v a n t a s s e s s m e n t ye a r , u n l e s s a n y i n c o m e c h a r g e a b l e t o t a x
had escaped assessment for such assessment year by reason of the
failure on part of the assessee to make a return under section 139 of the
Act in response to notice under section 142(1) or to section 148 or to
disclose fully and truly all material facts necessary for his assessment,
for that assessment year. Second proviso to section 147 of the Act
further provides that the Assessing Officer may assess or re-assess such
income, other than the income involving matters which are subject
matters of appeal of any appeal, reference or revision, which is
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chargeable to tax and which escaped assessment. The Explanation 1 to
section 147 of the Act provides that the Production before the Assessing
Officer of account books or other evidence from which material evidence
could with due diligence had been discovered by the Assessing Officer
will not necessarily amount to full disclosure within the meaning of
foregoing proviso to section 147 of the Act.
11. In other words, the provisions of section 147 of the Act are clear
in respect of reopening of the assessment where the Assessing Officer
has reason to believe that any income chargeable to tax had escaped
assessment. In cases where assessment had been completed under
section 143(3) of the Act, the proviso to section 147 of the Act provides
t h a t n o a c t i o n w o u l d b e t a k e n a g a i n s t t h e p e r s o n , b e yo n d t h e p e r i o d o f
f o u r ye a r s f r o m t h e e n d o f t h e r e l e v a n t a s s e s s m e n t y e a r , u n l e s s a n y
income chargeable to tax had escaped assessment, for the relevant
a s s e s s m e n t ye a r s , o n t h e f a i l u r e o n p a r t o f t h e a s s e s s e e t o m a k e t h e
return under section 139 or section 142(1) of the Act or to disclose fully
and truly all material facts necessary for his assessment. The Assessing
Officer after the completion of assessment under section 143(3) of the
Act had recorded the reasons for reopening the assessment and the said
reasons recorded by the Assessing Officer are placed at page 4 of the
Paper Book and read as under:
:
Brief reasons'for issue of notice u/s 147/148:
Assessment in this case was completed u/s 143{3) vide order dated 21.3.2006 at an
income of Rs. 38,34,830/- against returned income of Rs. 25.63.400/-.
2. Later on it was noticed that deduction allowed u/s 80HHC was on higher
side as the same was not curtailed as per provisions of section 80IA(9). As per this
section, deduction u/s 80HHC was to be computed after reducing the deduction of Rs.
Rs. 9,57,925/- u/s 80IB. This resulted into irregular/double deduction of Rs. 439094/-
u/s 80HHC. Therefore, there is failure on part of assessee to disclose fully and truly
all material facts necessary for its assessment for Assessment Year 2003-04 by
claiming excess deduction u/s 80HHC.
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3. I have, therefore, reasons to believe that income chargeable to tax of more than
Rs. 1 lac has escaped assessment for the assessment year 2003-04. To assess the
income so escaped, in my opinion, proceedings u/s 147 needs to be initiated."
12. The assessee admittedly during the year under consideration had
filed the Audit Report claiming deduction under sections 80IB and
80HHC of the Act on 100% profits of the business under both the
sections. However, section 80IB(13) r.w.s. 80IA(9) of the Act provides
that where deduction under section 80IA of the Act has been provided on
the profits of the business then any further deduction is to be allowed on
the balance amount on profits of business. The Assessing Officer while
completing the original assessment had failed to take note of the express
provisions of the Act and consequently allowed the deduction both under
sections 80IB and 80HHC of the Act on 100% of profits under each of
the sections. The said aspect was not looked into by the Assessing
Officer while completing original assessment under section 143(3) of the
Act and hence the order passed by the Assessing Officer in the first
round resulted in escapement of income because of excess allowance of
deduction under section 80HHC of the Act on 100% of the profits on
which deduction under section 80IB of the Act was also claimed and
allowed. In the above said circumstances, the Assessing Officer had
recorded reasons for reopening of assessment u/.s 147 of the Act and
issued notice under section 148 of the Act. Such recording of reasons by
the Assessing Officer as there was escapement of income in the hands of
the assessee on excess allowance of deduction under section 80HHC of
the Act, against express provisions of the Act, was on account of wrong
claim made by the assessee and on contravention of the express
provision of the Act. In said circumstances, the validit y of issue of
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notice under section 147 of the Act r.w..s. 148 of the Act was challenged
by the assessee before us.
13. We find that similar issue arose before the Tribunal in King
Ex ports Vs. ACIT (supra) and vide para 5 it was held that where the
claim made by the assessee under section 80HHC of the Act of 100% of
the profits ignoring that deduction under section 80IB of the Act is also
allowed on such profits of the business, was a case where there is
existed live nexus between reasons recorded and escapement of income.
It was further held by the Tribunal that the impugned claim of the
assessee was contrary to the express provisions of section
80IA(9)/80IB(13) r.w.s.80AB of the Act. In such circumstances, it was
held that there was material on record for the formation of reason to
believe that there is escapement of income as the claim made by the
assessee was both incorrect and in contravention of the provisions of the
Act. The Tribunal further held that it was not a case of change of
opinion as the assessee had made a wrong claim in contravention of the
express provision of the Act and under such circumstances, the re-
assessment proceedings initiated under section 147/148 of the Act has
been correctly initiated.
14. The learned A.R. for the assessee, on the other hand, had placed
reliance on the ratio laid down by the Hon'ble Delhi High Court in
Carlton Overseas (P) Ltd. Vs. ITO (supra) wherein the issue was that re-
assessment proceedings were initiated on the ground that as per
Revenue audit the deduction under section 80HHC of the Act was
allowable only after reducing deduction under section 80IB of the Act.
It was held b y the Hon'ble Delhi High Court that Revenue audit merel y
gave an opinion and in the absence of new or fresh material before the
Assessing Officer mere change of opinion could not be form the basis for
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reopening of the assessment. The facts of the present case are at
variance to the facts of the case before the Hon'ble
Delhi High Court as in the facts before us the reopening of assessment
proceedings initiated by the Assessing Officer himself after considering
the facts that deduction claimed under section 80HHC of the Act was
against the express provisions of the Act and hence merited
recomputation. From the perusal of the record, it transpires that the
assessee had filed requisite particulars during the course of assessment
proceedings and in such cases it was held that re-assessment was not
valid as full and true disclosure was made by the assessee in the first
round of original assessment proceedings. However, as pointed out by
us in the paras hereinabove, the assessee in the present appeal before us
had claimed deduction under sections 80HHC and 80IB of the Act
against express provisions of the Act and there was no disclosure of
primary facts during the assessment proceedings.
15. The next reliance was placed by the learned A.R. for the assessee
on CIT Vs. Indian Sugar & Gen.Ind. Ex .(supra), wherein it is a finding
that the Assessing Officer in the original round of proceedings had
applied his mind while allowing deduction under section 80HHC of the
Act and the successor Assessing Officer had merely stated that it has
wrongly allowed and was held to be change of opinion and no re-
assessment proceedings were possible.
16. Similar ratio was laid down upon IC IC I Bank Ltd. Vs. K.J . Rao
DCIT (supra) where the assessee had though claimed higher depreciation
but furnished all material facts on record can not establish the case of
the Revenue that there was failure on the part of the assessee to furnish
complete records. The said ratios are not applicable to the issue before
us.
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17. In the totalit y of the above said facts and circumstances, we uphold
the reopening of assessment in the hands of the assessee under section
147 r.w.s. 148 of the Act wherein the assessee had claimed excess
deduction under section 80HHC of the Act in complete disregard of the
ex press provisions of section 80IB(1 3) r.w.s.80IA(9) and section 80AB
of the Act. A c c o r d i n g l y, w e u p h o l d r e - a s s e s s m e n t i n i t i a t e d u n d e r
section 147 of the Act and also uphold the issue of notice under section
148 of the Act. The ground of appeal No.1 raised by the assessee is thus
dismissed.
18. The issue in ground No.2 raised by the assessee is admittedly
against the assessee in view of the ratio laid down by the Hon'ble Punjab
& H a r ya n a H i g h C o u r t i n F r i e n d s C a s t i n g P . L t d . ( s u p r a ) a n d b y t h e
Chandigarh Bench of the Tribunal in King Exports Vs. ACIT. The
relevant findings of the Tribunal in King Exports Vs. ACIT had been
reproduced by the CIT (Appeals) under para 4.3 and we do not reproduce
t h e s a m e f o r t h e s a k e o f b r e v i t y. The ground of appeal No.2 raised by
the assessee is thus dismissed.
19. In the result, the appeal filed b y the assessee is dismissed.
Order pronounced in the open court on this 16th day of April, 2014.
Sd/- Sd/-
(T.R.SOOD) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 16 t h April, 2014
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar,
ITAT, Chandigarh
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