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 ITO vs. Vikram A. Pradhan (ITAT Mumbai)

Flexfit Industries, B-XXIX/1063, Industrial Area C,Dhandari Kalan, Ludhiana. Vs. The A.C.I.T., Circle-V, Ludhiana.
April, 21st 2014
               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
                                                           2




                  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.
                                                             3







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)].
                                                           4




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
                                                        5




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.
                                               6




      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
                                           7







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
                                           8




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.
                                                        9




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
10

 
 
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